NORTHERN TRUST CORP (Form: 10-Q, Received: 10/26/2012 14:19:38)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

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		(246.5	)		(61.6	)
Net Increase in Interest-Bearing Deposits with Banks		(2,651.4	)		(3,592.8	)
Net Decrease in Federal Reserve Deposits and Other Interest-Bearing Assets		7,218.1			4,438.0
Purchases of Securities – Held to Maturity		(1,210.7	)		(101.5	)
Proceeds from Maturity and Redemption of Securities – Held to Maturity		968.2			195.9
Purchases of Securities – Available for Sale		(16,885.1	)		(24,888.1	)
Proceeds from Sale, Maturity and Redemption of Securities – Available for Sale		19,155.8			16,484.0
Net Increase in Loans and Leases		(500.5	)		(634.9	)
Purchases of Buildings and Equipment, net		(27.9	)		(55.1	)
Purchases and Development of Computer Software		(149.4	)		(219.8	)
Net Change in Client Settlement Receivables and Payables		(299.9	)		(246.9	)
Decrease in Cash Due to Acquisitions, net of Cash Acquired		—			(172.6	)
Other Investing Activities, net		(37.8	)		(60.9	)

Net Cash Provided by (Used in) Investing Activities		5,332.9			(8,916.3	)

Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits		(5,745.9	)		14,318.3
Net Decrease in Federal Funds Purchased		(241.7	)		(2,953.9	)
Net Decrease in Securities Sold under Agreements to Repurchase		(816.2	)		(615.1	)
Net Increase (Decrease) in Short-Term Other Borrowings		(367.4	)		522.3
Proceeds from Term Federal Funds Purchased		—			7,959.9
Repayments of Term Federal Funds Purchased		—			(7,979.0	)
Proceeds from Senior Notes and Long-Term Debt		500.0			500.0
Repayments of Senior Notes and Long-Term Debt		(722.7	)		(879.8	)
Treasury Stock Purchased		(99.9	)		(77.7	)
Net Proceeds from Stock Options		78.3			58.7
Cash Dividends Paid on Common Stock		(209.5	)		(205.5	)
Other Financing Activities, net		573.5			—

Net Cash Provided by (Used in) Financing Activities		(7,051.5	)		10,648.2

Effect of Foreign Currency Exchange Rates on Cash		8.8			(76.3	)

Increase (Decrease) in Cash and Due from Banks		(918.6	)		1,518.6
Cash and Due from Banks at Beginning of Year		4,315.3			2,818.0

Cash and Due from Banks at End of Period	$	3,396.7		$	4,336.6

Supplemental Disclosures of Cash Flow Information:
Interest Paid	$	228.3		$	314.9
Income Taxes Paid		164.4			123.6
Transfers from Loans to OREO		36.3			57.5

See accompanying notes to the consolidated financial statements.

Notes to Consolidated Financial Statements

1. Basis of Presentation – The consolidated financial statements include the accounts of Northern Trust Corporation (Corporation) and its subsidiaries (collectively, Northern Trust). Significant intercompany balances and transactions have been eliminated. The consolidated financial statements, as of and for the periods ended September 30, 2012 and 2011, have not been audited by the Corporation’s independent registered public accounting firm. In the opinion of management, all accounting entries and adjustments, including normal recurring accruals, necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. For a description of Northern Trust’s significant accounting policies, refer to Note 1 of the Notes to Consolidated Financial Statements in the 2011 Annual Report to Shareholders.

2. Recent Accounting Pronouncements – There were no accounting pronouncements issued during the quarter ended September 30, 2012 but not yet adopted that are expected to impact Northern Trust’s consolidated financial position or results of operations.

3. Fair Value Measurements – Fair Value Hierarchy. The following describes the hierarchy of valuation inputs (Levels 1, 2, and 3) used to measure fair value and the primary valuation methodologies used by Northern Trust for financial instruments measured at fair value on a recurring basis. Observable inputs reflect market data obtained from sources independent of the reporting entity; unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. GAAP requires an entity measuring fair value to maximize the use of observable inputs and minimize the use of unobservable inputs and establishes a fair value hierarchy of inputs. Financial instruments are categorized within the hierarchy based on the lowest level input that is significant to their valuation. Northern Trust’s policy is to recognize transfers into and transfers out of fair value levels as of the end of the reporting period in which the transfer occurred. No transfers between fair value levels occurred during the nine months ended September 30, 2012 or the year ended December 31, 2011.

Level 1 – Quoted, active market prices for identical assets or liabilities.

Northern Trust’s Level 1 assets are comprised of available for sale investments in U.S. treasury securities.

Level 2 – Observable inputs other than Level 1 prices, such as quoted active market prices for similar assets or liabilities, quoted prices for identical or similar assets in inactive markets, and model-derived valuations in which all significant inputs are observable in active markets.

Northern Trust’s Level 2 assets include available for sale and trading account securities, the fair values of which are determined by external pricing vendors, or in limited cases internally based on similar securities. Northern Trust reviews the valuation methodology used by external pricing vendors for suitability and performs additional reviews of their valuation techniques and assumptions used for selected securities. Northern Trust

Notes to Consolidated Financial Statements (continued)

also reviews the market values provided by external vendors through a comparison of assigned market values to other third party prices for reasonableness. A price obtained from a vendor may be adjusted if it is found to be sufficiently inconsistent with other market prices.

Level 2 assets and liabilities also include derivative contracts which are valued internally using widely accepted income-based models that incorporate inputs readily observable in actively quoted markets and reflect the contractual terms of the contracts. Observable inputs include foreign exchange rates and interest rates for foreign exchange contracts; credit spreads, default probabilities, and recovery rates for credit default swap contracts; interest rates for interest rate swap contracts and forward contracts; and interest rates and volatility inputs for interest rate option contracts. Northern Trust evaluates the impact of counterparty credit risk and its own credit risk on the valuation of its derivative instruments. Factors considered include the likelihood of default by Northern Trust and its counterparties, the remaining maturities of the instruments, net exposures after giving effect to master netting agreements, available collateral, and other credit enhancements in determining the appropriate fair value of derivative instruments. The resulting valuation adjustments have not been considered material.

Level 3 – Valuation techniques in which one or more significant inputs are unobservable in the marketplace.

Northern Trust’s Level 3 assets consist of auction rate securities purchased in 2008 from Northern Trust clients. To estimate the fair value of auction rate securities, for which trading is limited and market prices are generally unavailable, Northern Trust developed and maintains a pricing model that discounts estimated cash flows over their estimated remaining lives. Significant inputs to the model include the contractual terms of the securities, credit risk ratings, discount rates, forward interest rates, credit/liquidity spreads, and Northern Trust’s own assumptions about the estimated remaining lives of the securities. The significant unobservable inputs used in the fair value measurement are Northern Trust’s own assumptions about the estimated remaining lives of the securities and the applicable discount rates. Significant increases (decreases) in the estimated remaining lives or the discount rates in isolation would result in a significantly lower (higher) fair value measurement. Level 3 liabilities consist of acquisition related contingent consideration liabilities. The fair values of these contingent consideration liabilities have been determined using an income-based (discounted cash flow) model that incorporates Northern Trust’s own assumptions about business growth rates and applicable discount rates, which represent unobservable inputs to the model. Significant increases (decreases) in projected growth rates in isolation would result in significantly higher (lower) fair value measurements, while significant increases (decreases) in the discount rate in isolation would result in significantly lower (higher) fair value measurements.

Northern Trust believes its valuation methods for its assets and liabilities carried at fair value are appropriate; however, the use of different methodologies or assumptions, particularly as applied to Level 3 assets and liabilities, could have a material effect on the computation of their estimated fair values.

Notes to Consolidated Financial Statements (continued)

Management of various businesses and departments of Northern Trust (including Treasury Risk Management, Credit Policy, Business Practice & Marketing, and Corporate Financial Management) determine the valuation policies and procedures for Level 3 assets and liabilities. Each business and department represents a component of Northern Trust’s business units, and reports to management of their respective business units. Generally, valuation policies are reviewed by management of each business or department. Fair value measurements are performed upon acquisitions of an asset or liability. As necessary, the valuation models are reviewed by management of the appropriate business or department, and adjusted for changes in inputs. Management of each business or department reviews the inputs in order to substantiate the unobservable inputs used in each fair value measurement. When appropriate, management reviews forecasts used in the valuation process in light of other relevant financial projections to understand any variances between current and previous fair value measurements. In certain circumstances, third party information is used to support the fair value measurements. If certain third party information seems inconsistent with consensus views, a review of the information is performed by management of the respective business or department to conclude as to the appropriate fair value of the asset or liability.

The following presents the fair values of, and the valuation techniques, significant unobservable inputs, and quantitative information used to develop significant unobservable inputs for, Northern Trust’s Level 3 assets and liabilities as of September 30, 2012.


Financial Instrument	Fair Value	Valuation Technique	Unobservable Input	Range of Lives and Rates
Auction Rate Securities	$99.5 million	Discounted Cash Flow	Remaining lives Discount rates	2.4 – 8.6 years 0.22 % – 9 %
Contingent Consideration	$48.9 million	Discounted Cash Flow	Discount rates Business growth rates	10.5% 19% – 35%

Notes to Consolidated Financial Statements (continued)

The following presents assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, segregated by fair value hierarchy level.

(In Millions)

Level 1

Level 2

Level 3

Netting *

Assets/Liabilities
at Fair Value

September 30, 2012

Securities

Available for Sale

U.S. Government

1,787.8

—

1,787.8

Obligations of States and Political Subdivisions

—

14.3

—

14.3

Government Sponsored Agency

—

18,585.1

—

18,585.1

Corporate Debt

—

2,173.6

—

2,173.6

Covered Bonds

—

1,733.8

—

1,733.8

Supranational Bonds

—

1,046.6

—

1,046.6

Residential Mortgage-Backed

—

115.8

—

115.8

Other Asset-Backed

—

2,239.6

—

2,239.6

Auction Rate

—

99.5

—

99.5

Other

—

340.0

—

340.0

Total Available for Sale

1,787.8

26,248.8

99.5

—

28,136.1

Trading Account

—

5.2

—

5.2

Total Available for Sale and Trading

1,787.8

26,254.0

99.5

—

28,141.3

Other Assets

Derivatives

Foreign Exchange Contracts

—

2,121.2

—

2,121.2

Interest Rate Swaps

—

335.6

—

335.6

Total Derivatives

—

2,456.8

—

(1,558.6

)

898.2

Other Liabilities

Derivatives

Foreign Exchange Contracts

—

2,077.1

—

2,077.1

Interest Rate Swaps

—

267.3

—

267.3

Credit Default Swaps

—

1.1

—

1.1

Total Derivatives

—

2,345.5

—

(1,747.2

)

598.3

Other

Contingent Consideration

—

48.9

—

48.9

Total Other

—

48.9

—

48.9

Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting agreements exist between Northern Trust and the counterparty. As of September 30, 2012, derivative assets and liabilities shown above also include reductions of $541.8 million and $730.5 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

Notes to Consolidated Financial Statements (continued)


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

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

Trading Account		—		8.0		—		—			8.0

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

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

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

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

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

Other
Contingent Consideration		—		—		56.8		—			56.8

Total Other	$	—	$	—	$	56.8	$	—		$	56.8

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

Notes to Consolidated Financial Statements (continued)

The following tables present the changes in Level 3 assets and liabilities for the three and nine months ended September 30, 2012 and 2011.


Level 3 Assets (In Millions)	Auction Rate Securities
Three Months Ended September 30,	2012			2011
Fair Value at July 1	$	105.2		$	205.1
Total Gains (Losses) for the Period
Included in Earnings*		0.3			0.6
Included in Other Comprehensive Income**		(1.1	)		(5.2	)
Purchases, Issues, Sales, and Settlements
Sales		(0.1	)		—
Settlements		(4.8	)		(10.9	)

Fair Value at September 30	$	99.5		$	189.6


Nine Months Ended September 30,	2012			2011
Fair Value at January 1	$	178.3		$	367.8
Total Gains (Losses) for the Period
Included in Earnings*		(22.0	)		10.2
Included in Other Comprehensive Income**		4.9			(15.8	)
Purchases, Issues, Sales, and Settlements
Sales		(54.7	)		(1.5	)
Settlements		(7.0	)		(171.1	)

Fair Value at September 30	$	99.5		$	189.6

Realized gains for the three month period ended September 30, 2012 of $0.3 million represent gains from redemptions by issuers. Realized losses for the nine month period ended September 30, 2012 of $22.0 million include $20.8 million of losses from sales of securities and $1.6 million of impairment losses, partially offset by $0.4 million of gains from redemptions by issuers. Realized gains for the three month period ended September 30, 2011 of $0.6 million represent redemptions by issuers. Realized gains for the nine month period ended September 30, 2011 of $10.2 million include $10.1 million from redemptions by issuers and $0.1 million from sales of securities. Gains on redemptions are recorded in interest income and sales and impairment losses are recorded in investment security gains (losses), within the consolidated statement of income.

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

Notes to Consolidated Financial Statements (continued)


Level 3 Liabilities (In Millions)	Other Liabilities *
Three Months Ended September 30	2012			2011
Fair Value at July 1	$	57.2		$	26.4
Total (Gains) Losses for the Period
Included in Earnings**		0.1			—
Included in Other Comprehensive Income***		(0.2	)		—
Purchases, Issues, Sales, and Settlements
Purchases		—			43.5
Issuances		—			—
Settlements		(8.2	)		—

Fair Value at September 30	$	48.9		$	69.9

Unrealized (Gains) Losses Included in Earnings Related to Financial Instruments Held at September 30 **	$	1.3		$	—


Nine Months Ended September 30	2012			2011
Fair Value at January 1	$	56.8		$	23.1
Total (Gains) Losses for the Period
Included in Earnings**		0.8			—
Included in Other Comprehensive Income***		(0.5	)		—
Purchases, Issues, Sales, and Settlements
Purchases		—			56.9
Issuances		—			—
Settlements		(8.2	)		(10.1	)

Fair Value at September 30	$	48.9		$	69.9

Unrealized (Gains) Losses Included in Earnings Related to Financial Instruments Held at September 30**	$	3.5		$	—

*	Current balances relate to contingent consideration liabilities; 2011 balances also include a Visa indemnification liability.

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

***	Unrealized foreign currency related losses on contingent consideration liabilities are included in foreign currency translation adjustments, within the consolidated statement of comprehensive income.

During the nine months ended September 30, 2012 and the year ended December 31, 2011, there were no transfers into or out of Level 3 assets or liabilities.

Carrying values of assets and liabilities that are not measured at fair value on a recurring basis may be adjusted to fair value in periods subsequent to their initial recognition, for example, to record an impairment of an asset. GAAP requires entities to separately disclose these subsequent fair value measurements and to classify them under the fair value hierarchy.

Notes to Consolidated Financial Statements (continued)

The following provides information regarding those assets measured at fair value on a nonrecurring basis at September 30, 2012 and 2011, segregated by fair value hierarchy level.


(In Millions)	Level 1		Level 2		Level 3		Total Fair Value
September 30, 2012
Loans (1)	$	—	$	—	$	27.7	$	27.7
Other Real Estate Owned (2)		—		—		1.0		1.0

Total Assets at Fair Value	$	—	$	—	$	28.7	$	28.7

September 30, 2011
Loans (1)	$	—	$	—	$	46.6	$	46.6
Other Real Estate Owned (2)		—		—		4.0		4.0

Total Assets at Fair Value	$	—	$	—	$	50.6	$	50.6

(1)

In accordance with Accounting Standard Codification (ASC) Subtopic 310-10, Northern Trust recorded individually impaired loans at fair value and, for the three and nine months ended September 30, 2012, respectively, increased by $5.7 million and reduced by $8.5 million the level of specific allowances on these loans. During the three and nine months ended September 30, 2011, Northern Trust provided an additional $3.0 million and $10.5 million, respectively, of specific allowances to reduce the fair value of these loans.

(2)

In accordance with ASC Subtopics 310-40 and 360-10, Northern Trust recorded Other Real Estate Owned (OREO) at fair value and subsequently charged $0.2 million and $0.4 million through other operating expenses during the three and nine months ended September 30, 2012, respectively, to reduce the fair values of these OREO properties. Charges of $1.7 million and $1.8 million were recorded through other operating expenses during the three and nine months ended September 30, 2011, respectively, to reduce the fair values of these OREO properties.

The fair values of real-estate loan collateral and OREO properties were estimated using a market approach typically supported by third party valuations and property specific fees and taxes, and were subject to adjustments to reflect management’s judgment as to their realizable value. Other loan collateral is valued using a market approach, adjusted for asset specific characteristics, and in limited instances, third party valuations are used. Other loan collateral typically consists of accounts receivable, inventory and equipment.

The following table provides the fair value of, and the valuation technique, significant unobservable inputs, and quantitative information used to develop the significant unobservable inputs for, Northern Trust’s Level 3 assets that were measured at fair value on a nonrecurring basis as of September 30, 2012.


Financial Instrument	Fair Value	Valuation Technique	Unobservable Input	Range of Discounts Applied
Loans	$27.7 million	Market Approach	Discount to reflect realizable value	15% – 30%
OREO	$1.0 million	Market Approach	Discount to reflect realizable value	15% – 30%

Notes to Consolidated Financial Statements (continued)

Fair Value of Financial Instruments. GAAP requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate fair value. It excludes from this requirement nonfinancial assets and liabilities, as well as a wide range of franchise, relationship, and intangible values that add value to Northern Trust. Accordingly, the required fair value disclosures provide only a partial estimate of the fair value of Northern Trust. Financial instruments recorded at fair value on Northern Trust’s consolidated balance sheet are discussed above. The following methods and assumptions were used in estimating the fair values of financial instruments that are not carried at fair value.

Held to Maturity Securities. The fair values of held to maturity securities were modeled by external pricing vendors, or in limited cases internally, using widely accepted models which are based on an income approach that incorporates current market yield curves.

Loans (Excluding Lease Receivables). The fair value of the loan portfolio was estimated using an income approach (discounted cash flow) that incorporates current market rates offered by Northern Trust as of the date of the consolidated financial statements. The fair values of all loans were adjusted to reflect current assessments of loan collectability.

Federal Reserve and Federal Home Loan Bank Stock. The fair values of Federal Reserve and Federal Home Loan Bank stock are equal to their carrying values which represent redemption value.

Affordable Housing Investments. The fair values of these instruments were estimated using an income approach (discounted cash flow) that incorporates current market rates.

Employee Benefit and Deferred Compensation. These assets include U.S. treasury securities and investments in mutual and collective trust funds held to fund certain supplemental employee benefit obligations and deferred compensation plans. Fair values of U.S. treasury securities were determined using quoted, active market prices for identical securities. The fair values of investments in mutual and collective trust funds were valued at the funds’ net asset values based on a market approach.

Savings Certificates and Other Time Deposits. The fair values of these instruments were estimated using an income approach (discounted cash flow) that incorporates market interest rates currently offered by Northern Trust for deposits with similar maturities.

Senior Notes, Subordinated Debt, and Floating Rate Capital Debt. Fair values were determined using a market approach based on quoted market prices, when available. If quoted market prices were not available, fair values were based on quoted market prices for comparable instruments.

Federal Home Loan Bank Borrowings. The fair values of these instruments were estimated using an income approach (discounted cash flow) that incorporates market interest rates available to Northern Trust.

Loan Commitments. The fair values of loan commitments represent the estimated costs to terminate or otherwise settle the obligations with a third party adjusted for any related allowance for credit losses.

Notes to Consolidated Financial Statements (continued)

Standby Letters of Credit. The fair values of standby letters of credit are measured as the amount of unamortized fees on these instruments, inclusive of the related allowance for credit losses. Fees are determined by applying basis points to the principal amounts of the letters of credit.

Financial Instruments Valued at Carrying Value. Due to their short maturity, the carrying values of certain financial instruments approximated their fair values. These financial instruments include cash and due from banks; federal funds sold and securities purchased under agreements to resell, interest-bearing deposits with banks, Federal Reserve deposits and other interest-bearing assets; client security settlement receivables; non-U.S. offices interest-bearing deposits; federal funds purchased; securities sold under agreements to repurchase; and other borrowings (includes term federal funds purchased, and other short-term borrowings). As required by GAAP, the fair values required to be disclosed for demand, noninterest-bearing, savings, and money market deposits must equal the amounts disclosed in the consolidated balance sheet, even though such deposits are typically priced at a premium in banking industry consolidations.

Notes to Consolidated Financial Statements (continued)

The following tables summarize the fair values of financial instruments.

(In Millions)

September 30, 2012

Book
Value

Total
Fair Value

Fair Value

Level 1

Level 2

Level 3

Assets

Cash and Due from Banks

3,396.7

—

Federal Funds Sold and Resell Agreements

573.4

—

573.4

—

Interest-Bearing Deposits with Banks

19,347.8

—

19,347.8

—

Federal Reserve Deposits and Other Interest-Bearing

6,230.5

—

6,230.5

—

Securities

Available for Sale ⁽¹⁾

28,136.1

1,787.8

26,248.8

99.5

Held to Maturity

1,048.0

1,064.2

—

1,064.2

—

Trading Account

5.2

—

5.2

—

Loans Held for Investment (excluding Leases)

28,235.9

28,347.4

—

28,347.4

Client Security Settlement Receivables

1,078.2

—

1,078.2

—

Other Assets

—

Federal Reserve and Federal Home Loan Bank Stock

197.6

—

197.6

—

Affordable Housing Investments

295.3

322.5

—

322.5

—

Employee Benefit and Deferred Compensation

121.4

127.0

88.9

38.1

—

Liabilities

Deposits

Demand, Noninterest-Bearing, Savings and Money Market

34,844.5

—

Savings Certificates and Other Time

3,011.0

3,024.8

—

3,024.8

—

Non U.S. Offices Interest-Bearing

39,076.1

—

39,076.1

—

Federal Funds Purchased

573.7

—

573.7

—

Securities Sold under Agreements to Repurchase

382.6

—

382.6

—

Other Borrowings

442.7

—

442.7

—

Senior Notes

2,610.3

2,731.4

—

2,731.4

—

Long Term Debt (excluding Leases)

Subordinated Debt

1,051.2

1,067.3

—

1,067.3

—

Federal Home Loan Bank Borrowings

335.0

348.0

—

348.0

—

Floating Rate Capital Debt

277.0

231.7

—

231.7

—

Other Liabilities

Standby Letters of Credit

65.8

—

65.8

Contingent Consideration

48.9

—

48.9

Loan Commitments

39.0

—

39.0

Derivative Instruments

Asset/Liability Management

Foreign Exchange Contracts

Assets

36.0

—

36.0

—

Liabilities

39.2

—

39.2

—

Interest Rate Swaps

Assets

139.3

—

139.3

—

Liabilities

77.2

—

77.2

—

Credit Default Swaps

Liabilities

1.1

—

1.1

—

Client-Related and Trading

Foreign Exchange Contracts

Assets

2,085.2

—

2,085.2

—

Liabilities

2,037.9

—

2,037.9

—

Interest Rate Swaps

Assets

196.3

—

196.3

—

Liabilities

190.1

—

190.1

—

(1)	Refer to the table located on page 35 for the disaggregation of available for sale securities.

Notes to Consolidated Financial Statements (continued)


(In Millions)	December 31, 2011
	Book Value		Total Fair Value		Fair Value
	Book Value		Total Fair Value		Level 1		Level 2		Level 3
Assets
Cash and Due from Banks	$	4,315.3	$	4,315.3	$	4,315.3	$	—	$	—
Federal Funds Sold and Resell Agreements		121.3		121.3		—		121.3		—
Interest-Bearing Deposits with Banks		16,696.4		16,696.4		—		16,696.4		—
Federal Reserve Deposits and Other Interest-Bearing		13,448.6		13,448.6		—		13,448.6		—
Securities
Available for Sale ⁽¹⁾		30,192.5		30,192.5		4,029.4		25,984.8		178.3
Held to Maturity		799.2		817.1		—		817.1		—
Trading Account		8.0		8.0		—		8.0		—
Loans (excluding Leases)
Held for Investment		27,782.7		27,913.7		—		—		27,913.7
Held for Sale		9.3		9.3		—		—		9.3
Client Security Settlement Receivables		778.3		778.3		—		778.3		—
Other Assets
Federal Reserve and Federal Home Loan Bank Stock		172.9		172.9		—		172.9		—
Affordable Housing Investments		290.8		319.9		—		319.9		—
Employee Benefit and Deferred Compensation		106.3		117.3		82.4		34.9		—
Liabilities
Deposits
Demand, Noninterest-Bearing, Savings and Money Market	$	43,751.2	$	43,751.2	$	43,751.2	$	—	$	—
Savings Certificates and Other Time		3,058.3		3,065.5		—		3,065.5		—
Non U.S. Offices Interest-Bearing		35,868.0		35,868.0		—		35,868.0		—
Federal Funds Purchased		815.3		815.3		—		815.3		—
Securities Sold under Agreements to Repurchase		1,198.8		1,198.8		—		1,198.8		—
Other Borrowings		931.5		931.5		—		931.5		—
Senior Notes		2,126.7		2,197.3		—		2,197.3		—
Long Term Debt (excluding Leases)
Subordinated Debt		1,033.4		1,040.0		—		1,040.0		—
Federal Home Loan Bank Borrowings		1,055.0		1,082.1		—		1,082.1		—
Floating Rate Capital Debt		276.9		211.6		—		211.6		—
Other Liabilities
Standby Letters of Credit		61.3		61.3		—		—		61.3
Contingent Consideration		56.8		56.8		—		—		56.8
Loan Commitments		45.5		45.5		—		—		45.5
Derivative Instruments
Asset/Liability Management
Foreign Exchange Contracts
Assets	$	25.2	$	25.2	$	—	$	25.2	$	—
Liabilities		31.8		31.8		—		31.8		—
Interest Rate Swaps
Assets		149.6		149.6		—		149.6		—
Liabilities		47.3		47.3		—		47.3		—
Credit Default Swaps
Assets		0.7		0.7		—		0.7		—
Liabilities		0.1		0.1		—		0.1		—
Client-Related and Trading
Foreign Exchange Contracts
Assets		3,062.1		3,062.1		—		3,062.1		—
Liabilities		2,959.8		2,959.8		—		2,959.8		—
Interest Rate Swaps
Assets		188.7		188.7		—		188.7		—
Liabilities		184.6		184.6		—		184.6		—

(1)	Refer to the table located on page 36 for the disaggregation of available for sale securities.

Notes to Consolidated Financial Statements (continued)

4. Securities – The following tables provide the amortized cost and fair values of securities at September 30, 2012 and December 31, 2011.


Securities Available for Sale	September 30, 2012
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)	Amortized Cost		Gains		Losses		Fair Value
U.S. Government	$	1,747.7	$	40.1	$	—	$	1,787.8
Obligations of States and Political Subdivisions		14.1		0.2		—		14.3
Government Sponsored Agency		18,456.4		132.7		4.0		18,585.1
Corporate Debt		2,155.7		18.3		0.4		2,173.6
Covered Bonds		1,678.0		55.8		—		1,733.8
Supranational Bonds		1,040.1		7.0		0.5		1,046.6
Residential Mortgage-Backed		127.5		1.6		13.3		115.8
Other Asset-Backed		2,235.5		4.8		0.7		2,239.6
Auction Rate		102.8		1.0		4.3		99.5
Other		339.0		1.0		—		340.0

Total	$	27,896.8	$	262.5	$	23.2	$	28,136.1


Securities Held to Maturity	September 30, 2012
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)	Amortized Cost		Gains		Losses		Fair Value
Obligations of States and Political Subdivisions	$	374.8	$	19.6	$	—	$	394.4
Government Sponsored Agency		130.2		4.9		—		135.1
Non-U.S. Government Debt		213.7		—		—		213.7
Certificates of Deposit		263.9		0.1		—		264.0
Other		65.4		0.2		8.6		57.0

Total	$	1,048.0	$	24.8	$	8.6	$	1,064.2


Securities Available for Sale	December 31, 2011
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)	Amortized Cost		Gains		Losses		Fair Value
U.S. Government	$	3,965.9	$	63.5	$	—	$	4,029.4
Obligations of States and Political Subdivisions		14.9		0.9		—		15.8
Government Sponsored Agency		16,702.6		86.1		17.3		16,771.4
Corporate Debt		2,677.7		4.7		5.7		2,676.7
Covered Bonds		746.1		9.2		0.4		754.9
Non-U.S. Government Debt		173.7		—		—		173.7
Supranational Bonds		971.0		3.0		1.9		972.1
Residential Mortgage-Backed		196.1		—		32.3		163.8
Other Asset-Backed		1,606.8		1.3		3.3		1,604.8
Certificates of Deposit		2,418.2		0.2		0.3		2,418.1
Auction Rate		186.5		4.3		12.5		178.3
Other		433.1		0.6		0.2		433.5

Total	$	30,092.6	$	173.8	$	73.9	$	30,192.5


Securities Held to Maturity	December 31, 2011
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)	Amortized Cost		Gains		Losses		Fair Value
Obligations of States and Political Subdivisions	$	529.4	$	24.6	$	0.1	$	553.9
Government Sponsored Agency		156.8		4.3		0.1		161.0
Other		113.0		0.1		10.9		102.2

Total	$	799.2	$	29.0	$	11.1	$	817.1

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

Notes to Consolidated Financial Statements (continued)

The following table provides the remaining maturity of securities as of September 30, 2012.


(In Millions)	Amortized Cost		Fair Value
Available for Sale
Due in One Year or Less	$	6,783.0	$	6,802.5
Due After One Year Through Five Years		19,052.4		19,240.6
Due After Five Years Through Ten Years		1,357.3		1,375.2
Due After Ten Years		704.1		717.8

Total		27,896.8		28,136.1

Held to Maturity
Due in One Year or Less		670.3		673.1
Due After One Year Through Five Years		284.1		297.4
Due After Five Years Through Ten Years		55.2		60.7
Due After Ten Years		38.4		33.0

Total	$	1,048.0	$	1,064.2

Note:

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

Investment Security Gains and Losses . Net investment security gains of $217.5 thousand were recognized for the three months ended September 30, 2012, representing net realized gains from the sale of securities, partially offset by other-than-temporary impairment (OTTI) losses of $148.6 thousand. Gross proceeds from the sale of securities during the quarter of $218.2 million resulted in gross realized gains of $356.0 thousand and gross realized losses of $1.0 thousand. Net investment security losses of $2.0 million were recognized for the three months ended September 30, 2011 and included OTTI losses of $1.3 million and net realized losses of $706.8 thousand from the sale of securities.

Net investment security losses of $1.7 million and $24.1 million were recognized for the nine months ended September 30, 2012 and 2011, respectively, and included OTTI losses of $3.3 million and $23.3 million, respectively. Gross proceeds from the sale of securities during the nine months ended September 30, 2012 of $2.7 billion resulted in gross realized gains of $23.5 million and gross realized losses of $21.9 million. The nine months ended September 30, 2011 included gross realized gains from the sale of securities of $1.6 million and gross realized losses from the sale of securities of $877.6 thousand, respectively.

Notes to Consolidated Financial Statements (continued)

Securities with Unrealized Losses. The following tables provide information regarding securities that had been in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of September 30, 2012 and December 31, 2011.


Securities with Unrealized Losses as of September 30, 2012	Less than 12 Months				12 Months or Longer				Total
(In Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government Sponsored Agency	$	165.8	$	0.4	$	1,251.3	$	3.6	$	1,417.1	$	4.0
Corporate Debt		129.9		0.3		49.9		0.1		179.8		0.4
Supranational Bonds		235.9		0.5		—		—		235.9		0.5
Residential Mortgage-Backed		—		—		95.5		13.3		95.5		13.3
Other Asset-Backed		112.1		0.1		68.8		0.6		180.9		0.7
Auction Rate		19.9		0.5		41.0		3.8		60.9		4.3
Other		48.8		8.3		3.5		0.3		52.3		8.6

Total	$	712.4	$	10.1	$	1,510.0	$	21.7	$	2,222.4	$	31.8


Securities with Unrealized Losses as of December 31, 2011	Less than 12 Months				12 Months or Longer				Total
(In Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of States and Political Subdivisions	$	2.7	$	0.1	$	—	$	—	$	2.7	$	0.1
Government Sponsored Agency		5,492.5		14.1		470.1		3.3		5,962.6		17.4
Corporate Debt		1,027.5		4.1		123.6		1.6		1,151.1		5.7
Covered Bonds		50.4		0.4		—		—		50.4		0.4
Supranational Bonds		438.2		1.8		99.9		0.1		538.1		1.9
Residential Mortgage-Backed		4.7		0.9		158.8		31.4		163.5		32.3
Other Asset-Backed		824.6		2.3		205.7		1.0		1,030.3		3.3
Certificates of Deposit		1,019.9		0.3		—		—		1,019.9		0.3
Auction Rate		61.0		7.3		52.6		5.2		113.6		12.5
Other		146.3		2.1		45.0		9.0		191.3		11.1

Total	$	9,067.8	$	33.4	$	1,155.7	$	51.6	$	10,223.5	$	85.0

As of September 30, 2012, 215 securities with a combined fair value of $2.2 billion were in an unrealized loss position, with their unrealized losses totaling $31.8 million. Unrealized losses on residential mortgage-backed securities totaling $13.3 million reflect the impact of credit and liquidity spreads on the valuations of 15 residential mortgage-backed securities, with $95.5 million having been in an unrealized loss position for more than 12 months. Residential mortgage-backed securities rated below double-A at September 30, 2012 represented 94% of the total fair value of residential mortgage-backed securities, were comprised of sub-prime, prime, and Alt-A securities, and had a total amortized cost and fair value of $120.7 million and $109.0 million, respectively. Securities classified as “other asset-backed” at September 30, 2012 were predominantly floating rate with average lives less than 5 years, and 98% were rated triple-A.

Unrealized losses of $4.0 million related to government sponsored agency securities are primarily attributable to changes in market rates since their purchase. The majority of the $8.6 million of unrealized losses in securities classified as “other” at September 30, 2012

Notes to Consolidated Financial Statements (continued)

relate to securities which Northern Trust purchases for compliance with the Community Reinvestment Act (CRA). Unrealized losses on these CRA related other securities are attributable to their purchase at below market rates for the purpose of supporting institutions and programs that benefit low to moderate income communities within Northern Trust’s market area. Unrealized losses of $4.3 million related to auction rate securities primarily reflect reduced market liquidity as a majority of auctions continue to fail preventing holders from liquidating their investments at par. Unrealized losses of $0.4 million within corporate debt securities primarily reflect widened credit spreads; 40% of the corporate debt portfolio is backed by guarantees provided by U.S. and non-U.S. governmental entities. The remaining unrealized losses on Northern Trust’s securities portfolio as of September 30, 2012 are attributable to changes in overall market interest rates, increased credit spreads, or reduced market liquidity.

Security impairment reviews are conducted quarterly to identify and evaluate securities that have indications of possible OTTI. A determination as to whether a security’s decline in market value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Factors Northern Trust considers in determining whether impairment is other-than-temporary include, but are not limited to, the length of time the security has been impaired; the severity of the impairment; the cause of the impairment and the financial condition and near-term prospects of the issuer; activity in the market of the issuer which may indicate adverse credit conditions; Northern Trust’s intent regarding the sale of the security as of the balance sheet date; and the likelihood that it will not be required to sell the security for a period of time sufficient to allow for the recovery of the security’s amortized cost basis. For each security meeting the requirements of Northern Trust’s internal screening process, an extensive review is conducted to determine if OTTI has occurred.

While all securities are considered, the following describes Northern Trust’s process for identifying credit impairment within non-agency residential mortgage-backed securities, the security type for which Northern Trust has previously recognized the majority of its OTTI. To determine if an unrealized loss on a non-agency residential mortgage-backed security is other-than-temporary, economic models are used to perform cash flow analyses by developing multiple scenarios in order to create reasonable forecasts of the security’s future performance using available data including servicers’ loan charge off patterns, prepayment speeds, annualized default rates, each security’s current delinquency pipeline, the delinquency pipeline’s growth rate, the roll rate from delinquency to default, loan loss severities and historical performance of like collateral, along with Northern Trust’s outlook for the housing market and the overall economy. If the present value of future cash flows projected as a result of this analysis is less than the current amortized cost of the security, a credit related OTTI loss is recorded to earnings equal to the difference between the two amounts.

Expected losses on non-agency residential mortgage-backed securities are influenced by a number of factors, including but not limited to, U.S. economic and housing market performance, security credit enhancement level, insurance coverage, year of origination, and type of collateral. The factors used in developing the expected loss on non-agency

Notes to Consolidated Financial Statements (continued)

residential mortgage-backed securities vary by year of origination and type of collateral. As of September 30, 2012, the expected losses on subprime, Alt-A, prime and 2nd lien portfolios were developed using default roll rates, determined primarily by the stage of delinquency of the underlying instrument, that generally assumed ultimate default rates approximating 5% to 30% for current loans; 30% for loans 30 to 60 days delinquent; 80% for loans 60 to 90 days delinquent; 90% for loans delinquent greater than 90 days; and 100% for OREO properties and loans that are in foreclosure. September 30, 2012 amortized cost, weighted average ultimate default rates, and loss severity rates for the non-agency residential mortgage-backed securities portfolio, by security type, are provided in the following table.

($ In Millions)

September 30, 2012

Loss Severity Rates

Security Type

Amortized
Cost

Weighted Average
Ultimate Default Rates

Low

High

Weighted
Average

Prime

22.3

15.0

35.9

57.8

46.2

Alt-A

13.7

44.0

66.8

68.9

Subprime

65.4

50.8

63.6

83.8

73.5

2nd Lien

26.1

33.5

98.6

100.0

99.2

Total Non-Agency Residential Mortgage-Backed Securities

127.5

40.0

35.9

100.0

73.5

During the three months ended September 30, 2012, OTTI losses totaling $148.6 thousand related to non-agency residential mortgage-backed securities were recognized. During the nine months ended September 30, 2012, OTTI losses totaling $3.3 million were recognized, of which $1.7 million related to non-agency residential mortgage-backed securities and $1.6 million related to auction rate securities. Northern Trust’s processes for identifying credit impairment within auction rate securities are largely consistent with the processes utilized for non-agency residential mortgage-backed securities and include analyses of expected loss severities and default rates adjusted for the type of underlying loan and the presence of government guarantees, as applicable. OTTI losses of $1.3 million and $23.3 million were recorded for the three and nine months ended September 30, 2011, respectively, related to non-agency residential mortgage-backed securities.

Notes to Consolidated Financial Statements (continued)

Credit Losses on Debt Securities. The table below provides information regarding total other-than-temporarily impaired securities, including noncredit-related amounts recognized in other comprehensive income and net impairment losses recognized in earnings, for the three and nine months ended September 30, 2012 and 2011.


	Three Months Ended September 30,						Nine Months Ended September 30,
(In Millions)	2012			2011			2012			2011
Changes in OTTI Losses*	$	0.4		$	0.5		$	(2.7	)	$	(1.1	)
Noncredit-related Losses Recorded in / (Reclassified from) OCI**		(0.6	)		(1.8	)		(0.6	)		(22.2	)

Net Impairment Losses Recognized in Earnings	$	(0.2	)	$	(1.3	)	$	(3.3	)	$	(23.3	)

For initial other-than-temporary impairments in the respective period, the balance includes the excess of the amortized cost over the fair value of the impaired securities. For subsequent impairments of the same security, the balance includes any additional changes in fair value of the security subsequent to its most recently recorded OTTI.

For initial other-than-temporary impairments in the respective period, the balance includes the portion of the excess of amortized cost over the fair value of the impaired securities that was recorded in OCI. For subsequent impairments of the same security, the balance includes additional changes in OCI for that security subsequent to its most recently recorded OTTI.

Provided in the table below are the cumulative credit-related losses recognized in earnings on debt securities other-than-temporarily impaired.


	Three Months Ended September 30,					Nine Months Ended September 30,
(In Millions)	2012		2011			2012			2011
Cumulative Credit-Related Losses on Securities Held – Beginning of Period	$	43.2	$	116.2		$	68.2		$	94.2
Plus: Losses on Newly Identified Impairments		—		—			1.6			1.5
Additional Losses on Previously Identified Impairments		0.2		1.3			1.7			21.8
Less: Current and Prior Period Losses on Securities Sold During the Period		—		(49.3	)		(28.1	)		(49.3	)

Cumulative Credit-Related Losses on Securities Held – End of Period	$	43.4	$	68.2		$	43.4		$	68.2

The table below provides information regarding debt securities held as of September 30, 2012 and December 31, 2011, for which an OTTI loss has been recognized in the current period or previously.


	September 30,			December 31,
(In Millions)	2012			2011
Fair Value	$	66.0		$	73.6
Amortized Cost Basis		74.2			96.8

Noncredit-related Losses Recognized in OCI	$	(8.2	)	$	(23.2	)
Tax Effect		3.1			8.6

Amount Recorded in OCI	$	(5.1	)	$	(14.6	)

Notes to Consolidated Financial Statements (continued)

5. Loans and Leases – Amounts outstanding for loans and leases, by segment and class, are shown below.


	September 30,			December 31,
(In Millions)	2012			2011
Commercial
Commercial and Institutional	$	7,316.5		$	6,918.7
Commercial Real Estate		3,002.4			2,981.7
Lease Financing, net		1,011.6			978.8
Non-U.S.		1,038.1			1,057.5
Other		631.0			417.6

Total Commercial		12,999.6			12,354.3

Personal
Residential Real Estate		10,435.3			10,708.9
Private Client		5,751.4			5,651.4
Other		356.4			349.3

Total Personal		16,543.1			16,709.6

Total Loans and Leases		29,542.7			29,063.9

Allowance for Credit Losses Assigned to Loans and Leases		(298.6	)		(294.8	)

Net Loans and Leases	$	29,244.1		$	28,769.1

Residential real estate loans consist of conventional home mortgages and equity credit lines that generally require a loan to collateral value of no more than 65% to 80% at inception. Northern Trust’s equity credit line products have draw periods of up to 10 years and a balloon payment of any outstanding balance is due at maturity. Payments are interest only with variable interest rates. Northern Trust does not offer equity credit lines that include an option to convert the outstanding balance to an amortizing payment loan. As of September 30, 2012 and December 31, 2011, equity credit lines totaled $2.4 billion and $2.6 billion, respectively, and equity credit lines for which the first liens were held by Northern Trust at those dates represented 86% of the respective totals.

Included within the non-U.S., commercial-other, and personal-other classes are short duration advances primarily related to the processing of custodied client investments that totaled $1.8 billion and $1.6 billion at September 30, 2012 and December 31, 2011, respectively. Demand deposits reclassified as loan balances totaled $46.9 million and $191.6 million at September 30, 2012 and December 31, 2011, respectively. Loans classified as held for sale totaled $9.3 million at December 31, 2011; there were no loans held for sale at September 30, 2012.

Credit Quality Indicators. Credit quality indicators are statistics, measurements or other metrics that provide information regarding the relative credit risk of loans and leases. Northern Trust utilizes a variety of credit quality indicators to assess the credit risk of loans and leases at the segment, class, and individual credit exposure levels.

As part of its credit process, Northern Trust utilizes an internal borrower risk rating system to support identification, approval, and monitoring of credit risk. Borrower risk ratings are used in credit underwriting, management reporting, and the calculation of credit loss allowances and economic capital.

Notes to Consolidated Financial Statements (continued)

Risk ratings are used for ranking the credit risk of borrowers and the probability of their default. Each borrower is rated using one of a number of ratings models, which consider both quantitative and qualitative factors. The ratings models vary among classes of loans and leases in order to capture the unique risk characteristics inherent within each particular type of credit exposure. Provided below are the more significant performance indicator attributes considered within Northern Trust’s borrower rating models, by loan and lease class.

•

Commercial and Institutional: leverage, profit margin, liquidity, return on assets, asset size, and capital levels;

•

Commercial Real Estate: debt service coverage and leasing status for income-producing properties; loan-to-value and loan-to-cost ratios, leasing status, and guarantor support for loans associated with construction and development properties;

•

Lease Financing and Commercial-Other: leverage and profit margin levels;

•

Non-U.S.: entity type, liquidity, size, and leverage;

•

Residential Real Estate: payment history and cash flow-to-debt and net worth ratios;

•

Private Client: cash flow-to-debt and net worth ratios, leverage, and profit margin levels; and

•

Personal-Other: cash flow-to-debt and net worth ratios.

While the criteria vary by model, the objective is for the borrower ratings to be consistent in both the measurement and ranking of risk. Each model is calibrated to a master rating scale to support this consistency. Ratings for borrowers not in default range from “1” for the strongest credits to “7” for the weakest non-defaulted credits. Ratings of “8” or “9” are used for defaulted borrowers. Borrower risk ratings are monitored and are revised when events or circumstances indicate a change is required. Risk ratings are validated at least annually.

Loan and lease segment and class balances as of September 30, 2012 and December 31, 2011 are provided below, segregated by borrower ratings into “1 to 3”, “4 to 5” and “6 to 9” (watch list), categories.


	September 30, 2012								December 31, 2011
					6 to 9								6 to 9
	1 to 3		4 to 5		Category				1 to 3		4 to 5		Category
(In Millions)	Category		Category		(Watch List)		Total		Category		Category		(Watch List)		Total
Commercial
Commercial and Institutional	$	4,154.8	$	2,959.6	$	202.1	$	7,316.5	$	3,681.8	$	3,029.1	$	207.8	$	6,918.7
Commercial Real Estate		970.4		1,766.0		266.0		3,002.4		1,247.1		1,467.2		267.4		2,981.7
Lease Financing, net		703.1		302.3		6.2		1,011.6		547.7		422.3		8.8		978.8
Non-U.S.		629.9		405.3		2.9		1,038.1		519.0		527.3		11.2		1,057.5
Other		273.3		357.7		—		631.0		241.4		176.2		—		417.6

Total Commercial		6,731.5		5,790.9		477.2		12,999.6		6,237.0		5,622.1		495.2		12,354.3

Personal
Residential Real Estate		2,984.0		7,037.7		413.6		10,435.3		2,777.1		7,501.0		430.8		10,708.9
Private Client		3,309.0		2,419.3		23.1		5,751.4		3,390.6		2,245.9		14.9		5,651.4
Other		167.9		188.5		—		356.4		162.3		187.0		—		349.3
Total Personal	$	6,460.9	$	9,645.5	$	436.7	$	16,543.1	$	6,330.0	$	9,933.9	$	445.7	$	16,709.6

Total Loans and Leases	$	13,192.4	$	15,436.4	$	913.9	$	29,542.7	$	12,567.0	$	15,556.0	$	940.9	$	29,063.9

Notes to Consolidated Financial Statements (continued)

Loans and leases in the “1 to 3” category are expected to exhibit minimal to modest probabilities of default and are characterized by borrowers having the strongest financial qualities, including above average financial flexibility, cash flows and capital levels. Borrowers assigned these ratings are anticipated to experience very little to moderate financial pressure in adverse down cycle scenarios. As a result of these characteristics, borrowers within this category exhibit a minimal to modest likelihood of loss.

Loans and leases in the “4” to “5” category are expected to exhibit moderate to acceptable probabilities of default and are characterized by borrowers with less financial flexibility than those in the “1 to 3” category. Cash flows and capital levels are generally sufficient to allow for borrowers to meet current requirements, but have reduced cushion in adverse down cycle scenarios. As a result of these characteristics, borrowers within this category exhibit a moderate likelihood of loss.

Loans and leases in the watch list category have elevated credit risk profiles that are monitored through internal watch lists, and consist of credits with borrower ratings of “6 - 9”. These credits, which include all nonperforming credits, are expected to exhibit minimally acceptable probabilities of default, elevated risk of default or are currently in default. Borrowers associated with these risk profiles that are not currently in default have limited financial flexibility. Cash flows and capital levels range from acceptable to potentially insufficient to meet current requirements, particularly in adverse down cycle scenarios. As a result of these characteristics, borrowers in this category exhibit an elevated to probable likelihood of loss.

Recognition of Income. Interest income on loans is recorded on an accrual basis unless, in the opinion of management, there is a question as to the ability of the debtor to meet the terms of the loan agreement, or interest or principal is more than 90 days contractually past due and the loan is not well-secured and in the process of collection. At the time a loan is determined to be nonperforming, interest accrued but not collected is reversed against interest income of the current period and the loan is classified as nonperforming. Interest collected on nonperforming loans is applied to principal unless, in the opinion of management, collectability of principal is not in doubt. Management’s assessment of the indicators of loan and lease collectability, and its policies relative to the recognition of interest income, including the suspension and subsequent resumption of income recognition, do not meaningfully vary between loan and lease classes. Nonperforming loans are returned to performing status when factors indicating doubtful collectability no longer exist. Factors considered in returning a loan to performing status are consistent across all classes of loans and leases and, in accordance with regulatory guidance, relate primarily to expected payment performance. Loans are eligible to be returned to performing status when: (i) no principal or interest that is due is unpaid and repayment of the remaining contractual principal and interest is expected or (ii) the loan has otherwise become well-secured (possessing realizable value sufficient to discharge the debt, including accrued interest, in full) and is in the process of collection (through action reasonably expected to result in debt repayment or restoration to a current status in the near future). A loan that has not been brought fully current may be restored to performing status provided there has been a sustained period of repayment performance

Notes to Consolidated Financial Statements (continued)

(generally a minimum of six months) by the borrower in accordance with the contractual terms, and Northern Trust is reasonably assured of repayment within a reasonable period of time.

Additionally, a loan that has been formally restructured so as to be reasonably assured of repayment and performance according to its modified terms may be returned to accrual status, provided there was a well-documented credit evaluation of the borrower’s financial condition and prospects of repayment under the revised terms and there has been a sustained period of repayment performance (generally a minimum of six months) under the revised terms.

Past due status is based on how long since the contractual due date a principal or interest payment has been past due. For disclosure purposes, loans that are 29 days past due or less are reported as current. The following tables provide balances and delinquency status of performing and nonperforming loans and leases by segment and class, as well as the total other real estate owned and nonperforming asset balances, as of September 30, 2012 and December 31, 2011.

September 30, 2012

(In Millions)

Current

30-59 Days
Past Due

60-89 Days
Past Due

90 Days or
More Past Due

Total
Performing

Nonperforming

Total Loans
and Leases

Commercial

Commercial and Institutional

7,268.1

9.9

6.5

2.1

7,286.6

29.9

7,316.5

Commercial Real Estate

2,908.1

16.1

10.9

7.6

2,942.7

59.7

3,002.4

Lease Financing, net

1,011.6

—

1,011.6

—

1,011.6

Non-U.S.

1,038.1

—

1,038.1

—

1,038.1

Other

631.0

—

631.0

—

631.0

Total Commercial

12,856.9

26.0

17.4

9.7

12,910.0

89.6

12,999.6

Personal

Residential Real Estate

10,198.9

17.3

29.8

12.7

10,258.7

176.6

10,435.3

Private Client

5,703.0

31.8

4.1

9.7

5,748.6

2.8

5,751.4

Other

356.4

—

356.4

—

356.4

Total Personal

16,258.3

49.1

33.9

22.4

16,363.7

179.4

16,543.1

Total Loans and Leases

29,115.2

75.1

51.3

32.1

29,273.7

269.0

29,542.7

Total Other Real Estate Owned

20.6

Total Nonperforming Assets

289.6

Notes to Consolidated Financial Statements (continued)


December 31, 2011
(In Millions)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Performing		Nonperforming		Total Loans and Leases
Commercial
Commercial and Institutional	$	6,869.2	$	15.0	$	2.7	$	0.5	$	6,887.4	$	31.3	$	6,918.7
Commercial Real Estate		2,878.2		10.8		10.3		2.9		2,902.2		79.5		2,981.7
Lease Financing, net		978.8		—		—		—		978.8		—		978.8
Non-U.S.		1,057.5		—		—		—		1,057.5		—		1,057.5
Other		417.6		—		—		—		417.6		—		417.6

Total Commercial		12,201.3		25.8		13.0		3.4		12,243.5		110.8		12,354.3

Personal
Residential Real Estate		10,428.0		67.7		27.6		8.0		10,531.3		177.6		10,708.9
Private Client		5,623.0		15.7		5.7		1.7		5,646.1		5.3		5,651.4
Other		349.3		—		—		—		349.3		—		349.3

Total Personal		16,400.3		83.4		33.3		9.7		16,526.7		182.9		16,709.6

Total Loans and Leases	$	28,601.6	$	109.2	$	46.3	$	13.1	$	28,770.2	$	293.7	$	29,063.9

								Total Other Real Estate Owned				21.2

								Total Nonperforming Assets			$	314.9

Impaired Loans. A loan is considered to be impaired when, based on current information and events, management determines that it is probable that Northern Trust will be unable to collect all amounts due according to the contractual terms of the loan agreement. A loan is also considered to be impaired if its terms have been modified as a concession resulting from the debtor’s financial difficulties, referred to as a troubled debt restructuring (TDR) and discussed in further detail below. Impairment is measured based upon the loan’s market price, the present value of expected future cash flows, discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral dependent. If the loan valuation is less than the recorded value of the loan, based on the certainty of loss, either a specific allowance is established or a charge-off is recorded for the difference. Smaller balance (individually less than $250,000) homogeneous loans are collectively evaluated for impairment and excluded from impaired loan disclosures as allowed under applicable accounting standards. Northern Trust’s accounting policies for impaired loans is consistent across all classes of loans and leases.

Impaired loans are identified through ongoing credit management and risk rating processes, including the formal review of past due and watch list credits. Payment performance and delinquency status are critical factors in identifying impairment for all loans and leases, particularly those within the residential real estate, private client and personal-other classes. Other key factors considered in identifying impairment of loans and leases within the commercial and institutional, non-U.S., lease financing, and commercial-other classes relate to the borrower’s ability to perform under the terms of the obligation as measured through the assessment of future cash flows, including consideration of collateral value, market value, and other factors.

Notes to Consolidated Financial Statements (continued)

The following tables provide information related to impaired loans by segment and class.


	As of September 30, 2012						As of December 31, 2011
(In Millions)	Recorded Investment		Unpaid Principal Balance		Specific Allowance		Recorded Investment		Unpaid Principal Balance		Specific Allowance
With No Related Specific Allowance
Commercial and Institutional	$	26.3	$	30.8			$	21.4	$	24.0
Commercial Real Estate		59.1		84.2				46.5		68.0
Lease Financing, net		5.2		5.2				—		—
Residential Real Estate		129.4		162.6				134.4		162.6
Private Client		2.2		2.2				1.6		1.9
With a Related Specific Allowance
Commercial and Institutional		5.2		7.1	$	3.2		11.9		20.5	$	8.8
Commercial Real Estate		28.9		33.2		8.8		41.4		50.1		14.1
Residential Real Estate		15.8		17.0		9.2		18.9		26.2		8.9
Private Client		0.9		0.9		0.9		3.3		3.6		1.0
Total
Commercial		124.7		160.5		12.0		121.2		162.6		22.9
Personal		148.3		182.7		10.1		158.2		194.3		9.9

Total	$	273.0	$	343.2	$	22.1	$	279.4	$	356.9	$	32.8


	Three Months Ended September 30,								Nine Months Ended September 30,
	2012				2011				2012				2011
(In Millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With No Related Specific Allowance
Commercial and Institutional	$	27.0	$	0.1	$	20.1	$	—	$	25.2	$	0.2	$	21.0	$	—
Commercial Real Estate		54.7		—		34.2		0.3		49.6		0.2		34.5		0.4
Lease Financing, net		5.2		—		—		—		3.5		—		—		—
Residential Real Estate		120.7		0.2		107.9		0.5		114.0		0.8		123.2		1.6
Private Client		2.2		—		3.2		—		1.8		—		3.5		—
With a Related Specific Allowance
Commercial and Institutional		5.2		—		12.7		—		6.5		—		29.1		—
Commercial Real Estate		22.1		—		45.2		—		20.2		—		71.0		—
Residential Real Estate		15.3		—		7.5		—		15.3		—		8.3		—
Private Client		0.9		—		1.7		—		1.1		—		2.2		—
Total
Commercial		114.2		0.1		112.2		0.3		105.0		0.4		155.6		0.4
Personal		139.1		0.2		120.3		0.5		132.2		0.8		137.2		1.6

Total	$	253.3	$	0.3	$	232.5	$	0.8	$	237.2	$	1.2	$	292.8	$	2.0

*	Average recorded investment in impaired loans is calculated as the average of the month-end impaired loan balances for the period.

Interest income that would have been recorded for nonperforming loans in accordance with their original terms for the three months ended September 30, 2012 and 2011 was $2.9 million and $3.7 million, respectively. Interest income that would have been recorded for nonperforming loans in accordance with their original terms for the nine months ended September 30, 2012 and 2011 was $8.7 million and $11.8 million, respectively.

There were $3.5 million and $9.7 million of combined unfunded loan commitments and standby letters of credit at September 30, 2012 and December 31, 2011, respectively, issued to borrowers whose loans were classified as nonperforming or impaired.

Notes to Consolidated Financial Statements (continued)

Troubled Debt Restructurings. As of September 30, 2012 and December 31, 2011, there were $45.7 million and $72.2 million of nonperforming TDRs, respectively, and $63.5 million and $41.1 million of performing TDRs, respectively, included within impaired loans. All TDRs are reported as impaired loans in the calendar year of their restructuring. In subsequent years, a TDR may cease being reported as impaired if the loan was modified at a market rate and has performed according to the modified terms for at least six months, although it will continue to be reported as a TDR. A loan that has been modified at a below market rate will return to performing status if it satisfies the six month performance requirement; however, it will remain reported as impaired.

The following tables provide, by segment and class, the number of loans and leases modified in TDRs during the three and nine month periods ended September 30, 2012 and 2011, and the recorded investments and unpaid principal balances as of September 30, 2012 and 2011.


($ In Millions)	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
	Number of		Recorded		Unpaid Principal		Number of		Recorded		Unpaid Principal
	Loans and Leases		Investment		Balance		Loans and Leases		Investment		Balance
Commercial
Commercial and Institutional		—	$	—	$	—		2	$	0.5	$	1.1
Commercial Real Estate		1		2.7		2.7		7		24.6		26.2
Lease Financing, net		—		—		—		1		5.2		5.2

Total Commercial		1		2.7		2.7		10		30.3		32.5

Personal
Residential Real Estate		23		2.0		2.6		84		10.1		13.5
Private Client		—		—		—		1		0.8		0.8

Total Personal		23		2.0		2.6		85		10.9		14.3

Total Loans and Leases		24	$	4.7	$	5.3		95	$	41.2	$	46.8


Note: Period end balances reflect all paydowns and charge-offs during the period.

($ In Millions)	Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011
	Number of		Recorded		Unpaid Principal		Number of		Recorded		Unpaid Principal
	Loans and Leases		Investment		Balance		Loans and Leases		Investment		Balance
Commercial
Commercial and Institutional		2	$	5.4	$	6.4		5	$	8.6	$	10.1
Commercial Real Estate		6		10.6		12.3		14		39.4		46.0

Total Commercial		8		16.0		18.7		19		48.0		56.1

Personal
Residential Real Estate		25		7.1		9.1		113		22.0		27.9
Private Client		—		—		—		1		—		—

Total Personal		25		7.1		9.1		114		22.0		27.9

Total Loans and Leases		33	$	23.1	$	27.8		133	$	70.0	$	84.0

Note: Period end balances reflect all paydowns and charge-offs during the period.

Notes to Consolidated Financial Statements (continued)

TDR modifications primarily involve interest rate concessions, extensions of term, deferrals of principal, and other modifications. Other modifications typically reflect other nonstandard terms which Northern Trust would not offer in non-troubled situations.

During the three and nine month periods ended September 30, 2012, TDR modifications of loans within the commercial and institutional, commercial real estate, lease financing and private client classes were primarily deferrals of principal and extensions of term. During the same periods ended September 30, 2012, TDR modifications of loans within the residential real estate class were primarily deferrals of principal and interest rate concessions.

During the three and nine month periods ended September 30, 2011, TDR modifications of loans within the commercial and institutional, commercial real estate, lease financing and private client classes were primarily deferrals of principal, extensions of term and other modifications. During the same periods ended September 30, 2011, TDR modifications of loans within the residential real estate class were primarily deferrals of principal and interest rate concessions.

There were no loans modified as TDRs in the previous 12 months which became nonperforming during the three month period ended September 30, 2012. There were 2 residential real estate loans modified as TDRs in the previous 12 months which became nonperforming during the nine month period ended September 30, 2012. The total recorded investment and unpaid principal balance for these loans were each $89.4 thousand as of September 30, 2012. The following table provides, by segment and class, the number of loans and leases which became nonperforming during the three and nine month periods ended September 30, 2011, which were modified in the proceeding 12-month period.


($ In Millions)	Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011
	Number of		Recorded		Unpaid Principal		Number of		Recorded		Unpaid Principal
	Loans and Leases		Investment		Balance		Loans and Leases		Investment		Balance
Commercial
Commercial and Institutional		1	$	0.2	$	0.6		1	$	0.2	$	0.6

Total Commercial		1		0.2		0.6		1		0.2		0.6

Personal
Residential Real Estate		1		0.1		0.1		7		2.0		2.5

Total Personal		1		0.1		0.1		7		2.0		2.5

Total Loans and Leases		2	$	0.3	$	0.7		8	$	2.2	$	3.1

Note:

Period end balances reflect all paydowns and charge-offs during the period.

All loans and leases modified in troubled debt restructurings are evaluated for impairment. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for credit losses.

Notes to Consolidated Financial Statements (continued)

6. Allowance for Credit Losses – The allowance for credit losses, which represents management’s estimate of probable losses related to specific borrower relationships and inherent in the various loan and lease portfolios, unfunded commitments, and standby letters of credit, is determined by management through a disciplined credit review process. Northern Trust’s accounting policies related to the estimation of the allowance for credit losses and the charging off of loans, leases and other extensions of credit deemed uncollectible are consistent across both loan and lease segments.

Northern Trust’s Loan Loss Allowance Committee assesses a common set of qualitative factors in establishing the inherent portion of the allowance for credit losses for the commercial and personal loan segments. The risk characteristics underlying these qualitative factors, and management’s assessments as to the relative importance of a qualitative factor, can vary between loan segments and between classes within loan segments. Factors evaluated include those related to external matters, such as economic conditions and changes in collateral value, and those related to internal matters, such as changes in asset quality metrics and loan review activities. In addition to the factors noted above, risk characteristics such as portfolio delinquencies, percentage of portfolio on the watch list and on nonperforming status, and average borrower ratings are assessed in the determination of the inherent allowance. Loan-to-value levels are considered for collateral-secured loans and leases in both the personal and commercial segments. Borrower debt service coverage is evaluated in the personal segment, and cash flow coverage is analyzed in the commercial segment. Similar risk characteristics by type of exposure are analyzed when determining the allowance for unfunded commitments and standby letters of credit. These qualitative factors, together with historical loss rates, serve as the basis for the allowance for credit losses.

Loans, leases and other extensions of credit deemed uncollectible are charged to the allowance for credit losses. Subsequent recoveries, if any, are credited to the allowance. Determinations as to whether an uncollectible loan is charged-off or a specific allowance is established are based on management’s assessment as to the level of certainty regarding the amount of loss.

Notes to Consolidated Financial Statements (continued)

The following tables provide information regarding changes in the allowance for credit losses by segment during the three and nine month periods ended September 30, 2012 and 2011.


	Three Months Ended September 30,
	2012									2011
(In Millions)	Commercial			Personal			Total			Commercial			Personal			Total
Balance at Beginning of Period	$	196.3		$	133.6		$	329.9		$	239.9		$	105.9		$	345.8
Charge-Offs		(7.2	)		(9.1	)		(16.3	)		(16.8	)		(18.1	)		(34.9	)
Recoveries		2.4			2.0			4.4			4.4			1.9			6.3

Net (Charge-Offs) Recoveries		(4.8	)		(7.1	)		(11.9	)		(12.4	)		(16.2	)		(28.6	)
Provision for Credit Losses		6.9			3.1			10.0			(6.4	)		23.9			17.5
Effect of Foreign Exchange Rates		—			—			—			(0.1	)		—			(0.1	)

Balance at End of Period	$	198.4		$	129.6		$	328.0		$	221.0		$	113.6		$	334.6


	Nine Months Ended September 30,
	2012									2011
(In Millions)	Commercial			Personal			Total			Commercial			Personal			Total
Balance at Beginning of Period	$	211.0		$	117.9		$	328.9		$	256.7		$	100.6		$	357.3
Charge-Offs		(15.4	)		(31.5	)		(46.9	)		(45.0	)		(42.5	)		(87.5	)
Recoveries		13.6			12.4			26.0			17.5			4.8			22.3

Net (Charge-Offs) Recoveries		(1.8	)		(19.1	)		(20.9	)		(27.5	)		(37.7	)		(65.2	)
Provision for Credit Losses		(10.8	)		30.8			20.0			(8.2	)		50.7			42.5

Balance at End of Period	$	198.4		$	129.6		$	328.0		$	221.0		$	113.6		$	334.6

The following table provides information regarding the balances of the recorded investments in loans and leases and the allowance for credit losses by segment as of September 30, 2012 and December 31, 2011.


	September 30, 2012						December 31, 2011
(In Millions)	Commercial		Personal		Total		Commercial		Personal		Total
Loans and Leases
Specifically Evaluated for Impairment	$	124.7	$	148.3	$	273.0	$	121.2	$	158.2	$	279.4
Evaluated for Inherent Impairment		12,874.9		16,394.8		29,269.7		12,233.1		16,551.4		28,784.5

Total Loans and Leases		12,999.6		16,543.1		29,542.7		12,354.3		16,709.6		29,063.9

Allowance for Loans and Leases
Specifically Evaluated for Impairment		12.0		10.1		22.1		22.9		9.9		32.8
Evaluated for Inherent Impairment		158.6		117.9		276.5		155.7		106.3		262.0

Allowance Assigned to Loans and Leases		170.6		128.0		298.6		178.6		116.2		294.8

Allowance for Unfunded Exposures
Commitments and Standby Letters of Credit		27.8		1.6		29.4		32.4		1.7		34.1

Total Allowance for Credit Losses	$	198.4	$	129.6	$	328.0	$	211.0	$	117.9	$	328.9

7. Pledged Assets – Certain of Northern Trust’s subsidiaries, as required or permitted by law, pledge assets to secure public and trust deposits, repurchase agreements, Federal Home Loan Bank borrowings, and for other purposes. At September 30, 2012, $27.4 billion ($21.6 billion of government sponsored agency and other securities, $351.8 million of obligations of states and political subdivisions, and $5.4 billion of loans) were pledged. This compares to $27.9 billion ($21.5 billion of government sponsored agency and other securities, $460.2 million of obligations of states and political subdivisions, and $6.0 billion of loans) at December 31, 2011. Collateral required for these purposes totaled $4.0 billion and $4.8 billion on September 30, 2012 and December 31, 2011, respectively. Included in the total pledged assets at September 30, 2012 and December

Notes to Consolidated Financial Statements (continued)

31, 2011 were available for sale securities with a total fair value of $367.0 million and $1.2 billion, respectively, which were pledged as collateral for agreements to repurchase securities sold transactions. The secured parties to these transactions have the right to repledge or sell these securities.

Northern Trust is permitted to repledge or sell collateral from agreements to resell securities purchased transactions. The total fair value of accepted collateral as of September 30, 2012 and December 31, 2011 was $537.4 million and $74.7 million, respectively. There was no repledged or sold collateral at September 30, 2012 or December 31, 2011. Deposits maintained to meet Federal Reserve Bank reserve requirements averaged $1.1 billion for both the three and nine months ended September 30, 2012, and $467.5 million and $307.5 million for the three and nine months ended September 30, 2011, respectively.

8. Goodwill and Other Intangibles – The carrying amounts of goodwill at September 30, 2012 and December 31, 2011 were as follows:


(In Millions)	September 30, 2012		December 31, 2011
Corporate and Institutional Services	$	466.5	$	460.6
Personal Financial Services		71.5		71.4

Total Goodwill	$	538.0	$	532.0

Note:

Amounts include the effect of foreign exchange rates on non-U.S. dollar denominated goodwill.

Other intangible assets are included within other assets in the consolidated balance sheet. The gross carrying amount and accumulated amortization of other intangible assets subject to amortization at September 30, 2012 and December 31, 2011 were as follows:


(In Millions)	September 30, 2012		December 31, 2011
Gross Carrying Amount	$	251.4	$	251.2
Less: Accumulated Amortization		142.8		127.8

Net Book Value	$	108.6	$	123.4

Note:

Amounts include the effect of foreign exchange rates on non-U.S. dollar denominated intangible assets.

Other intangible assets consist primarily of the value of acquired client relationships. Amortization expense related to other intangible assets totaled $5.2 million and $5.3 million for the three months ended September 30, 2012 and 2011, respectively, and $15.0 million and $11.5 million for the nine months ended September 30, 2012 and 2011, respectively. Amortization for the remainder of 2012 and for the years 2013, 2014, 2015, and 2016 is estimated to be $5.4 million, $20.8 million, $20.7 million, $11.7 million and $9.1 million, respectively.

Notes to Consolidated Financial Statements (continued)

9. Business Units – The following tables show the earnings contributions of Northern Trust’s business units for the three and nine month periods ended September 30, 2012 and 2011.


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.

Further discussion of business unit results is provided within the “Business Unit Reporting” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Notes to Consolidated Financial Statements (continued)

10. Accumulated Other Comprehensive Income (Loss) – The following tables summarize the components of accumulated other comprehensive income (loss) at September 30, 2012 and 2011, and changes during the three and nine month periods then ended.

(In Millions)

Balance at
December 31,
2011

Net Change

Balance at
September 30,
2012

Net Unrealized Gains (Losses) on Securities Available for Sale

39.8

67.3

107.1

Net Unrealized Gains (Losses) on Cash Flow Hedges

(7.0

)

5.5

(1.5

)

Net Foreign Currency Adjustments

(9.5

)

24.1

14.6

Net Pension and Other Postretirement Benefit Adjustments

(368.9

)

32.8

(336.1

)

Total

(345.6

)

129.7

(215.9

)


(In Millions)	Balance at December 31, 2010			Net Change			Balance at September 30, 2011
Net Unrealized Gains (Losses) on Securities Available for Sale	$	(13.5	)	$	55.2		$	41.7
Net Unrealized Gains (Losses) on Cash Flow Hedges		11.4			(9.6	)		1.8
Net Foreign Currency Adjustments		(7.0	)		10.6			3.6
Net Pension and Other Postretirement Benefit Adjustments		(296.2	)		16.6			(279.6	)

Total	$	(305.3	)	$	72.8		$	(232.5	)


	Three months ended September 30,
	2012									2011
(In Millions)	Before Tax			Tax Effect			After Tax			Before Tax			Tax Effect			After Tax
Unrealized Gains (Losses) on Securities Available for Sale
Noncredit-Related Unrealized Losses on Securities OTTI	$	4.9		$	(1.8	)	$	3.1		$	(0.4	)	$	0.1		$	(0.3	)
Other Unrealized Gains (Losses) on Securities Available for Sale		57.3			(21.6	)		35.7			32.5			(12.3	)		20.2
Reclassification Adjustment for (Gains) Losses Included in Net Income		(5.1	)		1.9			(3.2	)		2.3			(0.8	)		1.5

Net Change	$	57.1		$	(21.5	)	$	35.6		$	34.4		$	(13.0	)	$	21.4

Unrealized Gains (Losses) on Cash Flow Hedges
Unrealized Gains (Losses) on Cash Flow Hedges	$	2.0		$	(0.5	)	$	1.5		$	(24.6	)	$	9.2		$	(15.4	)
Reclassification Adjustment for (Gains) Losses Included in Net Income		2.6			(1.0	)		1.6			(1.9	)		0.7			(1.2	)

Net Change	$	4.6		$	(1.5	)	$	3.1		$	(26.5	)	$	9.9		$	(16.6	)

Foreign Currency Adjustments
Foreign Currency Translation Adjustments	$	42.1		$	—		$	42.1		$	(50.1	)	$	—		$	(50.1	)
Net Investment Hedge Gains (Losses)		(44.8	)		16.9			(27.9	)		81.3			(30.0	)		51.3

Net Change	$	(2.7	)	$	16.9		$	14.2		$	31.2		$	(30.0	)	$	1.2

Pension and Other Postretirement Benefit Adjustments
Reclassification Adjustment for (Gains) Losses Included in Net Income	$	8.5		$	(3.2	)	$	5.3		$	7.6		$	(2.8	)	$	4.8

Net Change	$	8.5		$	(3.2	)	$	5.3		$	7.6		$	(2.8	)	$	4.8

Notes to Consolidated Financial Statements (continued)


	Nine months ended September 30,
	2012									2011
(In Millions)	Before Tax			Tax Effect			After Tax			Before Tax			Tax Effect			After Tax
Unrealized Gains (Losses) on Securities Available for Sale

Noncredit-Related Unrealized Losses on Securities OTTI	$	15.0		$	(5.6	)	$	9.4		$	11.5		$	(4.2	)	$	7.3
Other Unrealized Gains (Losses) on Securities Available for Sale		105.9			(39.7	)		66.2			64.2			(24.1	)		40.1
Reclassification Adjustment for (Gains) Losses Included in Net Income		(13.2	)		4.9			(8.3	)		12.4			(4.6	)		7.8

Net Change	$	107.7		$	(40.4	)	$	67.3		$	88.1		$	(32.9	)	$	55.2

Unrealized Gains (Losses) on Cash Flow Hedges
Unrealized Gains (Losses) on Cash Flow Hedges	$	4.7		$	(1.5	)	$	3.2		$	(8.8	)	$	3.3		$	(5.5	)
Reclassification Adjustment for (Gains) Losses Included in Net Income		3.7			(1.4	)		2.3			(6.5	)		2.4			(4.1	)

Net Change	$	8.4		$	(2.9	)	$	5.5		$	(15.3	)	$	5.7		$	(9.6	)

Foreign Currency Adjustments
Foreign Currency Translation Adjustments	$	31.3		$	—		$	31.3		$	23.8		$	—		$	23.8
Net Investment Hedge Gains (Losses)		(17.4	)		10.2			(7.2	)		(4.1	)		(9.1	)		(13.2	)

Net Change	$	13.9		$	10.2		$	24.1		$	19.7		$	(9.1	)	$	10.6

Pension and Other Postretirement Benefit Adjustments
Net Actuarial Gain (Loss)	$	26.7		$	(10.1	)	$	16.6		$	(0.3	)	$	0.1		$	(0.2	)
Reclassification Adjustment for (Gains) Losses Included in Net Income		25.6			(9.4	)		16.2			22.6			(5.8	)		16.8

Net Change	$	52.3		$	(19.5	)	$	32.8		$	22.3		$	(5.7	)	$	16.6

11. Net Income Per Common Share Computations – The computations of net income per common share are presented in the following table.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ In Millions Except per Common Share Information)	2012		2011		2012		2011
Basic Net Income Per Common Share
Average Number of Common Shares Outstanding		240,237,014		240,991,491		240,740,803		241,529,793
Net Income Applicable to Common Stock	$	178.8	$	170.4	$	519.6	$	473.4
Less: Earnings Allocated to Participating Securities		2.8		2.0		7.6		5.5

Earnings Allocated to Common Shares Outstanding	$	176.0	$	168.4	$	512.0	$	467.9

Basic Net Income Per Common Share		0.73		0.70		2.13		1.94

Diluted Net Income Per Common Share
Average Number of Common Shares Outstanding		240,237,014		240,991,491		240,740,803		241,529,793
Plus Dilutive Effect of Share-based Compensation		460,048		202,502		464,383		488,957

Average Common and Potential Common Shares		240,697,062		241,193,993		241,205,186		242,018,750

Earnings Allocated to Common and Potential Common Shares	$	176.0	$	168.4	$	512.0	$	467.9
Diluted Net Income Per Common Share		0.73		0.70		2.12		1.93

Note:

Common stock equivalents totaling 11,890,286 and 12,412,541 for the three and nine months ended September 30, 2012, respectively, and 15,650,249 and 12,420,777 for the three and nine months ended September 30, 2011, respectively, were not included in the computation of diluted net income per common share because their inclusion would have been antidilutive.

Notes to Consolidated Financial Statements (continued)

12. Net Interest Income – The components of net interest income were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Millions)	2012		2011		2012		2011
Interest Income
Loans and Leases	$	206.9	$	229.8	$	630.4	$	719.5
Securities – Taxable		63.2		54.8		191.0		160.4
– Non-Taxable		4.1		6.1		13.9		19.1
Interest-Bearing Deposits with Banks		44.8		49.2		138.8		131.6
Federal Reserve Deposits and Other		4.1		7.2		11.5		23.2

Total Interest Income		323.1		347.1		985.6		1,053.8

Interest Expense
Deposits		43.8		50.1		122.9		187.0
Federal Funds Purchased		0.1		0.1		1.1		1.8
Securities Sold Under Agreements to Repurchase		0.1		0.1		0.3		0.6
Other Borrowings		1.2		1.4		3.3		4.3
Senior Notes		18.6		16.4		52.4		47.6
Long-Term Debt		13.0		21.6		47.3		73.4
Floating Rate Capital Debt		0.7		0.6		2.2		1.8

Total Interest Expense		77.5		90.3		229.5		316.5

Net Interest Income	$	245.6	$	256.8	$	756.1	$	737.3

13. Income Taxes – Income tax expense for the three and nine months ended September 30, 2012 of $87.3 million and $249.5 million was recorded, representing an effective tax rate of 32.8% and 32.4%, respectively. The prior year three and nine month provisions for income tax were $82.4 million and $238.9 million, representing effective tax rates of 32.6% and 33.5%, respectively. The prior year nine month period included increased deferred tax reserves as a result of an Illinois corporate income tax rate increase enacted in January 2011.

Notes to Consolidated Financial Statements (continued)

14. Pension and Other Postretirement Plans – The following tables set forth the net periodic pension and postretirement benefit expense for Northern Trust’s U.S. and non-U.S. pension plans, supplemental pension plan, and other postretirement plan for the three and nine months ended September 30, 2012 and 2011.


Net Periodic Pension Expense U.S. Plan	Three Months Ended September 30,						Nine Months Ended September 30,
(In Millions)	2012			2011			2012			2011
Service Cost	$	8.9		$	10.7		$	26.5		$	32.1
Interest Cost		10.3			10.2			31.1			30.6
Expected Return on Plan Assets		(21.7	)		(19.7	)		(65.3	)		(59.1	)
Amortization
Net Actuarial Loss		8.6			6.5			25.8			19.5
Prior Service Cost		(0.1	)		0.4			(0.3	)		1.2

Net Periodic Pension Expense	$	6.0		$	8.1		$	17.8		$	24.3


Net Periodic Pension Expense	Three Months Ended						Nine Months Ended
Non U.S. Plans	September 30,						September 30,
(In Millions)	2012			2011			2012			2011
Interest Cost	$	1.6		$	1.6		$	4.7		$	4.9
Expected Return on Plan Assets		(1.7	)		(2.1	)		(4.9	)		(6.2	)
Net Actuarial Loss Amortization		0.2			0.1			0.6			0.1

Net Periodic Pension Expense (Benefit)	$	0.1		$	(0.4	)	$	0.4		$	(1.2	)


Net Periodic Pension Expense	Three Months Ended						Nine Months Ended
Supplemental Plan	September 30,						September 30,
(In Millions)	2012			2011			2012			2011
Service Cost	$	0.8		$	0.8		$	2.2		$	2.4
Interest Cost		1.2			1.1			3.4			3.3
Amortization
Net Actuarial Loss		1.5			1.4			4.5			4.2
Prior Service Cost		0.2			0.1			0.4			0.3

Net Periodic Pension Expense	$	3.7		$	3.4		$	10.5		$	10.2


Net Periodic Benefit Expense	Three Months Ended						Nine Months Ended
Other Postretirement Plan	September 30,						September 30,
(In Millions)	2012			2011			2012			2011
Service Cost	$	0.1		$	0.1		$	0.2		$	0.3
Interest Cost		0.3			0.7			1.0			2.1
Amortization
Net Actuarial (Gain) Loss		(0.7	)		0.4			(1.6	)		1.2
Prior Service Cost		(1.2	)		(1.3	)		(3.8	)		(3.9	)

Net Periodic Benefit	$	(1.5	)	$	(0.1	)	$	(4.2	)	$	(0.3	)

Other postretirement plan net periodic benefits for the three and nine months ended September 30, 2012 were impacted by Northern Trust's decision to enroll in an Employee Group Waiver Plan (EGWP) beginning in January 2013. Participation in the EGWP will allow Northern Trust to offer substantially the same postretirement benefits to eligible participants while increasing subsidy reimbursements received by Northern Trust from the U.S. government. This action served to reduce the postretirement health care plan liability by approximately $26.7 million as of January 31, 2012 and increased amortization of the net actuarial gain for the three and nine months ended September 30, 2012 by approximately $0.9 million and $2.4 million, respectively.

Notes to Consolidated Financial Statements (continued)

15. Share-Based Compensation Plans – The Amended and Restated Northern Trust Corporation 2012 Stock Plan provides for the grant of nonqualified stock options, incentive stock options, stock appreciation rights, stock awards, stock units, and performance shares.

Total compensation expense for share-based payment arrangements and the associated tax impacts were as follows for the the three and nine months ended September 30, 2012 and 2011.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Millions)	2012		2011		2012		2011
Stock Options	$	5.7	$	6.3	$	22.3	$	27.8
Stock and Stock Unit Awards		10.2		9.4		33.9		26.6
Performance Stock Units		0.7		—		1.8		—

Total Share-Based Compensation Expense		16.6		15.7		58.0		54.4

Tax Benefits Recognized	$	6.2	$	5.8	$	21.8	$	20.2

16. Variable Interest Entities – Variable Interest Entities (VIEs) are defined within GAAP as entities which either have a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. Investors that finance a VIE through debt or equity interests, or other counterparties that provide other forms of support, such as guarantees, subordinated fee arrangements, or certain types of derivative contracts, are variable interest holders in the entity and the variable interest holder, if any, that has both the power to direct the activities that most significantly impact the entity and a variable interest that could potentially be significant to the entity is deemed to be the VIE’s primary beneficiary and is required to consolidate the VIE.

Leveraged Leases. In leveraged leasing transactions, Northern Trust acts as lessor of the underlying asset subject to the lease and typically funds 20% of the asset’s cost via an equity ownership in a trust with the remaining 80% provided by third party non-recourse debt holders. In such transactions, the trusts, which are VIEs, are created to provide the lessee use of the property with substantially all of the rights and obligations of ownership. The lessee’s maintenance and operation of the leased property has a direct effect on the fair value of the underlying property, and the lessee also has the ability to increase the benefits it can receive and limit the losses it can suffer by the manner in which it uses the property. As a result, Northern Trust has determined that it is not the primary beneficiary of these VIEs given it lacks the power to direct the activities that most significantly impact the economic performance of the VIEs.

Notes to Consolidated Financial Statements (continued)

Northern Trust’s maximum exposure to loss as a result of its involvement with the leveraged lease trust VIEs is limited to the carrying amounts of its leveraged lease investments. As of September 30, 2012 and December 31, 2011, the carrying amounts of these investments, which are included in loans and leases in the consolidated balance sheet, were $671 million and $714.5 million, respectively. Northern Trust’s funding requirements relative to the VIEs are limited to its invested capital. Northern Trust has no other liquidity arrangements or obligations to purchase assets of the VIEs that would expose the Corporation to a loss.

Tax Credit Structures. Northern Trust invests in affordable housing projects that are designed to generate a return primarily through the realization of tax credits. The affordable housing projects are formed as limited partnerships and LLCs, and Northern Trust typically invests as a limited partner/investor member in the form of equity contributions. The economic performance of the affordable housing projects, which are deemed to be VIEs, is driven by the performance of their underlying investment projects as well as the VIEs’ ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. Northern Trust has determined that it is not the primary beneficiary of any affordable housing projects as it lacks the power to direct the activities that most significantly impact the economic performance of the underlying project or to affect the VIEs’ ability to operate in compliance with the rules and regulations necessary for the qualification of tax credits generated by equity investments. This power is held by the general partners and managing members who exercise full and exclusive control of the operations of the VIEs.

Northern Trust’s maximum exposure to loss as a result of its involvement with affordable housing projects is limited to the carrying amounts of its investments, including any unfunded commitments. As of September 30, 2012 and December 31, 2011, the carrying amounts of these investments, which are included in other assets in the consolidated balance sheet, were $259.9 million and $264.9 million, respectively. As of September 30, 2012 and December 31, 2011, liabilities related to unfunded commitments on investments in affordable housing projects, which are included in other liabilities in the consolidated balance sheet, were $36.8 million and $44.5 million, respectively. Northern Trust’s funding requirements are limited to its invested capital and any additional unfunded commitments for future equity contributions. Northern Trust has no other liquidity arrangements or obligations to purchase assets of the affordable housing projects that would expose it to a loss.

Trust Preferred Securities. In 1997, Northern Trust issued Floating Rate Capital Securities, Series A and Series B, through NTC Capital I and NTC Capital II, respectively, statutory business trusts wholly-owned by the Corporation. The sole assets of the trusts are Subordinated Debentures of the Corporation that have the same interest rates and maturity dates as the corresponding distribution rates and redemption dates of the Floating Rate Capital Securities. NTC Capital I and NTC Capital II are considered VIEs; however, as the sole asset of each trust is a receivable from the Corporation and the proceeds to the Corporation from the receivable exceed the Corporation’s investment in

Notes to Consolidated Financial Statements (continued)

the VIEs’ equity shares, the Corporation is not permitted to consolidate the trusts, even though the Corporation owns all of the voting equity shares of the trusts, has fully guaranteed the trusts’ obligations, and has the right to redeem the preferred securities in certain circumstances. Northern Trust recognizes the subordinated debentures on its consolidated balance sheet as long-term liabilities.

Investment Funds. Northern Trust acts as asset manager for various funds in which clients of Northern Trust are investors. As an asset manager of funds, the Corporation earns a competitively priced fee that is based on assets managed and varies with each fund’s investment objective. Based on its analysis, Northern Trust has determined that it is not the primary beneficiary of these VIEs under GAAP.

In November 2011, Northern Trust purchased $90 million of securities at par from three investment funds (Funds). The net assets held by the Funds as of December 31, 2011 totaled $16.5 billion. The securities were purchased to avoid the risk of the Funds being downgraded which could have forced certain holders to liquidate their investments. Northern Trust incurred a pre-tax charge of $2 million in connection with these actions and, subsequently, had no further obligations related to these actions. All of the $90 million of securities purchased from the Funds matured at par during the nine months ended September 30, 2012. As Northern Trust has no plans to provide any support additional to that which is noted above, there is no exposure to loss from the implicit interest in the Funds as of September 30, 2012.

Under GAAP, the above actions reflected Northern Trust’s implicit interest in the credit risk of the affected Funds. Implicit interests are required to be considered when determining the primary beneficiary of a variable interest entity. The Funds were designed to create and pass to investors interest rate and credit risk. In determining whether Northern Trust was the primary beneficiary of these Funds, an expected loss calculation based on the characteristics of the underlying investments in the Funds was used to estimate the expected losses related to interest rate and credit risk, while also considering the relative rights and obligations of each of the variable interest holders. This analysis concluded that interest rate risk was the primary driver of expected losses within the Funds. As such, Northern Trust determined that it was not the primary beneficiary of the Funds and was not required to consolidate them within its consolidated balance sheet.

Notes to Consolidated Financial Statements (continued)

17. Contingent Liabilities – Standby Letters of Credit and Indemnifications . Standby letters of credit obligate Northern Trust to meet certain financial obligations of its clients, if, under the contractual terms of the agreement, the clients are unable to do so. These instruments are primarily issued to support public and private financial commitments, including commercial paper, bond financing, initial margin requirements on futures exchanges, and similar transactions. Certain standby letters of credit have been secured with cash deposits or participated to others and in certain cases Northern Trust is able to recover the amounts paid through recourse against these cash deposits or other participants. Standby letters of credit outstanding were $4.6 billion at September 30, 2012 and $4.3 billion at December 31, 2011. Northern Trust’s liability recorded within the consolidated balance sheet for standby letters of credit, measured as the amount of unamortized fees on these instruments inclusive of the related allowance for credit losses, was $65.8 million at September 30, 2012 and $61.3 million at December 31, 2011.

As part of its securities custody activities and at the direction of its clients, Northern Trust lends securities owned by clients to borrowers who are reviewed by the Northern Trust Senior Credit Committee. In connection with these activities, Northern Trust has issued indemnifications against certain losses resulting from the bankruptcy of borrowers of securities. Borrowers are required to fully collateralize securities received with cash or marketable securities. As securities are loaned, collateral is maintained at a minimum of 100% of the fair value of the securities plus accrued interest. The collateral is revalued on a daily basis. The amount of securities loaned subject to indemnification was $76.6 billion at September 30, 2012 and $74.4 billion at December 31, 2011. Because of the credit quality of the borrowers and the requirement to fully collateralize securities borrowed, management believes that the exposure to credit loss from this activity is not significant and no liability was recorded at September 30, 2012 or December 31, 2011 related to these indemnifications.

Legal Proceedings. In the normal course of business, the Corporation and its subsidiaries are routinely defendants in or parties to a number of pending and threatened legal actions, including, but not limited to, actions brought on behalf of various claimants or classes of claimants, regulatory matters, employment matters, and challenges from tax authorities regarding the amount of taxes due. In certain of these actions and proceedings, claims for substantial monetary damages or adjustments to recorded tax liabilities are asserted.

Based on current knowledge, after consultation with legal counsel and after taking into account current accruals, management does not believe that losses, if any, arising from pending litigation or threatened legal actions or regulatory matters will have a material adverse effect on the consolidated financial position or liquidity of the Corporation, although such matters could have a material adverse effect on the Corporation’s operating results for a particular period.

Notes to Consolidated Financial Statements (continued)

Under GAAP, (i) an event is “probable” if the “future event or events are likely to occur”; (ii) an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely”; and (iii) an event is “remote” if “the chance of the future event or events occurring is slight”. Thus, references to the upper end of the range of reasonably possible loss for cases in which the Corporation is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the Corporation believes the risk of loss is more than remote.

For the reasons set out in this paragraph, the outcome of some matters is inherently difficult to predict and/or the range of loss cannot be reasonably estimated. This may be the case in matters that (i) will be decided by a jury, (ii) are in early stages, (iii) involve uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (iv) are subject to appeals or motions, (v) involve significant factual issues to be resolved, including with respect to the amount of damages, or (vi) seek very large damages based on novel and complex damage and liability legal theories. Accordingly, the Corporation cannot reasonably estimate the eventual outcome of these pending matters, the timing of their ultimate resolution, or what the eventual loss, fines or penalties, if any, related to each pending matter will be.

In accordance with applicable accounting guidance, the Corporation records accruals for litigation and regulatory matters when those matters present loss contingencies that are both probable and reasonably estimable. When loss contingencies are not both probable and reasonably estimable, the Corporation does not record accruals. No material accruals have been recorded for pending litigation or threatened legal actions or regulatory matters.

For a limited number of the matters for which a loss is reasonably possible in future periods, whether in excess of an accrued liability or where there is no accrued liability, the Corporation is able to estimate a range of possible loss. As of September 30, 2012, the Corporation has estimated the upper end of the range of reasonably possible losses for these matters to be approximately $40 million in the aggregate. This aggregate amount of reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results will vary significantly from the current estimate.

In certain other pending matters, there may be a range of reasonably possible losses (including reasonably possible losses in excess of amounts accrued) that cannot be reasonably estimated for the reasons described above. The following is a description of the nature of certain of these matters.

Notes to Consolidated Financial Statements (continued)

As previously disclosed, a number of participants in our securities lending program, which is associated with the Corporation’s asset servicing business, have commenced either individual lawsuits or putative class actions in which they claim, among other things, that we failed to exercise prudence in the investment management of the collateral received from the borrowers of the securities, resulting in losses that they seek to recover. The cases assert various contractual, statutory and common law claims, including claims for breach of fiduciary duty under common law and under the Employee Retirement Income Security Act (ERISA). Based on our review of these matters, we believe we operated our securities lending program prudently and appropriately. At this stage of these proceedings, however, it is not possible for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss.

On August 24, 2010, a lawsuit (hereinafter referred to as the “Securities Class Action”) was filed in federal court in the Northern District of Illinois against the Corporation and three of its present or former officers, including the present and former Chief Executive Officers of the Corporation, on behalf of a purported class of purchasers of Corporation stock during the period from October 17, 2007 to October 20, 2009. The amended complaint alleges that during the purported class period the defendants violated Sections 10(b) and 20(a) of the Exchange Act by allegedly taking insufficient provisions for credit losses with respect to the Corporation’s real estate loan portfolio and failing to make sufficient disclosures regarding its securities lending business. Plaintiff seeks compensatory damages in an unspecified amount. At this stage of the suit, it is not possible for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss.

On September 7, 2010, a shareholder derivative lawsuit, purportedly brought on behalf of the Corporation, was filed in the Circuit Court of Cook County, Illinois against a number of the Corporation’s current and former officers and directors. The Corporation is named as a nominal defendant. The complaint asserts that the individual defendants violated their fiduciary duties to the Corporation based upon substantially the same allegations made in the Securities Class Action complaint. Certain individual defendants are also alleged to have sold some of their holdings of Northern Trust Corporation stock while in possession of material nonpublic information. Plaintiff seeks compensatory damages in an unspecified amount from the individual defendants on behalf of the Corporation. The only relief sought against the Corporation is an order requiring the implementation of certain corporate governance procedures. On December 20, 2011, the court granted the Corporation’s motion to dismiss the derivative lawsuit but gave plaintiff leave to file an amended complaint. Plaintiff elected, instead, to enter into an agreed order staying the derivative suit until the judge in the Securities Class Action rules on the Corporation’s motion to dismiss that complaint.

Notes to Consolidated Financial Statements (continued)

Visa Membership. Northern Trust, as a member of Visa U.S.A. Inc. (Visa U.S.A.) and in connection with the 2007 initial public offering of Visa, Inc. (Visa), received shares of restricted stock in Visa, a portion of which was redeemed pursuant to a mandatory redemption. The proceeds of the redemption totaled $167.9 million and were recorded as a gain in 2008. The remaining Visa shares held by Northern Trust are recorded at their original cost basis of zero and as of September 30, 2012 had restrictions as to their sale or transfer.

Northern Trust, in conjunction with other member banks of Visa U.S.A., is obligated to indemnify Visa for losses resulting from certain indemnified litigation involving Visa and has been required to recognize, at its estimated fair value in accordance with GAAP, a guarantee liability arising from such litigation that has not yet settled.

During 2007, Northern Trust recorded charges and corresponding liabilities of $150 million relating to Visa indemnified litigation. Subsequently, Visa established an escrow account to cover the settlements of, or judgments in, indemnified litigation. The fundings by Visa of its escrow account have resulted in reductions of Northern Trust’s Visa related indemnification liability and of the future realization of the value of outstanding shares of Visa common stock held by Northern Trust as a member bank of Visa U.S.A. Reductions of Northern Trust’s indemnification liability totaling $23.1 million, $33.0 million, and $17.8 million were recorded in 2011, 2010, and 2009, respectively, which combined with a $76.1 million reduction recorded in 2008, fully eliminated the recorded indemnification liability as of December 31, 2011.

On October 19, 2012, Visa signed a settlement agreement with plaintiff representatives for binding settlement of the indemnified litigation relating to interchange fees. While the final settlement and ultimate resolution of outstanding Visa related litigation and the timing for removal of selling restrictions on shares owned by Northern Trust are highly uncertain, based upon the settlement terms announced by Visa, Northern Trust anticipates that the value of its remaining shares of Visa stock will be adequate to offset any remaining indemnification obligations related to Visa litigation.

Contingent Purchase Consideration. In connection with acquisitions consummated in 2011, contingent consideration was recorded relating to certain performance-related purchase price adjustments. The fair value of the contingent consideration at September 30, 2012 and December 31, 2011 totaled $48.9 million and $56.8 million, respectively.

18. Derivative Financial Instruments – Northern Trust is a party to various derivative financial instruments that are used in the normal course of business to meet the needs of its clients; as part of its trading activity for its own account; and as part of its risk management activities. These instruments include foreign exchange contracts, interest rate contracts, and credit default swap contracts.

Notes to Consolidated Financial Statements (continued)

Northern Trust’s primary risks associated with these instruments is the possibility that interest rates, foreign exchange rates, or credit spreads could change in an unanticipated manner, resulting in higher costs or a loss in the underlying value of the instrument. These risks are mitigated by establishing limits, monitoring the level of actual positions taken against such established limits, and monitoring the level of any interest rate sensitivity gaps created by such positions. When establishing position limits, market liquidity and volatility, as well as experience in each market, are taken into account.

The estimated credit risk associated with derivative instruments relates to the failure of the counterparty and the failure of Northern Trust to pay based on the contractual terms of the agreement, and is generally limited to the unrealized fair value gains and losses on these instruments, respectively. The amount of credit risk will increase or decrease during the lives of the instruments as interest rates, foreign exchange rates, or credit spreads fluctuate. This risk is controlled by limiting such activity to an approved list of counterparties and by subjecting such activity to the same credit and quality controls as are followed in lending and investment activities. Credit Support Annex agreements are currently in place with a number of counterparties which mitigate the aforementioned credit risk associated with derivative activity conducted with those counterparties by requiring that significant net unrealized fair value gains be supported by collateral placed with Northern Trust.

All derivative financial instruments, whether designated as hedges or not, are recorded in the consolidated balance sheet at fair value within other assets or other liabilities. As noted in the discussions below, the manner in which changes in the fair value of a derivative is accounted for in the consolidated statement of income depends on whether the contract has been designated as a hedge and qualifies for hedge accounting under GAAP. Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting agreements exist between Northern Trust and the counterparty. Derivative assets and liabilities recorded in the consolidated balance sheet were each reduced by $1.0 billion as of September 30, 2012 and by $2.0 billion as of December 31, 2011, as a result of master netting agreements in place. Derivative assets and liabilities recorded at September 30, 2012, also reflect reductions of $541.8 million and $730.5 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties. This compares with reductions of derivative assets and liabilities of $220.1 million and $257.4 million, respectively, at December 31, 2011. Additional cash collateral received from and deposited with derivative counterparties totaling $27.6 million and $46.7 million, respectively, as of September 30, 2012, and $72.3 million and $47.8 million, respectively, as of December 31, 2011, were not offset against derivative assets and liabilities on the consolidated balance sheet as the amounts exceeded the net derivative positions with those counterparties.

Notes to Consolidated Financial Statements (continued)

Certain master netting agreements Northern Trust enters into with derivative counterparties contain credit risk-related contingent features in which the counterparty has the option to declare Northern Trust in default and accelerate cash settlement of the net derivative liabilities with the counterparty in the event Northern Trust’s credit rating falls below specified levels. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a liability position was $686.3 million and $202.0 million on September 30, 2012 and December 31, 2011, respectively. Cash collateral amounts deposited with derivative counterparties on those dates included $655.0 million and $80.5 million, respectively, posted against these liabilities, resulting in a net maximum amount of termination payments that could have been required at September 30, 2012 and December 31, 2011 of $31.3 million and $121.5 million, respectively. Accelerated settlement of these liabilities would not have a material effect on the consolidated financial position or liquidity of Northern Trust.

Foreign exchange contracts are agreements to exchange specific amounts of currencies at a future date, at a specified rate of exchange. Foreign exchange contracts are entered into primarily to meet the foreign exchange needs of clients. Foreign exchange contracts are also used for trading purposes and risk management. For risk management purposes, Northern Trust uses foreign exchange contracts to reduce its exposure to changes in foreign exchange rates relating to certain forecasted non-functional currency denominated revenue and expenditure transactions, foreign currency denominated assets and liabilities, and net investments in non-U.S. affiliates.

Interest rate contracts include swap, option, and forward contracts. Interest rate swap contracts involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. Northern Trust enters into interest rate swap contracts on behalf of its clients and also utilizes such contracts to reduce or eliminate the exposure to changes in the cash flows or fair value of hedged assets or liabilities due to changes in interest rates. Interest rate option contracts consist of caps, floors, and swaptions, and provide for the transfer or reduction of interest rate risk in exchange for a fee. Northern Trust enters into option contracts primarily as a seller of interest rate protection to clients. Northern Trust receives a fee at the outset of the agreement for the assumption of the risk of an unfavorable change in interest rates. This assumed interest rate risk is then mitigated by entering into an offsetting position with an outside counterparty. Northern Trust may also purchase option contracts for risk management purposes. Northern Trust enters into interest rate forward contracts to lend funds to a potential borrower at a specified interest rate within a specified period of time. These forward contracts are derivative instruments if the loans that will result from the exercise of the commitments will be held for sale.

Credit default swap contracts are agreements to transfer credit default risk from one party to another in exchange for a fee. Northern Trust enters into credit default swaps with outside counterparties where the counterparty agrees to assume the underlying credit exposure of a specific Northern Trust commercial loan or loan commitment.

Notes to Consolidated Financial Statements (continued)

Client-Related and Trading Derivative Instruments . In excess of 96% of Northern Trust’s derivatives outstanding at September 30, 2012 and December 31, 2011, measured on a notional value basis, relate to client-related and trading activities. These activities consist principally of providing foreign exchange services to clients in connection with Northern Trust's global custody business. However, in the normal course of business, Northern Trust also engages in trading of currencies for its own account.

The following table shows the notional and fair values of client-related and trading derivative financial instruments. Notional amounts of derivative financial instruments do not represent credit risk, and are not recorded in the consolidated balance sheet. They are used merely to express the volume of this activity. Northern Trust’s credit related risk of loss is limited to the positive fair value of the derivative instrument, which is significantly less than the notional amount.


	September 30, 2012						December 31, 2011
	Notional		Fair Value				Notional		Fair Value
(In Millions)	Value		Asset		Liability		Value		Asset		Liability
Foreign Exchange Contracts	$	211,742.5	$	2,085.2	$	2,037.9	$	239,901.3	$	3,062.1	$	2,959.8
Interest Rate Option Contracts		32.1		—		—		100.5		—		—
Interest Rate Swap Contracts		4,932.4		196.3		190.1		4,570.4		188.7		184.6

Total	$	216,707.0	$	2,281.5	$	2,228.0	$	244,572.2	$	3,250.8	$	3,144.4

Changes in the fair value of client-related and trading derivative instruments are recognized currently in income. The following table shows the location and amount of gains and losses recorded in the consolidated statement of income for the three and nine months ended September 30, 2012 and 2011.


		Amount of Derivative Gain/(Loss) Recognized in Income
	Location of Derivative	Three Months Ended				Nine Months Ended
	Gain/(Loss) Recognized	September 30,				September 30,
(In Millions)	in Income	2012		2011		2012		2011
Foreign Exchange Contracts	Foreign Exchange Trading Income	$	44.0	$	87.2	$	165.3	$	252.8
Interest Rate Swap and Option Contracts	Security Commissions and Trading Income		3.7		1.0		8.9		3.9

Total		$	47.7	$	88.2	$	174.2	$	256.7

Risk Management Instruments. Northern Trust uses derivative instruments to hedge its exposure to foreign currency, interest rate, and credit risk. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP as fair value, cash flow, or net investment hedges. Other derivatives that are entered into for risk management purposes as economic hedges are not formally designated as hedges and, therefore, are accounted for as trading instruments.

Notes to Consolidated Financial Statements (continued)

In order to qualify for hedge accounting, a formal assessment is performed on a calendar quarter basis to verify that derivatives used in designated hedging transactions continue to be highly effective in offsetting the changes in fair value or cash flows of the hedged item. If a derivative ceases to be highly effective, matures, is sold, or is terminated, or if a hedged forecasted transaction is no longer expected to occur, hedge accounting is terminated and the derivative is treated as if it were a trading instrument.

The following table identifies the types and classifications of derivative instruments designated as hedges and used by Northern Trust to manage risk, their notional and fair values, and the respective risks addressed.

September 30, 2012

December 31, 2011

Derivative

Risk

Notional

Fair Value

Notional

Fair Value

(In Millions)

Instrument

Classification

Value

Asset

Liability

Value

Asset

Liability

Fair Value Hedges

Available for Sale Investment Securities

Interest Rate Swap Contracts

Interest Rate

3,535.2

3.6

76.7

2,172.0

2.6

46.8

Senior Notes and Long-Term Subordinated Debt

Interest Rate Swap Contracts

Interest Rate

1,100.0

135.7

0.5

1,100.0

147.0

0.5

Cash Flow Hedges

Forecasted Foreign Currency Denominated Transactions

Foreign Exchange Contracts

Foreign Currency

805.7

12.5

14.9

932.9

9.4

27.2

Net Investment Hedges

Net Investments in Non-U.S. Affiliates

Foreign Exchange Contracts

Foreign Currency

1,549.5

13.3

20.3

1,554.7

12.0

1.5

Total

6,990.4

165.1

112.4

5,759.6

171.0

76.0

In addition to the above, Sterling denominated debt, totaling $249.9 million and $241.2 million at September 30, 2012 and December 31, 2011, respectively, was designated as a hedge of the foreign exchange risk associated with the net investment in certain non-U.S. affiliates.

Derivatives are designated as fair value hedges to limit Northern Trust’s exposure to changes in the fair value of assets and liabilities due to movements in interest rates. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability attributable to the hedged risk are recorded currently in income. The following table shows the location and amount of derivative gains and losses recorded in the consolidated statement of income related to fair value hedges for the three and nine months ended September 30, 2012 and 2011.


	Derivative Instrument	Location of Derivative Gain/(Loss) Recognized in Income	Amount of Derivative Gain/(Loss) Recognized in Income
			Three Months Ended						Nine Months Ended
			September 30,						September 30,
(In Millions)			2012			2011			2012			2011
Available for Sale Investment Securities	Interest Rate Swap Contracts	Interest Income	$	(23.3	)	$	(27.0	)	$	(93.5	)	$	(53.2	)
Senior Notes and Long-Term Subordinated Debt	Interest Rate Swap Contracts	Interest Expense		8.9			39.0			171.8			190.4

Total			$	(14.4	)	$	12.0		$	78.3		$	137.2

Notes to Consolidated Financial Statements (continued)

Northern Trust applies the “shortcut” method of accounting, available under GAAP, to substantially all of its fair value hedges, which assumes there is no ineffectiveness in a hedge. As a result, changes recorded in the fair value of the hedged item are equal to the offsetting gain or loss on the derivative and are reflected in the same line item as the gain or loss. For fair value hedges that do not qualify for the “shortcut” method of accounting, Northern Trust utilizes regression analysis, a “long-haul” method of accounting, in assessing whether the hedging relationships are highly effective at inception and on an ongoing basis. There were $0.2 million and $0.1 million of changes recorded within the fair values of hedged items for such “long-haul” hedges during the three months ended September 30, 2012 and 2011, respectively. There were $0.5 million and $0.4 million of changes recorded within the fair values of the hedged items for the nine months ended September 30, 2012 and 2011, respectively. There was a total of $0.1 million of ineffectiveness recorded during the three months ended September 30, 2012 and 2011, and a total of $0.4 million of ineffectiveness recorded during the nine months ended September 30, 2012 and 2011 for available for sale investment securities, senior notes, and subordinated debt. Ineffectiveness resulting from fair value hedges is recorded in either Interest Income or Interest Expense.

Derivatives are also designated as cash flow hedges in order to minimize the variability in cash flows of earning assets or forecasted transactions caused by movements in interest or foreign exchange rates. The effective portion of changes in the fair value of such derivatives is recognized in AOCI, a component of stockholders' equity, and there is no change to the accounting for the hedged item. When the hedged forecasted transaction impacts earnings, balances in AOCI are also reclassified to earnings. Northern Trust assesses effectiveness using regression analysis for cash flow hedges of available for sale securities. Ineffectiveness is measured using the hypothetical derivative method. For cash flow hedges of forecasted foreign currency denominated revenue and expenditure transactions, Northern Trust closely matches all terms of the hedged item and the hedging derivative at inception and on an ongoing basis which limits hedge ineffectiveness. To the extent all terms are not perfectly matched, effectiveness is assessed using the dollar-offset method and any ineffectiveness is measured using the hypothetical derivative method. There was no ineffectiveness recognized in earnings for cash flow hedges during the three and nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, twenty-three months is the maximum length of time over which the exposure to variability in future cash flows of forecasted foreign currency denominated transactions is being hedged.

The following tables provide cash flow hedge derivative gains and losses recognized in AOCI and the amounts reclassified to earnings during the three and nine months ended September 30, 2012 and 2011. Beginning in 2012, gains and losses associated with forecasted foreign currency denominated revenue and expenditure transactions are classified in Other Operating Income or Other Operating Expense.

Notes to Consolidated Financial Statements (continued)


(In Millions)	Foreign Exchange Contracts (Before Tax)						Interest Rate Swap Contracts (Before Tax)
Three Months Ended September 30,	2012			2011			2012			2011
Net Gain/(Loss) Recognized in AOCI	$	2.0		$	(24.8	)	$	—		$	0.2

Net Gain/(Loss) Reclassified from AOCI to Earnings
Trust, Investment and Other Servicing Fees		—			0.7			—			—
Other Operating Income		(1.0	)		(0.2	)		—			—
Interest Income		—			(0.2	)		—			0.1
Interest Expense		—			—			—			—
Compensation		—			0.6			—			—
Employee Benefits		—			0.2			—			—
Equipment and Software		—			—			—			—
Occupancy Expense		—			0.1			—			—
Other Operating Expense		(1.6	)		0.6			—			—

Total	$	(2.6	)	$	1.8		$	—		$	0.1


(In Millions)	Foreign Exchange Contracts (Before Tax)						Interest Rate Swap Contracts (Before Tax)
Nine Months Ended September 30,	2012			2011			2012			2011
Net Gain/(Loss) Recognized in AOCI	$	4.7		$	(9.0	)	$	—		$	0.2

Net Gain/(Loss) Reclassified from AOCI to Earnings
Trust, Investment and Other Servicing Fees		—			1.0			—			—
Other Operating Income		(3.3	)		—			—			—
Interest Income		—			(1.0	)		(0.2	)		0.1
Interest Expense		—			—			—			—
Compensation		—			3.0			—			—
Employee Benefits		—			0.9			—			—
Equipment and Software		—			0.1			—			—
Occupancy Expense		—			0.5			—			—
Other Operating Expense		(0.2	)		1.9			—			—

Total	$	(3.5	)	$	6.4		$	(0.2	)	$	0.1

During the three and nine months ended September 30, 2012 and 2011, there were no transactions discontinued due to the original forecasted transactions no longer being probable of occurring. It is estimated that a net loss of $3.3 million will be reclassified into earnings within the next twelve months relating to cash flow hedges.

Certain foreign exchange contracts and qualifying nonderivative instruments are designated as net investment hedges to minimize Northern Trust’s exposure to variability in the foreign currency translation of net investments in non-U.S. branches and subsidiaries. The effective portion of changes in the fair value of the hedging instrument is recognized in AOCI consistent with the related translation gains and losses of the hedged net investment. For net investment hedges, all critical terms of the hedged item and the hedging instrument are matched at inception and on an ongoing basis to minimize the risk of hedge ineffectiveness. To the extent all terms are not perfectly matched, any ineffectiveness is measured using the hypothetical derivative method. There was $5.3 million of ineffectiveness recorded during the three and nine months ended September 30, 2012, and no ineffectiveness recorded during the three and nine months ended September 30, 2011. Ineffectiveness resulting from net investment hedges is recorded in Other Operating Income. Amounts recorded in AOCI are reclassified to earnings only upon the sale or liquidation of an investment in a non-U.S. branch or subsidiary.

Notes to Consolidated Financial Statements (continued)

The following table provides net investment hedge gains and losses recognized in AOCI during the three and nine months ended September 30, 2012 and 2011.


	Amount of Hedging Gain/(Loss) Recognized in OCI (Before Tax)
	Three Months Ended September 30,					Nine Months Ended September 30,
(In Millions)	2012			2011		2012			2011
Foreign Exchange Contracts	$	(35.4	)	$	75.6	$	(8.1	)	$	(1.9	)
Sterling Denominated Subordinated Debt		(9.4	)		5.7		(9.3	)		(2.2	)

Total	$	(44.8	)	$	81.3	$	(17.4	)	$	(4.1	)

Derivatives not formally designated as hedges under GAAP are entered into to manage the foreign currency risk of non-U.S. dollar denominated assets and liabilities, the net investment in certain non-U.S. affiliates, forecasted foreign currency denominated transactions, and the credit risk and interest rate risk of loans and loan commitments. The following table identifies the types and classifications of risk management derivative instruments not formally designated as hedges, their notional and fair values, and the respective risks addressed.


			September 30, 2012						December 31, 2011
	Derivative Instrument	Risk Classification	Notional Value		Fair Value				Notional Value		Fair Value
(In Millions)	Derivative Instrument	Risk Classification	Notional Value		Asset		Liability		Notional Value		Asset		Liability
Commercial Loans and Loan Commitments	Credit Default Swap Contracts	Credit	$	65.5	$	—	$	1.1	$	60.5	$	0.7	$	0.1
Forecasted Foreign Currency Denominated Transactions	Foreign Exchange Contracts	Foreign Currency		—		—		—		127.3		2.1		2.6
Commercial Loans	Foreign Exchange Contracts	Foreign Currency		157.5		1.8		0.7		84.3		1.3		0.3
Net Investments in Non-U.S. Affiliates	Foreign Exchange Contracts	Foreign Currency		767.8		8.4		3.3		63.5		0.4		0.2

Total			$	990.8	$	10.2	$	5.1	$	335.6	$	4.5	$	3.2

Changes in the fair value of derivative instruments not formally designated as hedges are recognized currently in income. The following table provides the location and amount of gains and losses recorded in the consolidated statement of income for the three and nine months ended September 30, 2012 and 2011.


	Location of Derivative Gain/ (Loss) Recognized in Income		Amount of Derivative Gain/(Loss) Recognized in Income
			Three Months Ended September 30,					Nine Months Ended September 30,
(In Millions)			2012			2011		2012			2011
Credit Default Swap Contracts		Other Operating Income	$	(0.6	)	$	1.1	$	(2.5	)	$	0.3
Forward Contracts		Other Operating Income		—			—		—			0.2
Foreign Exchange Contracts		Other Operating Income		5.0			6.1		3.8			(5.8	)

Total			$	4.4		$	7.2	$	1.3		$	(5.3	)

19. Debt Issuance – On August 2, 2012, Northern Trust issued $500 million of 2.375% fixed-rate senior notes of the Corporation due August 2, 2022. The senior notes are non-callable and unsecured and were issued at a discount of 0.283%.

Item 1.

Financial Statements

The information called for by this item is incorporated herein by reference to the “Financial Statements” section within this Form 10-Q.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information called for by this item is incorporated herein by reference to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section within this Form 10-Q.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The information called for by this item is incorporated herein by reference to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Market Risk Management” section within this Form 10-Q.

Item 4.

Controls and Procedures

The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of Northern Trust’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Corporation’s disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation’s periodic filings under the Exchange Act.

There have been no changes in the Corporation’s internal control over financial reporting during the last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

The information presented in Note 17 titled “Contingent Liabilities” within this Form 10-Q is incorporated herein by reference.

Item 1A.

Risk Factors

There are no material changes to the risk factors set forth in Part I, Item 1A in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table shows certain information relating to the Corporation’s purchases of common stock for the three months ended September 30, 2012.


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan (2)		Maximum Number of of Shares that May Yet be Purchased Under the Plan
July 1-31, 2012		9,643	$	46.22		9,643
August 1-31, 2012		683,604		45.84		683,604
September 1-30, 2012		375,147		47.58		375,147

Total (Third Quarter)		1,068,394	$	46.45		1,068,394		8,130,099

(1)	Includes shares purchased from employees in connection with equity plan transactions such as the surrender of shares to pay an option exercise price or tax withholding.

(2)	The Corporation’s current stock buyback program, announced March 14, 2012, authorizes the purchase of up to 10.0 million shares of the Corporation’s common stock. The Corporation’s current stock buyback program has no fixed expiration date.

Item 6.

Exhibits

A list of exhibits to this Form 10-Q is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX

The following exhibits have been filed with the Securities and Exchange Commission with Northern Trust Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012. You may obtain copies of these exhibits from the SEC’s Internet site at http://www.sec.gov . Stockholders may also obtain copies of such exhibits by writing Rose A. Ellis, Secretary, Northern Trust Corporation, 50 South LaSalle Street, Chicago, Illinois 60603.

Exhibit

Number

Description

(10)	Material Contracts

(i)

Form of 2012 Executive Stock Option Agreement (1 of 3).

(ii)

Form of 2012 Executive Stock Option Agreement (2 of 3).

(iii)

Form of 2012 Executive Stock Option Agreement (3 of 3)

(iv)

Form of 2012 Performance Stock Unit Agreement.

(v)

Form of 2012 Restricted Stock Unit Agreement (1 of 3).

(vi)

Form of 2012 Restricted Stock Unit Agreement (2 of 3).

(vii)

Form of 2012 Restricted Stock Unit Agreement (3 of 3).

(viii)

MPP (as amended and restated effective as of October 16, 2012)

(ix)

North American Incentive Plan, as amended and restated effective as of October 15, 2012).

(x)

EMEA Incentive Plan (as amended and restated effective as of October 15, 2012).

(xi)

APAC Incentive Plan (as amended and restated effective as of October 15, 2012).

(31)	Rule 13a-14(a)/15d-14(a) Certifications

(i)

Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(ii)

Certification of CFO Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002.

(32)	Section 1350 Certifications

(i)

Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EXHIBIT INDEX (continued)

(101)

Interactive Data File

(i)

Includes the following financial and related information from Northern Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (1) the Consolidated Balance Sheet (2) the Consolidated Statement of Income, (3) the Consolidated Statement of Comprehensive Income (4) the Consolidated Statement of Changes in Stockholders' Equity, (5) the Consolidated Statement of Cash Flows, and (6) Notes to Consolidated Financial Statements.

Exhibit (10)(i)

TERMS AND CONDITIONS

2012 EXECUTIVE STOCK OPTION

UNDER THE

NORTHERN TRUST CORPORATION 2012 STOCK PLAN

Governing Documents . Your stock option grant is subject to the provisions of the Northern Trust Corporation 2012 Stock Plan (the “Plan”), the stock option notice (the “Option Notice”) and this Terms and Conditions document (“Terms and Conditions”). The Option Notice and these Terms and Conditions constitute the “Stock Option Agreement” as defined in the Plan. If there is any conflict between the information in the Stock Option Agreement and the Plan, the Plan will govern. These Terms and Conditions apply to non-qualified stock options and incentive stock options issued under the Plan. Capitalized terms not defined in Stock Option Agreement shall have the meanings assigned to them in the Plan.

Amendments . The Committee may amend the terms of the Stock Option Agreement at any time, except that any amendment that adversely affects your rights in any material way requires your written consent. Notwithstanding anything in the Stock Option Agreement to the contrary, including without limitation the preceding sentence, in the event that the Committee determines that your stock option grant, or the performance by the Corporation of any of its obligations under the Stock Option Agreement, would violate any applicable law, your stock options shall be forfeited to the Corporation and cancelled, and the Corporation shall have no obligation to honor the exercise of your stock options by you or your Beneficiary.

3.	Exercise Limitations . Your stock option is exercisable from and after the vesting date(s) set forth on the Option Notice until the ten (10)-year anniversary of the date the option was granted (the “Expiration Date”), except as provided below:

Change in Control .

(i)

In the event of a Change in Control, your then outstanding stock options (i.e., those that have not previously expired) shall be converted into options to purchase shares of the acquirer (“Acquirer options”), and, on the date of the Change in Control, (A) shall equal (B), where

(A) equals the excess of the aggregate fair market value of the shares subject to the Acquirer option over the aggregate exercise price of the Acquirer option, and

(B) equals the excess of the aggregate fair market value of the shares of Common Stock subject to your then outstanding stock option granted over the aggregate exercise price of such stock option.

In addition, the conversion shall meet all of the requirements of Treasury Regulation Section 1.409A-1(b)(5)(v)(D), and, if the stock option is an incentive stock option, shall meet all of the requirements of Treasury Regulation Section 1.424-1(a)(5). The Acquirer options shall continue to vest and be exercisable, or shall expire and be forfeited, in accordance with the provisions of these Terms and Conditions that would apply to your stock options in the absence of a Change in Control, provided, however, that if you incur a Qualifying Termination, your Acquirer options (whether vested or unvested) shall become vested and exercisable upon the date of such Qualifying Termination and may be exercised at any time until the Expiration Date.

(ii)

Notwithstanding the foregoing, if for any reason the acquirer does not agree to the provisions of Paragraph 3(a)(i), all of your then outstanding stock options shall be vested, and upon the date of the Change in Control you shall be entitled to receive in cash a payment equal to the difference between (A) and (B), where:

(A) equals the amount paid per share of Common Stock upon the date of the Change in Control multiplied by the number of shares of Common Stock subject to your then outstanding stock option; and

(B) equals the aggregate exercise price of the shares of Common Stock subject to your then outstanding Stock Option.

If, pursuant to the terms of the documents governing the Change in Control, subsequent to the date of the Change in Control additional consideration is payable to the shareholders of the Corporation, you shall be entitled to such additional consideration on the same terms and conditions as the other shareholders, based on the number of shares of Common Stock subject to your then outstanding stock option on the date of the Change in Control.

Death . If you die while employed, your stock option (whether vested or unvested) becomes vested and exercisable as of the date of your death and may be exercised by your beneficiary at any time until the earlier of (i) five (5) years following your death and (ii) the Expiration Date. If you do not name a beneficiary (or your beneficiary dies before you), your stock option will pass to the following persons in the order indicated:

•

Your spouse; if none, then,

•

Your children (in equal amounts); if none, then,

•

Your parents (in equal amounts); if none, then,

•

Your brothers and sisters (in equal amounts); if none, then,

•

Your estate.

Retirement . If you retire, your stock option continues to vest in accordance with its terms, and, once vested, it may be exercised at any time until the earlier of (i) five (5) years following the effective date of your retirement and (ii) the Expiration Date. The terms “retire” and “retirement” mean retirement occurring by reason of your having qualified for a Normal, Early, or Postponed Retirement Pension under The Northern Trust Company Pension Plan.

Special Circumstances . If (i) on the date of grant, you are a Management Group member, and (ii) on the date of your termination of employment, you are age 55 or older and have a minimum of 10 years of employment with the Corporation and its Subsidiaries, then your stock option continues to vest in accordance with its terms, and, once vested, it may be exercised at any time until the earlier of (A) five (5) years following the date of your termination of employment and (B) the Expiration Date.

Disability . If, while employed, you incur a “disability” that continues for a period of 12 months in accordance with The Northern Trust Company’s Managed Disability Program you are deemed “Disabled” on the last day of such 12-month period, at which date you are terminated from the Plan. Your stock option (whether vested or unvested) becomes vested and exercisable upon the date you are deemed Disabled and may be exercised at any time until the earlier of (i) five (5) years following the date you are deemed Disabled and (ii) the Expiration Date.

Severance . If your employment is terminated under circumstances that entitle you to severance benefits under the Northern Trust Corporation Severance Plan (the “Severance Plan”), and you have timely executed and not revoked a settlement agreement, waiver and release under the Severance Plan (a “Release”), your stock option (whether vested or unvested) becomes vested and exercisable as of the date of your termination of employment and may be exercised at any time until the earlier of (i) one-hundred and eighty (180) days following your termination of employment under the Severance Plan and (ii) the Expiration Date. If you are eligible for a Normal, Early, or Postponed Retirement Pension upon termination of employment under the Severance Plan, your stock option (whether vested or unvested) becomes vested and exercisable as of the date of your termination of employment and may be exercised at any time until the earlier of (A) five (5) years following the effective date of your retirement and (B) the Expiration Date.

Government Employment . If (i) your employment with the Corporation and its Subsidiaries terminates prior to a vesting date, and (A) you are eligible to “retire,” as defined above, at the time of your termination of employment, or (B) you are a Management Group member on the date of the grant of the stock options and on your date of termination of employment you are 55 years or older with a minimum of 10 years of employment with the Corporation and its Subsidiaries; and (ii) if (A) such termination of employment constitutes a Government Service

Termination, or (B) after your termination of employment and prior to a vesting date, you accept Government Employment; then (iii) on your Government Service Termination date or the date of commencement of your Government Employment, as applicable, you will be 100% vested in your then outstanding stock options, provided that you meet the following conditions: (A) you provide the Committee with satisfactory evidence that, as a result of your Government Employment, the divestiture of any continued equity interest in the Corporation is reasonably necessary (I) for you as a Federal officer or employee in the executive branch to comply with an ethics agreement with the Federal government, or (II) for you to avoid the violation of U.S. federal, state or local or non-U.S. ethics law or conflicts of interest law applicable to you in your Government Employment, and (B) you execute and return no later than your Government Service Termination date or the date of commencement of your Government Employment, as applicable, an agreement satisfactory to the Committee acknowledging the Corporation’s right to recover (and your obligation to repay) under Paragraph 8 of the Terms and Conditions, any gain realized in connection with the stock options in the event that you are determined to have engaged in conduct or activity described in Paragraph 8. If you become vested in your stock options under this paragraph, all of your outstanding stock options will be exercisable for (x) the 90 day period after the earlier of your Government Service Termination or the commencement of your Government Employment, as applicable, or (y) the Expiration Date, if earlier. Thereafter, your unexercised stock options, if any, shall be forfeited.

For purposes of these Terms and Conditions, “Government Service Termination” means your termination of employment with the Corporation and its Subsidiaries due to or in connection with your immediate commencement of Government Employment.

For purposes of these Terms and Conditions, “Government Employment” refers to employment at any U.S. Federal, state or local government, any non-U.S. government, any supranational or international organization, any self-regulatory organization, or any agency or instrumentality of any such government or organization, or any other employer determined to be a Government Employer by the Committee.

Other Termination of Employment . Except as set forth below, if (i) your employment by the Corporation and its Subsidiaries terminates for any reason other than death, retirement or a severance under the Severance Plan for which you have executed and not revoked a Release, (ii) you are not terminated from the Plan due to disability pursuant to the “Disability” provisions described above, (iii) you were not both a Management Group member on the date of grant and age 55 with 10 years of employment with the Corporation and its Subsidiaries on your date of termination, and (iv) you are not terminated in a Qualifying Termination, then your stock option, if and to the extent vested as of the date of your termination of employment, may be exercised at any time until the earlier of (A) three (3) months following the date of your termination of employment and (B)

the Expiration Date. Your stock option, if and to the extent unvested as of the date of your termination of employment, expires as of the date of your termination of employment. A termination of employment shall not be deemed to occur by reason of your transfer between the Corporation and a Subsidiary of the Corporation or between two Subsidiaries of the Corporation. If you meet the criteria of each of clauses (i), (ii), (iii) and (iv), above, the post-termination exercise provision of this sub-paragraph shall apply to you if you become a consultant to the Corporation or a Subsidiary of the Corporation upon termination of your employment from the Corporation or a Subsidiary of the Corporation.

Re-Employment . If, after your termination of employment, you are re-employed by the Corporation or one of its Subsidiaries, upon your return you will be considered a new hire for purposes of the Plan. Options that previously expired upon your termination of employment remain expired and are not reinstated.

5.	Exercise of Options .

How to Exercise . You may exercise your stock option, in any manner described in Section 6(e) of the Plan, through the H. R. Service Center at (800) 807-0302 or online through My Place. Inquiry and modeling capabilities are also available online.

Black-out Period . Due to federal securities law concerns, the Corporation has a “black-out” policy which restricts any exercise of your stock option around quarterly corporate earnings announcements. Please refer to the “Statement of Confidential Information and Securities Trading” for further information about the Corporation’s black-out policy. You may access this document online through My Passport. From the homepage click on Corporate-wide Services, and then Corporate Policies.

6.	Nontransferability . Your stock option is not transferable other than as provided in these Terms and Conditions. Your stock option (whether a non-qualified stock option or an incentive stock option) is exercisable, during your lifetime, only by you or your personal representative.

may delay the issuance or delivery of shares of Common Stock if the Corporation reasonably anticipates that such issuance or delivery will violate federal securities laws or other applicable law, provided that the issuance or delivery is made at the earliest date at which the Corporation reasonably anticipates that such issuance or delivery will not cause such violation. As an option holder, you have no interest in the shares covered by the option until the shares are actually issued.

8.	Forfeitures and Recoupments .

(a)

Engaging in Restricted Activity Without Written Consent of the Corporation . Notwithstanding anything to the contrary in these Terms and Conditions, if you, without the written consent of the Corporation:

(i)

at any time after the date of these Terms and Conditions, have divulged, directly or indirectly, or used, for your own or another’s benefit, any Confidential Information;

(ii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after you cease to be employed by the Corporation and its Subsidiaries for any reason, have Solicited, or assisted in the Solicitation of, any Client or Prospective Client (provided, however, that this clause (ii) shall not apply to your Solicitation of any Client or Prospective Client with whom you had a business relationship prior to the start of your employment with the Corporation and its Subsidiaries, provided no Confidential Information, directly or indirectly, is used in such Solicitation); or

(iii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after you cease to be employed by the Corporation and its Subsidiaries for any reason, have solicited, encouraged, advised, induced or caused any employee of the Corporation or any of its Subsidiaries to terminate his or her employment with the Corporation or any of its Subsidiaries, or provided any assistance, encouragement, information, or suggestion to any person or entity regarding the solicitation or hiring of any employee of the Corporation or any of its Subsidiaries;

your then outstanding stock options (whether vested or unvested) shall be forfeited to the Corporation by notice from the Committee in writing to you within a reasonable period of time after the Committee acquires knowledge of your violation of this Paragraph 8(a). In the event that your stock options are forfeited pursuant to the preceding sentence or the provisions of Paragraph 8(b), below, the Corporation shall have no obligation to honor the exercise of such stock options by you or your beneficiary.

In addition, in the event of any action by you to which clauses (i), (ii) or (iii), above, apply, the Corporation shall, to the extent the Committee determines it practicable and in the best interests of the Corporation, and as permitted by applicable law, rescind any exercise by you or payment or delivery to you with respect to any stock options occurring within twelve (12) months prior to, or at any time following, the date of your termination of employment for any reason (including but not limited to termination of employment due to Retirement or Disability), and recoup any “gain realized” in connection with such stock options as described in Paragraph 8(c) below.

(b)

Misconduct and Restatement of Financials . Consistent with the Corporation’s risk-mitigation strategies for its compensation programs, and notwithstanding any other provision in these Terms and Conditions, in the event that:

(i)

the Corporation is required to restate its financial statements filed with the U.S. Securities and Exchange Commission on Form 10-Q or Form 10-K or re-file quarterly financial data with the U.S. Federal Reserve due to any reason other than changes in accounting policy or applicable law (a “Restatement”), and the Committee determines that such Restatement resulted, in whole or in material part, from your (A) intentionally engaging in conduct that resulted in a material weakness in internal control over financial reporting and was inconsistent with the standards of conduct of the business judgment rule, as defined below, or (B) personally and knowingly engaging in practices that materially contributed to circumstances that resulted in a material weakness in internal control over financial reporting and that were inconsistent with the standards of conduct of the business judgment rule; or

(ii)

the Committee determines that you have engaged in conduct that is grounds for termination for Cause and is inconsistent with the standards of conduct of the business judgment rule (“Misconduct”);

then the Committee shall review all of your then outstanding stock options (whether vested or unvested), and all stock options with respect to which there has been an exercise by you or payment or delivery to you within the 36 - month period immediately preceding the date of the Restatement, or during the period after the date of the Misconduct, as applicable.

the event of Misconduct described in clause (ii) (other than any actions included in Paragraph 8(a) or clause (i) of this Paragraph 8(b)), the Committee shall declare your then outstanding stock options (whether vested or unvested) to be forfeited to the Corporation by notice in writing to you within a reasonable period of time after the date of the discovery of the Misconduct, and the Corporation shall, to the extent the Committee determines it practicable and in the best interests of the Corporation and as permitted by applicable law, rescind any exercise by you or payment or delivery to you with respect to any stock options occurring after the date such Misconduct occurred and recoup any gain realized in connection with such stock options as described in Paragraph 8(c), below.

Your actions satisfy the “business judgment rule” if such actions were taken in good faith, in a manner that an ordinarily prudent person would act under similar circumstances, and in the interests of the Corporation. In interpreting and applying the preceding sentence, the Committee shall use as a guide the principles of the business judgment rule as construed by the Delaware courts in applying the Delaware Corporation Act.

(c)

Rescission and Recoupment . Upon the rescission, pursuant to the provisions of Paragraph 8(a) or 8(b), of any exercise by you or payment or delivery to you with respect to any stock options, the Corporation shall be entitled to recoup any “gains realized” in connection with such stock options, in such manner and on such terms and conditions as the Committee shall require. “Gains realized” shall include (i) the amount of any cash distributed to you with respect to, (ii) any cash or shares of the Corporation’s Common Stock (or proceeds attributable to the sale thereof ) paid or delivered in settlement of, and (iii) any other amounts determined by the Committee to have been realized in connection with, such rescinded stock options. If you fail to repay any such amounts to the Corporation within 60 days after receipt of written demand, the Corporation shall be entitled, subject to applicable law and the requirements of Internal Revenue Code Section 409A, to deduct from any amounts the Corporation owes you from time to time the amount of all gains realized, or to sue for repayment of such amounts, or to pursue both remedies.

9.	No Contract of Employment . The option grant shall not be deemed to obligate the Corporation or any of its Subsidiaries to continue your employment for any particular period, nor is employment guaranteed for the length of the vesting schedule set forth in the Option Notice.

10.

Taxes . Please refer to the “Summary Description of the Northern Trust Corporation 2012 Stock Plan” for a description of the U.S. federal income tax consequences affecting non-qualified stock options and incentive stock options.

11.

Interpretation and Applicable Law . Any interpretation by the Committee of the terms and conditions of the Plan, the Stock Option Agreement or any guidelines shall be final. All questions pertaining to the validity, construction and administration of the Plan or the Stock Option Agreement, and all claims or causes of action arising under, relating to, or in connection with, the Plan or the Stock Option Agreement shall be determined in conformity with the laws of the State of Delaware, without regard to the conflict of law provisions of any state.

12.

Definitions . As provided above, Capitalized terms not defined in the Stock Option Agreement shall have the meanings assigned to them in the Plan. For purposes of the Stock Option Agreement:

(a)

“Cause” means (i) your conviction of or no contest plea with respect to bribery, extortion, embezzlement, fraud, grand larceny, or any felony involving abuse or misuse of your position to seek or obtain an illegal or personal gain at the expense of the Corporation, or similar crime, or conspiracy to commit any such crimes or attempt to commit any such crimes; or (ii) your misconduct that causes material harm to the Corporation.

(b)

“Client” means any person or entity with which the Corporation, or any of its Subsidiaries, did business and with which you had contact, or about which you had access to Confidential Information, during the last twelve (12) months of your employment.

(c)

“Competitive Service or Product” means any service or product: (i) that is substantially similar to or competitive with any service or product that you created or provided, or of which you assisted in the creation or provision, during your employment by the Corporation or any of its Subsidiaries; or (ii) about which you had access to Confidential Information during your employment by the Corporation or any of its Subsidiaries.

(d)

“Common Stock” means the common stock of the Corporation.

(e)

“Confidential Information” means any trade secrets or other significant proprietary information, including, but not limited to, any client information (for example, client lists, information about client accounts, borrowings, and current or proposed transactions), any internal analysis of clients, marketing strategies, financial reports or projections, business or other plans, data, procedures, methods, computer data or system program or design, devices, lists, tools, or compilation, which relate to the present or planned business of the Corporation or any of its Subsidiaries and which has not been made generally known to the public by authorized representatives of the Corporation.

(f)

causes a regulatory body with jurisdiction over Northern Trust, to demand, request, or recommend that Participant be suspended or removed from any position in which Participant serves with Northern Trust, or (v) Participant’s willful and substantial nonperformance of assigned duties, provided that such nonperformance has continued more than ten days after Northern Trust has given written notice of such nonperformance and of its intention to terminate Participant’s employment because of such nonperformance. For purposes of clauses (ii) and (v) of this definition, no act, or failure to act, on Participant’s part shall be deemed “willful” unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant’s act, or failure to act, was in the best interest of the Corporation. In the event of a dispute concerning the application of this provision, no claim by the Corporation that Good Cause exists shall be given effect unless the Corporation establishes to the Board of Directors of the Corporation by clear and convincing evidence that Good Cause exists.

(g)

“Good Reason” shall exist if, without Participant’s express written consent: (i) the Corporation (or an affiliate) shall materially diminish (A) the Participant’s authority, duties, or responsibilities; (B) the authority, duties, or responsibilities of the position or entity to which Participant is required to report; or (C) the budget, if any, over which Participant has authority, in each case as compared to Participant’s circumstances immediately prior to a Change in Control; (ii) the Corporation (or an affiliate) shall materially diminish Participant’s base compensation from that in effect as of the date of the grant hereunder of the stock option (or as of a Change in Control, if greater), including a diminution of Participant’s salary or the material diminution in the aggregate value to Participant of participation in cash or stock-based incentive or bonus plans, retirement plans, welfare benefit plans, or other benefit plans, programs or arrangements (as computed by an independent employee benefits consultant selected by the Corporation); (iii) the Corporation (or an affiliate) shall materially change the geographic location at which Participant must perform services from that in effect prior to a Change in Control (including by assigning to Participant duties that would reasonably require such relation or which would require Participant to spend more than fifty normal working days away from the location in effect prior to a Change in Control); or (iv) any other action or inaction by the Corporation (or an affiliate) that constitutes a material breach of the employment agreement, if any, under which Participant provides services to the Corporation.

Participant’s continued employment shall not constitute consent to, or a waiver of, rights with respect to, any act or failure to act constituting Good Reason hereunder, provided, however, that in order for Good Reason to exist hereunder, Participant must provide notice to the Corporation of the existence of the condition described in clauses (i) through (v) above within 90 days of the initial existence of the condition (or, if later, within 90 days of Participant’s becoming aware of such condition), and the Corporation must have failed to cure such condition within 30 days of the receipt of such notice.

(h)

“Northern Trust” means the Corporation and its Subsidiaries, collectively.

(i)

“Prospective Client” means any person or entity to which the Corporation, or any of its Subsidiaries, provided, or from which the Corporation, or any of its Subsidiaries received, a proposal, bid, or written inquiry (general advertising or promotional materials and mass mailings excepted) and with which you had contact, or about which you had access to Confidential Information, during the last twelve (12) months of your employment.

(j)

“Qualifying Termination” means a termination of employment with the Corporation and all of its Subsidiaries after the date of the Change in Control and, at any time before the second anniversary of such Change in Control, that is either involuntary on the part of the Participant and does not result from his or her death or disability and is not for “Good Cause”, or is voluntary and for “Good Reason.”

(k)

“Solicit” and “Solicitation” (with respect to Clients or Prospective Clients) mean directly or indirectly, and without the Corporation’s written authorization, to invite, encourage, request, or induce (or to assist another to invite, encourage, request or induce) any Client or Prospective Client of the Corporation, or any of its Subsidiaries, to: (i) surrender, redeem or terminate a product, service or relationship with the Corporation, or any of its Subsidiaries; (ii) obtain any Competitive Service or Product from you or any third party; or (iii) transfer a product, service or relationship from the Corporation, or any of its Subsidiaries, to you or any third party.

Exhibit (10)(ii)

TERMS AND CONDITIONS

2012 EXECUTIVE STOCK OPTION

UNDER THE

NORTHERN TRUST CORPORATION 2012 STOCK PLAN

3.	Exercise Limitations . Your stock option is exercisable from and after the vesting date(s) set forth on the Option Notice until the ten (10)-year anniversary of the date the option was granted (the “Expiration Date”), except as provided below:

(a)

Change in Control .

(i)

(A) equals the excess of the aggregate fair market value of the shares subject to the Acquirer option over the aggregate exercise price of the Acquirer option, and

(B) equals the excess of the aggregate fair market value of the shares of Common Stock subject to your then outstanding stock option granted over the aggregate exercise price of such stock option.

(ii)

(A) equals the amount paid per share of Common Stock upon the date of the Change in Control multiplied by the number of shares of Common Stock subject to your then outstanding stock option; and

(B) equals the aggregate exercise price of the shares of Common Stock subject to your then outstanding Stock Option.

(b)

•

Your spouse; if none, then,

•

Your children (in equal amounts); if none, then,

•

Your parents (in equal amounts); if none, then,

•

Your brothers and sisters (in equal amounts); if none, then,

•

Your estate.

(c)

Retirement . If you retire, your stock option continues to vest in accordance with its terms, and, once vested, it may be exercised at any time until the earlier of (i) five (5) years following the effective date of your retirement and (ii) the Expiration Date. The terms “retire” and “retirement” mean retirement occurring by reason of your having qualified for a Normal, Early, or Postponed Retirement Pension under The Northern Trust Company Pension Plan.

(d)

Special Circumstances . If (a) on the date of grant, you are a Management Group member, and (b) on the date of your termination of employment, you are age 55 or older and have a minimum of 10 years of employment with the Corporation and its Subsidiaries, then your stock option continues to vest in accordance with its terms, and, once vested, it may be exercised at any time until the earlier of (i) five (5) years following the date of your termination of employment and (ii) the Expiration Date.

(e)

(f)

Severance . If your employment is terminated under circumstances that entitle you to severance benefits under the Northern Trust Corporation Severance Plan (the “Severance Plan”), and you have timely executed and not revoked a settlement agreement, waiver and release under the Severance Plan (a “Release”), your stock option (whether vested or unvested) becomes vested and exercisable as of the date of your termination of employment and may be exercised at any time until the earlier of (i) one-hundred and eighty (180) days following your termination of employment under the Severance Plan and (ii) the Expiration Date. If you are eligible for a Normal, Early, or Postponed Retirement Pension upon termination of employment under the Severance Plan, your stock option (whether vested or unvested) becomes vested and exercisable as of the date of your termination of employment and may be exercised at any time until the earlier of (x) five (5) years following the effective date of your retirement and (y) the Expiration Date.

(g)

(iii) you were not both a Management Group member on the date of grant and age 55 with 10 years of employment with the Corporation and its Subsidiaries on your date of termination, and (iv) you are not terminated in a Qualifying Termination, then your stock option, if and to the extent vested as of the date of your termination of employment, may be exercised at any time until the earlier of (A) three (3) months following the date of your termination of employment and (B) the Expiration Date. Your stock option, if and to the extent unvested as of the date of your termination of employment, expires as of the date of your termination of employment. A termination of employment shall not be deemed to occur by reason of your transfer between the Corporation and a Subsidiary of the Corporation or between two Subsidiaries of the Corporation. If you meet the criteria of each of clauses (i), (ii), (iii) and (iv), above, the post-termination exercise provision of this sub-paragraph shall apply to you if you become a consultant to the Corporation or a Subsidiary of the Corporation upon termination of your employment from the Corporation or a Subsidiary of the Corporation.

5.	Exercise of Options .

(a)

(b)

6.	Nontransferability . Your stock option is not transferable other than as provided in these Terms and Conditions. Your stock option (whether a non-qualified stock option or an incentive stock option) is exercisable, during your lifetime, only by you or your personal representative.

which you are otherwise entitled under the Plan, provided, however, that such shares under this clause (iii) may be used to satisfy not more than the Corporation’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such taxable income). Payment of federal income taxes may be accomplished through a combination of withholding of shares and delivery of previously acquired shares. The Corporation may delay the issuance or delivery of shares of Common Stock if the Corporation reasonably anticipates that such issuance or delivery will violate federal securities laws or other applicable law, provided that the issuance or delivery is made at the earliest date at which the Corporation reasonably anticipates that such issuance or delivery will not cause such violation. As an option holder, you have no interest in the shares covered by the option until the shares are actually issued.

8.	Forfeitures and Recoupments .

(a)

(i)

at any time after the date of these Terms and Conditions, have divulged, directly or indirectly, or used, for your own or another’s benefit, any Confidential Information;

(ii)

(iii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after you cease to be employed by the Corporation and its Subsidiaries for any reason, have solicited, encouraged, advised, induced or caused any employee of the Corporation or any of its Subsidiaries to terminate his or her employment with the Corporation or any of its Subsidiaries, or provided any assistance, encouragement, information, or suggestion to any person or entity regarding the solicitation or hiring of any employee of the Corporation or any of its Subsidiaries;

(b)

(i)

(ii)

the Committee determines that you have engaged in conduct that is grounds for termination for Cause and is inconsistent with the standards of conduct of the business judgment rule (“Misconduct”);

Committee determines it practicable and in the best interests of the Corporation, and as permitted by applicable law, rescind any exercise by you or payment or delivery to you with respect to any stock options occurring within 36 months prior to the date of the Restatement that would not have become vested or been paid based on accurate financial data or restated results, and recoup any gain realized in connection with such stock options as described in Paragraph 8(c), below. In the event of Misconduct described in clause (ii) (other than any actions included in Paragraph 8(a) or clause (i) of this Paragraph 8(b)), the Committee shall declare your then outstanding stock options (whether vested or unvested) to be forfeited to the Corporation by notice in writing to you within a reasonable period of time after the date of the discovery of the Misconduct, and the Corporation shall, to the extent the Committee determines it practicable and in the best interests of the Corporation and as permitted by applicable law, rescind any exercise by you or payment or delivery to you with respect to any stock options occurring after the date such Misconduct occurred and recoup any gain realized in connection with such stock options as described in Paragraph 8(c), below.

(c)

9.	No Contract of Employment . The option grant shall not be deemed to obligate the Corporation or any of its Subsidiaries to continue your employment for any particular period, nor is employment guaranteed for the length of the vesting schedule set forth in the Option Notice.

10.

11.

12.

Definitions . As provided above, Capitalized terms not defined in the Stock Option Agreement shall have the meanings assigned to them in the Plan. For purposes of the Stock Option Agreement:

(a)

(b)

(c)

(d)

“Common Stock” means the common stock of the Corporation.

(e)

(f)

“Good Cause” means (i) Participant’s conviction of any criminal violation involving dishonesty, fraud or breach of trust which involves the business of Northern Trust; (ii) Participant’s willful engagement in any misconduct in the performance of Participant’s duty that materially injures the Corporation; (iii) Participant’s performance of any act which, if known to the customers, clients, stockholders or regulators of Northern Trust, would materially and adversely impact the business of Northern Trust; (iv) any act or omission by Participant that causes a regulatory body with jurisdiction over Northern Trust, to demand, request, or recommend that Participant be suspended or removed from any position in which Participant serves with Northern Trust, or (v) Participant’s willful and substantial nonperformance of assigned duties, provided that such nonperformance has continued more than ten days after Northern Trust has given written notice of such nonperformance and of its intention to terminate Participant’s employment because of such nonperformance. For purposes of clauses (ii) and (v) of this definition, no act, or failure to act, on Participant’s part shall be deemed “willful” unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant’s act, or failure to act, was in the best interest of the Corporation. In the event of a dispute concerning the application of this provision, no claim by the Corporation that Good Cause exists shall be given effect unless the Corporation establishes to the Board of Directors of the Corporation by clear and convincing evidence that Good Cause exists.

(g)

(h)

“Northern Trust” means the Corporation and its Subsidiaries, collectively.

(i)

(j)

(k)

Exhibit (10)(iii)

TERMS AND CONDITIONS

2012 EXECUTIVE STOCK OPTION

UNDER THE

NORTHERN TRUST CORPORATION 2012 STOCK PLAN

3.	Exercise Limitations .

(a)

Exercisability . Your stock option is exercisable from and after the vesting date(s) set forth on the Option Notice until the ten (10)-year anniversary of the date the option was granted (the “Expiration Date”), except as provided below:

Change in Control .

(1)

(A) equals the excess of the aggregate fair market value of the shares subject to the Acquirer option over the aggregate exercise price of the Acquirer option, and

(B) equals the excess of the aggregate fair market value of the shares of Common Stock subject to your then outstanding stock option granted over the aggregate exercise price of such stock option.

(2)

Notwithstanding the foregoing, if for any reason the acquirer does not agree to the provisions of Paragraph 3(a)(i)(1), all of your then outstanding stock options shall be vested, and upon the date of the Change in Control you shall be entitled to receive in cash a payment equal to the difference between (A) and (B), where:

(A)

equals the amount paid per share of Common Stock upon the date of the Change in Control multiplied by the number of shares of Common Stock subject to your then outstanding stock option; and

(B)

equals the aggregate exercise price of the shares of Common Stock subject to your then outstanding Stock Option.

ii.

Death . If you die while employed, your stock option (whether vested or unvested) becomes vested and exercisable as of the date of your death and may be exercised by your beneficiary at any time until the earlier of (a) five (5) years following your death and (b) the Expiration Date. If you do not name a beneficiary (or your beneficiary dies before you), your stock option will pass to the following persons in the order indicated:

•

Your spouse; if none, then,

•

Your children (in equal amounts); if none, then,

•

Your parents (in equal amounts); if none, then,

•

Your brothers and sisters (in equal amounts); if none, then,

•

Your estate.

iii.

Retirement . If you retire, your stock option continues to vest in accordance with its terms, and, once vested, it may be exercised at any time until the earlier of (a) five (5) years following the effective date of your retirement and (b) the Expiration Date. The terms “retire” and “retirement” mean retirement occurring by reason of your having qualified for a Normal, Early, or Postponed Retirement Pension under The Northern Trust Company Pension Plan.

iv.

Disability . If, while employed, you incur a “disability” that continues for a period of 12 months in accordance with The Northern Trust Company’s Managed Disability Program you are deemed “Disabled” on the last day of such 12-month period, at which date you are terminated from the Plan. Your stock option (whether vested or unvested) becomes vested and exercisable upon the date you are deemed Disabled and may be exercised at any time until the earlier of (a) five (5) years following the date you are deemed Disabled and (b) the Expiration Date.

vi.

Severance . If your employment is terminated under circumstances that entitle you to severance benefits under the Northern Trust Corporation Severance Plan (the “Severance Plan”), and you have timely executed and not revoked a settlement agreement, waiver and release under the Severance Plan (a “Release”), your stock option (whether vested or unvested) becomes vested and exercisable as of the date of your termination of employment and may be exercised at any time until the earlier of (a) one-hundred and eighty (180) days following your termination of employment under the Severance Plan and (b) the Expiration Date. If you are eligible for a Normal, Early, or Postponed Retirement Pension upon termination of employment under the Severance Plan, your stock option (whether vested or unvested) becomes vested and exercisable as of the date of your termination of employment and may be exercised at any time until the earlier of (x) five (5) years following the effective date of your retirement and (y) the Expiration Date.

vii.

Other Termination of Employment . Except as set forth below, if (a) your employment by the Corporation and its Subsidiaries terminates for any reason other than death, retirement or a severance under the Severance Plan for which you have executed and not revoked a Release, (b) you are not terminated from the Plan due to disability pursuant to the “Disability” provisions described above, (c) you were not both a Management Group member on the date of grant and age 55 with 10 years of employment with the Corporation and its Subsidiaries on your date of termination, and (d) you are not terminated in a Qualifying Termination, then your stock option, if and to the extent vested as of the date of your termination of employment, may be exercised at any time until the earlier of (x) three (3) months following the date of your termination of employment and (y) the Expiration Date. Your stock option, if and to the extent unvested as of the date of your termination of employment, expires as of the date of your termination of employment. A termination of employment shall not be deemed to occur by reason of your transfer between the Corporation and a Subsidiary of the Corporation or between two Subsidiaries of the Corporation. If you meet the criteria of each of clauses (a), (b), (c), and (d) above, the post-termination exercise provision of this sub-paragraph shall apply to you if you become a consultant to the Corporation or a Subsidiary of the Corporation upon termination of your employment from the Corporation or a Subsidiary of the Corporation.

(b)

Six-Month Hold Requirement . Pursuant to regulations promulgated by the Financial Services Authority in the United Kingdom, you are required to hold and not sell any shares that you acquire from the exercise of this option, or portion thereof, during the 6-month period immediately following the date on which your option, or portion thereof, vests. Accordingly, during the 6-month period immediately following the date on which your option, or portion thereof, vests (i) the payment of the applicable exercise price and the satisfaction of tax withholding obligations may not be accomplished by withholding shares otherwise deliverable to you upon the exercise and (ii) you are required to hold and not sell, other than sales for tax withholding purposes, shares that you receive upon the exercise of such option or portion thereof.

5.	Exercise of Options .

ii.

6.	Nontransferability . Your stock option is not transferable other than as provided in these Terms and Conditions. Your stock option (whether a non-qualified stock option or an incentive stock option) is exercisable, during your lifetime, only by you or your personal representative.

Withholding/Delivery of Shares . Delivery of shares of Common Stock upon exercise of your stock option is subject to the withholding of all applicable federal, state, and local taxes. At your election, subject to such rules and limitations as may be established by the Committee, such withholding obligations shall be satisfied: (i) by cash payment by you; (ii) through the surrender of shares of Common Stock which you already own that are acceptable to the Committee; or (iii) through surrender of shares of Common Stock to which you are otherwise entitled under the Plan, provided, however, that such shares under this clause (iii) may be used to satisfy not more than the Corporation’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such taxable income). Payment of federal income taxes may be accomplished through a combination of withholding of shares and delivery of previously acquired shares. The Corporation may delay the issuance or delivery of shares of Common Stock if the Corporation reasonably anticipates that such issuance or delivery will violate federal securities laws or other applicable law, provided that the issuance or delivery is made at the earliest date at which the Corporation reasonably anticipates that such issuance or delivery will not cause such violation. As an option holder, you have no interest in the shares covered by the option until the shares are actually issued.

8.	Forfeitures and Recoupments .

(a)

(i)

at any time after the date of these Terms and Conditions, have divulged, directly or indirectly, or used, for your own or another’s benefit, any Confidential Information;

(ii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after you cease to be employed by the

Corporation and its Subsidiaries for any reason, have Solicited, or assisted in the Solicitation of, any Client or Prospective Client (provided, however, that this clause (ii) shall not apply to your Solicitation of any Client or Prospective Client with whom you had a business relationship prior to the start of your employment with the Corporation and its Subsidiaries, provided no Confidential Information, directly or indirectly, is used in such Solicitation); or

(iii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after you cease to be employed by the Corporation and its Subsidiaries for any reason, have solicited, encouraged, advised, induced or caused any employee of the Corporation or any of its Subsidiaries to terminate his or her employment with the Corporation or any of its Subsidiaries, or provided any assistance, encouragement, information, or suggestion to any person or entity regarding the solicitation or hiring of any employee of the Corporation or any of its Subsidiaries;

(b)

(i)

financial reporting and was inconsistent with the standards of conduct of the business judgment rule, as defined below, or (B) personally and knowingly engaging in practices that materially contributed to circumstances that resulted in a material weakness in internal control over financial reporting and that were inconsistent with the standards of conduct of the business judgment rule; or

(ii)

the Committee determines that you have engaged in conduct that is grounds for termination for Cause and is inconsistent with the standards of conduct of the business judgment rule (“Misconduct”);

then the Committee shall review all of your then outstanding stock options (whether vested or unvested), and all stock options with respect to which there has been an exercise by you or payment or delivery to you within the 36-month period immediately preceding the date of the Restatement, or during the period after the date of the Misconduct, as applicable.

In the event of a Restatement described in clause (i), the Committee shall declare your then outstanding, vested stock options that would not have become vested based on accurate financial data or restated results to be forfeited to the Corporation by notice in writing to you within a reasonable period of time after the date of the Restatement, and the Corporation shall, to the extent the Committee determines it practicable and in the best interests of the Corporation, and as permitted by applicable law, rescind any exercise by you or payment or delivery to you with respect to any stock options occurring within 36 months prior to the date of the Restatement that would not have become vested or been paid based on accurate financial data or restated results, and recoup any gain realized in connection with such stock options as described in Paragraph 8(c), below. In the event of Misconduct described in clause (ii) (other than any actions included in Paragraph 8(a) or clause (i) of this Paragraph 8(b)), the Committee shall declare your then outstanding stock options (whether vested or unvested) to be forfeited to the Corporation by notice in writing to you within a reasonable period of time after the date of the discovery of the Misconduct, and the Corporation shall, to the extent the Committee determines it practicable and in the best interests of the Corporation and as permitted by applicable law, rescind any exercise by you or payment or delivery to you with respect to any stock options occurring after the date such Misconduct occurred and recoup any gain realized in connection with such stock options as described in Paragraph 8(c), below.

(c)

Cancellation by the Committee . The Committee will consider cancelling and may cancel all or a portion of your unvested stock options when (a) there is reasonable evidence of material employee misbehavior or error, (b) the Corporation or the relevant business unit of the Corporation suffers a material downturn in its financial performance, attributable to a prior period and materially greater than was previously anticipated in risk adjusting incentive compensation, or (c) the Corporation or the relevant business unit of the Corporation suffers a material failure of risk management. In the event that any of your unvested stock options are cancelled pursuant to the preceding sentence, the Corporation shall have no obligation to honor the exercise of such stock options by you or your beneficiary.

10.	No Contract of Employment . The option grant shall not be deemed to obligate the Corporation or any of its Subsidiaries to continue your employment for any particular period, nor is employment guaranteed for the length of the vesting schedule set forth in the Option Notice.

11.	Taxes . Please refer to the “Summary Description of the Northern Trust Corporation 2012 Stock Plan” for a description of the U.S. federal income tax consequences affecting non-qualified stock options and incentive stock options.

12.

13.	Definitions . As provided above, Capitalized terms not defined in the Stock Option Agreement shall have the meanings assigned to them in the Plan. For purposes of the Stock Option Agreement:

(a)

(b)

(c)

“Common Stock” means the common stock of the Corporation.

(d)

(e)

(f)

definition, no act, or failure to act, on Participant’s part shall be deemed “willful” unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant’s act, or failure to act, was in the best interest of the Corporation. In the event of a dispute concerning the application of this provision, no claim by the Corporation that Good Cause exists shall be given effect unless the Corporation establishes to the Board of Directors of the Corporation by clear and convincing evidence that Good Cause exists.

(g)

(h)

“Northern Trust” means the Corporation and its Subsidiaries, collectively.

(i)

(j)

(k)

Exhibit (10)(iv)

TERMS AND CONDITIONS

2012 PERFORMANCE STOCK UNIT AWARD

UNDER THE

NORTHERN TRUST CORPORATION 2012 STOCK PLAN

Your performance stock unit Award (“Stock Unit Award”) is subject to the provisions of the Northern Trust Corporation 2012 Stock Plan (the “Plan”), the Stock Unit Award notice (the “Award Notice”), and this Terms and Conditions document (“Terms and Conditions”). The Award Notice and these Terms and Condition constitute the “Stock Unit Agreement” as defined in the Plan. If there is any conflict between the information in the Stock Unit Agreement and the Plan, the Plan will govern. Capitalized terms not defined in the Stock Unit Agreement shall have the meanings assigned to them in the Plan.

Grant . The Corporation hereby grants to the Participant an Award of Stock Units, as set forth in the Award Notice, subject to the terms and conditions of the Plan and the Stock Unit Agreement, and subject further to increase or decrease as set forth in the Award Notice. This award of Stock Units is intended to qualify as “performance based compensation” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). A Stock Unit is the right, subject to the terms and conditions of the Plan and the Stock Unit Agreement, to receive a distribution of a share of Common Stock pursuant to Paragraph 8 of these Terms and Conditions.

Stock Unit Account . The Corporation shall maintain an account (“Stock Unit Account”) on its books in the name of the Participant which shall reflect the number of Stock Units awarded to the Participant that the Participant is eligible to receive in distribution pursuant to Paragraph 8 of these Terms and Conditions.

Dividend Equivalents . Upon the payment of any dividend on Common Stock occurring during the period preceding the distribution of the Participant’s Stock Unit award pursuant to Paragraph 8 of these Terms and Conditions, the Corporation shall promptly (and in any event no later than March 15 of the calendar year following the calendar year in which the dividend is declared) pay to the Participant an amount in cash equal in value to the dividends that the Participant would have received had the Participant been the actual owner of the number of shares of Common Stock represented by the Stock Units in the Participant’s Stock Unit Account on that date (“Dividend Equivalents”).

Forfeiture . The Stock Units granted to the Participant pursuant to the Stock Unit Agreement shall be forfeited and revert to the Corporation (a) in accordance with Paragraph 9, if the Participant engages in conduct or activity described in Paragraph 9 of these Terms and Conditions, or (b) except as described in Paragraphs 5, 6 and 7 of these Terms and Conditions, if the Participant’s employment with the Corporation and all of its Subsidiaries terminates prior to the last day of the “Performance Period” as defined in Exhibit A hereto.

Vesting . Subject to all of the provisions of the Stock Unit Agreement, including without limitation the provisions of Paragraphs 4, 6, 7 and 9 of these Terms and Conditions, upon the last day of the Performance Period (as defined in Exhibit A), the Participant shall become vested in such number of Stock Units, if any, as determined under the Schedule in Exhibit A, based on the average annual rate of return on equity attained by the Corporation (as determined by the Committee in its sole discretion) for the Performance Period, but only if the Participant remains continuously employed by the Corporation or one of its Subsidiaries through the last day of the Performance Period. If the Participant’s employment with the Corporation and its Subsidiaries terminates for any reason prior to the end of the Performance Period, the Stock Units in the Participant’s Stock Unit Account that have not yet vested and do not become vested under Paragraph 6 or have not become vested under Paragraph 7, shall be forfeited and revert to the Corporation on such termination date, and the Corporation shall have no further obligation after such date to pay Dividend Equivalents pursuant to Paragraph 3 of these Terms and Conditions with respect to such forfeited Stock Units. The Corporation shall have no further obligation to the Participant under these Terms and Conditions following the Participant’s forfeiture of the Stock Units.

6.	Prorated Vesting .

(a)

The Participant shall cease to participate in the Plan under these Terms and Conditions as of the date of the Participant’s termination of employment with the Corporation and all of its Subsidiaries, subject to the following:

(b)

If (i) the Participant’s termination of employment is on account of death, Retirement or Disability and occurs prior to the end of the Performance Period, or if prior to the end of the Performance Period, the Participant’s employment with the Corporation and its Subsidiaries is terminated under circumstances that entitle the Participant to severance benefits under the Northern Trust Corporation Severance Plan (the “Severance Plan”), and the Participant has timely executed and not revoked a settlement agreement, waiver and release under the Severance Plan (a “Release”), and (ii) the Participant does not engage in conduct or activity described in Paragraph 9 of these Terms and Conditions during the Performance Period, then, subject to clause (f) below, on the last day of the Performance Period, the Participant shall have credited, and become vested in, a pro-rated number of unvested Stock Units as determined by multiplying the number of Stock Units, if any, that would have otherwise been vested (in accordance with the Schedule in Exhibit A) and distributable to the Participant if the Participant had participated in the Plan for the full Performance Period, by a fraction, the numerator of which is the number of full calendar months of the Participant’s actual participation in the Plan under these Terms and Conditions during the Performance Period, and the denominator of which is the number of full calendar months in the Performance Period, in all cases as determined by the Committee or the Executive Vice President of Human Resources.

(c)

If, prior to the end of the Performance Period, the Participant’s employment with the Corporation and its Subsidiaries terminates, and (i) the Participant is a Management Group member on the date of the grant of the Stock Units; (ii) the Participant is 55 years or older on the date of such termination of employment;

-2-

and (iii) the Participant does not engage in conduct or activity described in Paragraph 9 of these Terms and Conditions during the Performance Period, then, subject to clause (f) below, on the last day of the Performance Period, the Participant shall have credited, and become vested in, a pro-rated number of unvested Stock Units as determined by multiplying the number of Stock Units, if any, that would have otherwise been vested (in accordance with the Schedule in Exhibit A) and distributable to the Participant if the Participant had participated in the Plan through the last day of the Performance Period, by a fraction, the numerator of which is the number of full calendar months of the Participant’s actual participation in the Plan under these Terms and Conditions during the Performance Period, and the denominator of which is the number of full calendar months in the Performance Period, in all cases as determined by the Committee or the Executive Vice President of Human Resources.

(d)

If, (i) prior to the end of the Performance Period, the Participant incurs a Government Service Termination, and (A) the Participant also meets the conditions for Retirement at the time of such termination of employment, (B) the Participant is a Management Group member on the date of the grant of the Stock Units and is 55 years or older on the date of such termination of employment, or (C) the Participant’s termination of employment occurs in circumstances described in Paragraph 6(b) that entitle the Participant to severance benefits and the Participant has satisfied all conditions for such benefits; (ii) the Participant provides the Committee with satisfactory evidence that as a result of Participant’s Government Employment, the divestiture of the Participant’s continued interest in any Stock Units is (A) necessary for the Participant as a Federal officer or employee in the executive branch to comply with an ethics agreement with the Federal government, or (B) reasonably necessary for the Participant to avoid the violation of U.S. federal, state or local or non-U.S. ethics law or conflicts of interest law applicable to the Participant in the Participant’s Government Employment; (iii) the Participant executes and returns, no later than the date of his or her Government Service Termination, an agreement satisfactory to the Committee acknowledging the Corporation’s right to recover (and the Participant’s obligation to repay) under Paragraph 9 of the Terms and Conditions, any gain realized in connection with the Stock Units paid to the Participant in the event that the Participant is determined to have engaged in conduct or activity described in Paragraph 9; then, subject to clause (f) below, upon the later of [insert] and the Participant’s Government Service Termination date, the Participant shall have credited and become vested in a pro-rated number of unvested Stock Units as determined by multiplying (A) the number of Stock Units, if any, that would have otherwise been vested (in accordance with the Schedule in Exhibit A) applied as if the Performance Period ended on the later of [insert] and the last day of the last calendar quarter ending prior to the Participant’s Government Service Termination date, by (B) a fraction, the numerator of which is the number of full calendar months of the Participant’s actual participation in the Plan under these Terms and Conditions during the Performance Period, and the denominator of which is the number of full calendar months in the Performance Period, in all cases as determined by the Committee or the Executive Vice President of Human Resources.

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(e)

In the case of a Participant whose employment with the Corporation and its Subsidiaries terminates prior to the end of the Performance Period in circumstances described in Paragraph 6(d)(i)(A),(B) or (C), then, if (i) the Participant prior to the expiration of the Performance Period, accepts Government Employment; (ii) the Participant provides the Committee with satisfactory evidence that as a result of Participant’s Government Employment, the divestiture of the Participant’s continued interest in any Stock Units is (A) necessary for the Participant as a Federal officer or employee in the executive branch to comply with an with ethics agreement with the Federal government, or (B) reasonably necessary for the Participant to avoid the violation of U.S. federal, state or local or non-U.S. ethics law or conflicts of interest law applicable to the Participant in the Participant’s Government Employment; and (iii) the Participant executes and returns no later than the date of commencement of his Government Employment, an agreement satisfactory to the Committee acknowledging the Corporation’s right to recover (and the Participant’s obligation to repay) under Paragraph 9 of the Terms and Conditions, any gain realized in connection with the Stock Units paid to the Participant in the event that the Participant is determined to have engaged in conduct or activity described in Paragraph 9; then, subject to clause (f) below, upon the later of [insert] , and the date of commencement of the Participant’s Government Employment, the Participant shall have credited and become vested in a pro-rated number of unvested Stock Units as determined by multiplying (A) the number of Stock Units, if any, that would have otherwise been vested (in accordance with the Schedule in Exhibit A) applied as if the Performance Period ended on the later of [insert] , and the last day of the last calendar quarter ending prior to the date that the Participant’s Government Employment commences, by (B) a fraction, the numerator of which is the number of full calendar months of the Participant’s actual participation in the Plan under these Terms and Conditions during the Performance Period, and the denominator of which is the number of full calendar months in the Performance Period, in all cases as determined by the Committee or the Executive Vice President of Human Resources.

(f)

Notwithstanding any provision of these Terms and Conditions, there shall be no vesting of any Stock Units and no proration of any Stock Units prior to the expiration of the Performance Period, and vesting shall only obtain to the extent it is determined by the Committee that the Corporation has satisfied the performance criteria for the Performance Period in accordance with the Schedule in Exhibit A, provided that for purposes of the preceding clause, in the case of a Participant subject to clause (d) or (e) of this Paragraph 6, the Performance Period shall be treated as ending on the special end-date specified in clause (d)(iii)(A) or (e)(iii)(A), as applicable, and is referred to herein and in Exhibit A as a “modified Performance Period” described in Paragraph 6(d) or 6(e), as applicable. If the Participant’s employment terminates for a reason described in clause (b), (c), (d), or (e) of this Paragraph 6, any such Stock Units that do not become vested at the

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end of the Performance Period pursuant to Paragraph 6(b) or 6(c), or on the vesting date specified in Paragraph 6(d), or 6(e), as applicable, shall be immediately forfeited and revert to the Corporation and the Corporation shall have no further obligations after such date to pay Dividend Equivalents pursuant to Paragraph 3 of these Terms and Conditions. The Corporation shall have no further obligation to the Participant under these Terms and Conditions following the Participant’s forfeiture of Stock Units.

(g)

For purposes of these Terms and Conditions, “Disability” means a disability that continues for a period of six (6) months in accordance with The Northern Trust Company’s Managed Disability Program. For purposes of determining the date, if any, on which a Participant becomes vested under Paragraph 6(b) on account of Disability, the date of Disability shall be the last day of the six-month period described in the preceding sentence.

For purposes of these Terms and Conditions, “Government Service Termination” means the Participant’s termination of employment with the Corporation and its Subsidiaries due to or in connection with the Participant’s immediate commencement of Government Employment.

For purposes of these Terms and Conditions, “Retirement” means retirement occurring by reason of the Participant having qualified for a Normal, Early, or Postponed Retirement under The Northern Trust Company Pension Plan.

(h)

The provisions of Paragraphs 6(d)(ii) and 6(e)(ii) shall be construed in accordance with Treasury Regulation Section 1.409A-3(j)(4)(iii)

7.	Vesting Upon a Change in Control .

(a)

In the event of a Change in Control, if the Participant has not incurred a termination of employment with the Corporation and all of its Subsidiaries on or prior to the date of such Change in Control, the following provisions shall apply.

(i) The Participant shall be immediately vested in the number of the Participant’s unvested Stock Units equal to (A) the applicable percentage of the Participant’s Stock Units that would have become vested in accordance with the schedule at Exhibit A, applied as if the Performance Period ended on the last day of the month immediately preceding the Change in Control (based on the Actual Performance Level achieved through the date of the Change in Control), multiplied by (B) the Participant’s Pro Rata Target Performance Level Stock

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Units. The Participant’s “Pro Rata Target Performance Level Stock Units” refers to the number of the Participant’s Stock Units equal to (I) the number of Stock Units that would have become vested in the absence of a Change in Control, assuming the Corporation achieved the Target Performance Level, multiplied by (II) a fraction, the numerator of which is the number days from the first day of the Performance Period through the date of the Change in Control, and the denominator of which is the number of days in the Performance Period. The Stock Units, if any, that become vested under this Paragraph 7(a)(i) shall be converted to units with respect to equity of the acquirer (“Acquirer Units”) with a fair market value equal to the fair market value of the Corporation’s common stock subject to such Stock Units on the date of the Change in Control, and shall be distributed in accordance with Paragraph 8(d). Any such Pro Rata Target Performance Level Stock Units that do not become vested as of the date of the Change in Control pursuant to this subparagraph 7(a)(i) shall be immediately forfeited and revert to the Corporation and the Corporation shall have no further obligations after such date to pay Dividend Equivalents pursuant to Paragraph 3 of these Terms and Conditions.

(ii) A number of the Participant’s Stock Units equal to (A) the number of Stock Units that would have become vested in the absence of a Change in Control, assuming the Corporation achieved the Target Performance Level, multiplied by (B) a fraction, the numerator of which is the number days from the date of the Change in Control through the last day of the Performance Period, and the denominator of which is the number of days in the Performance Period (such product referred to as the “Pro Rata Post-Change in Control Stock Units”), shall be converted to Acquirer Units with a fair market value equal to the fair market value of the Corporation’s common stock subject to such Pro Rata Post-Change in Control Stock Units on the date of the Change in Control. The Acquirer Units, shall not be subject to the performance vesting provisions of Exhibit A, and shall become vested if and only if the Participant remains continuously employed through the end of the Performance Period, and the Participant shall forfeit the Acquirer Units upon any termination of employment with the Corporation, the acquirer and all of their Subsidiaries, subject to the following:

(A) If the Participant’s termination is a Qualifying Termination, the Participant shall have credited, and become vested in, 100 percent of the Participant’s unvested Acquirer Units upon the date of such Qualifying Termination, which shall be distributed in accordance with Paragraph 8(d).

(B) If the Participant incurs a termination of employment with the Corporation, acquirer and all of their Subsidiaries in circumstances described in Paragraph 6(b), (c), (d) or (e), on or after the Change in Control and prior to the end of the Performance Period, but that is not a Qualifying Termination, the Participant shall have credited, and become vested in, on such date of termination, a pro-rated portion of the Participant’s Acquirer Units, determined by multiplying (I) the unvested Acquirer Units, by (II) a fraction, the numerator of which is the number of days between the date of the Change in Control and the date of the Participant’s termination of employment, and the denominator of which is the number of days in the Performance Period after the date of the Change in Control, which shall be distributed in accordance with Paragraph 8(d).

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Any such Acquirer Units that do not become vested as of the date of the Participant’s termination of employment pursuant to Paragraphs 7(a)(ii)(A) or 7(a)(ii)(B), as applicable, shall be immediately forfeited and revert to the Corporation, or the acquirer as applicable, and the Corporation, and the acquirer as applicable, shall have no further obligations with respect to such Acquirer Units.

(b)

In the event of a Change in Control, if the Participant has incurred a termination of employment prior to such Change in Control in circumstances described in Paragraph 6(d) or 6(e), the occurrence of the Change in Control shall not affect the operation of Paragraphs 6(d) or (e), as applicable, and Paragraph 8(b). If prior to a Change in Control, a Participant incurs a termination of employment with the Corporation and each of its Subsidiaries in circumstances described in Paragraph 6(b) or (c), upon the date of the Change in Control, the Participant will immediately vest in such prorated number of Stock Units as determined under Paragraph 6(b) or (c), as applicable (taking into account the full Performance Period for purposes of the proration fraction), provided that Exhibit A shall be applied based on the Corporation’s Actual Performance Level determined as if the Performance Period ended on the last day of the month immediately preceding the Change in Control. The Stock Units, if any, that become vested under this Paragraph 7(b) shall be converted to Acquirer Units with a fair market value equal to the fair market value of the Corporation’s common stock subject to such vested Stock Units on the date of the Change in Control, and shall be distributed in accordance with Paragraph 8(d). Any such Stock Units that do not become vested as of the date of the Change in Control pursuant to this Paragraph 7(b) shall be immediately forfeited and revert to the Corporation and the Corporation shall have no further obligations after such date to pay Dividend Equivalents pursuant to Paragraph 3 of these Terms and Conditions.

(c)

Notwithstanding the foregoing, if for any reason the acquirer does not agree to the provisions of Paragraphs 7(a) and 7(b), then (i) if the Participant is employed on the date of the Change in Control, the Participant shall have credited and become vested upon the date of the Change in Control in the number of Stock Units in which the Participant would have become vested assuming that the Corporation achieved Target Performance Level for the Performance Period, and (ii) if the Participant terminated employment with the Corporation and all of its Subsidiaries prior to the date of the Change in Control, under circumstances described in Paragraph 6(b) or (c), the Participant shall become vested in a number of Stock Units equal to the number of Stock Units in which the Participant would have become vested under Paragraph 6(b) or (c) assuming that the Corporation achieved Target Performance Level for the Performance Period and such Participant’s remaining unvested Stock Units shall be forfeited.

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8.	Distribution .

(a)

In the case of Stock Units that become vested pursuant to Paragraph 5 or Paragraph 6 on the last day of the Performance Period, such Stock Units shall be distributed on such vesting date, provided that such Stock Units shall be treated as distributed on such vesting date if they are distributed no later than the 15 ^th day of the third calendar month after the calendar year in which the Performance Period ends.

(b)

In the case of Stock Units that become vested in circumstances described in Paragraph 6(d) or 6(e), distribution shall be made on the date such amounts become vested under Paragraph 6(d) or 6(e), as applicable, provided that all of the requirements of Paragraph 6(d) and 6(e) are satisfied, including without limitation Paragraph 6(d)(ii) and 6(e)(ii).

(c)

In the event of the Participant’s death during the Performance Period or thereafter but prior to full distribution to the Participant pursuant to these Terms and Conditions, the Participant’s Stock Units, if any, that become vested on the last day of the Performance Period pursuant to Paragraph 6(b) shall be distributed to the Participant’s beneficiary on such date in accordance with the clause (a), and such distribution shall be made to such beneficiary and in such proportions as the Participant may designate in writing, and in the absence of a designation, to the following persons in the order indicated below:

•

The Participant’s spouse; if none, then,

•

The Participant’s children (in equal amounts); if none, then,

•

The Participant’s parents (in equal amounts); if none, then,

•

The Participant’s brothers and sisters (in equal amounts); if none, then,

•

The Participant’s estate.

(d)

In the case of Stock Units, if any, that become vested in accordance with Paragraph 7(a) or 7(b), the Participant shall be entitled to a distribution of such Stock Units upon the last day of the Performance Period, provided that if the Participant becomes vested on account of a Qualifying Termination pursuant to Paragraph 7(a)(ii)(A) such Stock Units shall be distributed on such vesting date.

(e)

In the event of a Change in Control, if the acquirer does not agree to the provisions of Paragraph 7(a) or 7(b), this Stock Unit Award shall be terminated upon such Change in Control and the Participant shall be entitled to a distribution of all Stock Units which become vested pursuant to Paragraph 7(c) and such distribution shall be made consistent with Treas. Reg. 1.409A-3(j)(4)(ix)(B), subject to satisfaction of the conditions thereof.

(f)

Stock Units shall be distributed only in shares of Common Stock so that, pursuant to Paragraph 1 of these Terms and Conditions and this Paragraph 8, a Participant shall be entitled to receive one share of Common Stock for each Stock Unit in the Participant’s Stock Unit Account. Notwithstanding the foregoing, in the event of a Change in Control, Acquirer Units described in Paragraph 7(a) or 7(b) shall be settled in equity of the acquirer, and Stock Units that become vested in accordance with Paragraph 7(c) may be settled in cash.

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(g)

Notwithstanding anything herein to the contrary, the provisions of this Award Agreement, including without limitation this Paragraph 8, shall be subject to the provisions of the Plan, including without limitation Section 14 of the Plan.

9.	Forfeitures and Recoupments .

(a)

Engaging in Restricted Activity Without Written Consent of the Corporation . Notwithstanding anything to the contrary in these Terms and Conditions, if the Participant, without the written consent of the Corporation:

(i)

at any time after the date of these Terms and Conditions, has divulged, directly or indirectly, or used, for the Participant’s own or another’s benefit, any Confidential Information;

(ii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after the Participant ceases to be employed by the Corporation and its Subsidiaries for any reason, has Solicited, or assisted in the Solicitation of, any Client or Prospective Client (provided, however, that this clause (ii) shall not apply to the Participant’s Solicitation of any Client or Prospective Client with whom he or she had a business relationship prior to the start of his or her employment with the Corporation and its Subsidiaries, provided no Confidential Information, directly or indirectly, is used in such Solicitation); or

(iii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after the Participant ceases to be employed by the Corporation and its Subsidiaries for any reason, has solicited, encouraged, advised, induced or caused any employee of the Corporation or any of its Subsidiaries to terminate his or her employment with the Corporation or any of its Subsidiaries, or provided any assistance, encouragement, information, or suggestion to any person or entity regarding the solicitation or hiring of any employee of the Corporation or any of its Subsidiaries;

then the Participant’s then outstanding Stock Units (whether vested or unvested) shall be forfeited to the Corporation by notice from the Committee in writing to the Participant within a reasonable period of time after the Committee acquires knowledge of the Participant’s violation of this Paragraph 9(a). In the event that a Participant’s Stock Units are forfeited pursuant to the preceding sentence or the provisions of Paragraph 9(b), below, the Corporation shall not distribute the Stock Units to the Participant (or the Participant’s beneficiary) pursuant to Paragraph 8, or pay any Dividend Equivalents pursuant to Paragraph 3 with respect to such Stock Units.

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In addition, in the event of any action by the Participant to which clauses (i), (ii) or (iii), above, apply, the Corporation shall, to the extent the Committee determines it practicable and in the best interests of the Corporation, and as permitted by applicable law, rescind any payment or delivery to the Participant with respect to any Stock Units occurring within twelve (12) months prior to, or at any time following, the date of the Participant’s termination of employment for any reason (including but not limited to termination of employment due to Retirement or Disability), and recoup any “gain realized” in connection with such Stock Units as described in Paragraph 9(c) below.

(b)

(i)

the Corporation is required to restate its financial statements filed with the U.S. Securities and Exchange Commission on Form 10-Q or Form 10-K or re-file quarterly financial data with the U.S. Federal Reserve due to any reason other than changes in accounting policy or applicable law (a “Restatement”), and the Committee determines that such Restatement resulted, in whole or in material part, from the Participant (A) intentionally engaging in conduct that resulted in a material weakness in internal control over financial reporting and was inconsistent with the standards of conduct of the business judgment rule, as defined below, or (B) personally and knowingly engaging in practices that materially contributed to circumstances that resulted in a material weakness in internal control over financial reporting and that were inconsistent with the standards of conduct of the business judgment rule; or

(ii)

the Committee determines that the Participant has engaged in conduct that is grounds for termination for Cause and is inconsistent with the standards of conduct of the business judgment rule (“Misconduct”);

then the Committee shall review all then outstanding Stock Units (whether vested or unvested) of the Participant, and all Stock Units with respect to which there has been payment or delivery to the Participant within the 36 - month period immediately preceding the date of the Restatement, or during the period after the date of the Misconduct, as applicable.

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financial data or restated results, and recoup any gain realized in connection with such Stock Units as described in Paragraph 9(c), below. In the event of Misconduct described in clause (ii) (other than any actions included in Paragraph 9(a) or clause (i) of this Paragraph 9(b)), the Committee shall declare the Participant’s then outstanding Stock Units (whether vested or unvested) to be forfeited to the Corporation by notice in writing to the Participant within a reasonable period of time after the date of the discovery of the Misconduct, and the Corporation shall, to the extent the Committee determines it practicable and in the best interests of the Corporation and as permitted by applicable law, rescind any payment or delivery with respect to any Stock Units occurring after the date such Misconduct occurred and recoup any gain realized in connection with such Stock Units as described in Paragraph 9(c), below.

A Participant’s actions satisfy the “business judgment rule” if such actions were taken in good faith, in a manner that an ordinarily prudent person would act under similar circumstances, and in the interests of the Corporation. In interpreting and applying the preceding sentence, the Committee shall use as a guide the principles of the business judgment rule as construed by the Delaware courts in applying the Delaware Corporation Act.

(c)

Rescission and Recoupment . Upon the rescission, pursuant to the provisions of Paragraph 9(a) or 9(b), of any payment or delivery with respect to any Stock Units, the Corporation shall be entitled to recoup any “gains realized” in connection with such Stock Units, in such manner and on such terms and conditions as the Committee shall require. “Gains realized” shall include (i) the amount of any cash (including Dividend Equivalents) distributed to the Participant with respect to, (ii) any cash or shares of the Corporation’s Common Stock (or proceeds attributable to the sale thereof ) paid or delivered in settlement of, and (iii) any other amounts determined by the Committee to have been realized in connection with, such rescinded Stock Units. If the Participant fails to repay any such amounts to the Corporation within 60 days after receipt of written demand, the Corporation shall be entitled, subject to applicable law and the requirements of Internal Revenue Code Section 409A, to deduct from any amounts the Corporation owes the Participant from time to time the amount of all gains realized, or to sue for repayment of such amounts, or to pursue both remedies.

10.

Delivery of Shares . The Corporation may delay the issuance or delivery of shares of Common Stock if the Corporation reasonably anticipates that such issuance or delivery will violate federal securities laws or other applicable law, provided that the issuance or delivery is made at the earliest date at which the Corporation reasonably anticipates that such issuance or delivery will not cause such violation.

11.

Adjustment . The Stock Units provided herein are subject to adjustment in accordance with the provisions of Section 11 of the Plan.

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12.

No Right to Employment . Nothing in the Plan or the Stock Unit Agreement shall be construed as creating any right in the Participant to continued employment or as altering or amending the existing terms and conditions of employment of the Participant except as otherwise specifically provided in the Stock Unit Agreement.

13.

Nontransferability . No interest hereunder of the Participant is transferable except as provided in the Stock Unit Agreement.

14.

Withholding/Delivery of Shares . All distributions hereunder are subject to withholding by the Corporation for all applicable federal, state or local taxes. With respect to distributions in shares of Common Stock, subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations shall be satisfied through the withholding of shares of Common Stock to which the Participant is otherwise entitled under the Stock Unit Award, provided, however, that such shares may be used to satisfy not more than the Corporation’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such taxable income).

15.

Administration . The Plan is administered by the Committee. The rights of the Participant hereunder are expressly subject to the terms and conditions of the Plan (including continued shareholder approval of the Plan), together with such guidelines as have been or may be adopted from time to time by the Committee. The Participant hereby acknowledges receipt of a copy of the Plan.

16.

No Rights as Shareholder . Except as provided herein, the Participant will have no rights as a shareholder with respect to the Stock Units.

17.

Interpretation and Applicable Law . Any interpretation by the Committee of the terms and conditions of the Plan, the Stock Unit Agreement or any guidelines shall be final. All questions pertaining to the validity, construction and administration of the Plan or the Stock Unit Agreement, and all claims or causes of action arising under, relating to, or in connection with, the Plan or the Stock Unit Agreement shall be determined in conformity with the laws of the State of Delaware, without regard to the conflict of law provisions of any state.

18.

Sole Agreement . The Stock Unit Agreement, together with the Plan, is the entire Agreement between the parties hereto, all prior oral and written representations being merged herein. No amendment or modification of the terms of the Stock Unit Agreement shall be binding on either party unless reduced to writing and signed by the party to be bound. The Stock Unit Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors. Notwithstanding anything in the Stock Unit Agreement to the contrary, including without limitation the foregoing provisions of this Paragraph 18, in the event that the Committee determines that the Stock Unit Award, or the performance by the Corporation of any of its obligations under the Stock Unit Agreement, would violate any applicable law, the Stock Units shall be forfeited to the Corporation and cancelled, and the Corporation shall have no obligation to distribute the Stock Units to the Participant or the Participant’s Beneficiary or to pay any Dividend Equivalents.

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19.

Definitions . As provided above, capitalized terms not defined in the Stock Unit Agreement shall have the meanings assigned to them in the Plan. For purposes of the Stock Unit Agreement:

(a)

“Actual Performance Level” and “Target Performance Level” each have the meaning assigned to them at Exhibit A.

(b)

“Cause” means (i) a Participant’s conviction of or no contest plea with respect to bribery, extortion, embezzlement, fraud, grand larceny, or any felony involving abuse or misuse of the Participant’s position to seek or obtain an illegal or personal gain at the expense of the Corporation, or similar crime, or conspiracy to commit any such crimes or attempt to commit any such crimes; or (ii) misconduct that causes material harm to the Corporation.

(c)

“Client” means any person or entity with which the Corporation, or any of its Subsidiaries, did business and with which the Participant had contact, or about which the Participant had access to Confidential Information, during the last twelve (12) months of his or her employment.

(d)

“Competitive Service or Product” means any service or product: (i) that is substantially similar to or competitive with any service or product that the Participant created or provided, or of which the Participant assisted in the creation or provision, during his or her employment by the Corporation or any of its Subsidiaries; or (ii) about which the Participant had access to Confidential Information during his or her employment by the Corporation or any of its Subsidiaries.

(e)

(f)

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Northern Trust; (iv) any act or omission by Participant that causes a regulatory body with jurisdiction over Northern Trust, to demand, request, or recommend that Participant be suspended or removed from any position in which Participant serves with Northern Trust, or (v) Participant’s willful and substantial nonperformance of assigned duties, provided that such nonperformance has continued more than ten days after Northern Trust has given written notice of such nonperformance and of its intention to terminate Participant’s employment because of such nonperformance. For purposes of clauses (ii) and (v) of this definition, no act, or failure to act, on Participant’s part shall be deemed “willful” unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant’s act, or failure to act, was in the best interest of the Corporation. In the event of a dispute concerning the application of this provision, no claim by the Corporation that Good Cause exists shall be given effect unless the Corporation establishes to the Board of Directors of the Corporation by clear and convincing evidence that Good Cause exists.

(g)

“Good Reason” shall exist if, without Participant’s express written consent: (i) the Corporation (or an affiliate) shall materially diminish (A) the Participant’s authority, duties, or responsibilities; (B) the authority, duties, or responsibilities of the position or entity to which Participant is required to report; or (C) the budget, if any, over which Participant has authority, in each case as compared to Participant’s circumstances immediately prior to a Change in Control; (ii) the Corporation (or an affiliate) shall materially diminish Participant’s base compensation from that in effect as of the date of grant hereunder of the Stock Unit (or as of a Change in Control, if greater), including a diminution of Participant’s salary or the material diminution in the aggregate value to Participant of participation in cash or stock-based incentive or bonus plans, retirement plans, welfare benefit plans, or other benefit plans, programs or arrangements (as computed by an independent employee benefits consultant selected by the Corporation); (iii) the Corporation (or an affiliate) shall materially change the geographic location at which Participant must perform services from that in effect prior to a Change in Control (including by assigning to Participant duties that would reasonably require such relation or which would require Participant to spend more than fifty normal working days away from the location in effect prior to a Change in Control); or (iv) any other action or inaction by the Corporation (or an affiliate) that constitutes a material breach of the employment agreement, if any, under which Participant provides services to the Corporation.

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(h)

“Northern Trust” means the Corporation and its Subsidiaries, collectively.

(i)

“Performance Period” has the meaning assigned to it in Exhibit A.

(j)

“Prospective Client” means any person or entity to which the Corporation, or any of its Subsidiaries, provided, or from which the Corporation, or any of its Subsidiaries received, a proposal, bid, or written inquiry (general advertising or promotional materials and mass mailings excepted) and with which the Participant had contact, or about which the Participant had access to Confidential Information, during the last twelve (12) months of his or her employment.

(k)

(l)

“Solicit” and “Solicitation” (with respect to Clients or Prospective Clients) mean directly or indirectly, and without the Corporation’s written authorization, to invite, encourage, request, or induce (or to assist another to invite, encourage, request or induce) any Client or Prospective Client of the Corporation, or any of its Subsidiaries, to: (i) surrender, redeem or terminate a product, service or relationship with the Corporation, or any of its Subsidiaries; (ii) obtain any Competitive Service or Product from the Participant or any third party; or (iii) transfer a product, service or relationship from the Corporation, or any of its Subsidiaries, to the Participant or any third party.

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Exhibit A

Subject to all of the provisions of these Terms and Conditions, including without limitation Paragraphs 4, 5, 6, 7 and 9, upon the last day of the three-year performance period beginning on [insert] and ending on [insert] (the “Performance Period”) the Stock Units under your Stock Unit Agreement will vest in accordance with the following table based on the average annual rate of return on equity for the Performance Period attained by the Corporation:


Average Rate of Return on Equity	Percentage of Stock Units Vested
Less than 6%		0	%
³ 6% and < 8%		50	%
³ 8% and < 10%		100	%
³ 10% and < 11%		110	%
³ 11% and < 12%		115	%
³ 12% and < 13%		120	%
³ 13%		125	%

The average annual rate of return on equity for the Performance Period attained by the Corporation shall be determined by the Committee in its sole discretion.

For purposes of this Exhibit A, the average annual rate of return on equity shall be calculated as the simple average annual rate of return on equity for the three-year Performance Period referenced above, measured across the Corporation as a whole (or in the case of a Participant to which Paragraph 6(d), 6(e), 7(a) or 7(b) of the Stock Unit Award Agreement applies, for the modified Performance Period described in Paragraph 7(a), 7(b), 6(d) or 6(e), as applicable, treating any fractional year as a full year.)

“Actual Performance Level” shall refer to the Average Rate of Return on Equity (as described in chart above) attained during the Performance Period (or modified Performance Period, as applicable). “Target Performance Level” shall refer to the attainment of an Average Rate of Return set opposite 100% of Stock Units vested.

-A-

Exhibit (10)(v)

TERMS AND CONDITIONS

2012 STOCK UNIT AWARD

UNDER THE

NORTHERN TRUST CORPORATION 2012 STOCK PLAN

Your Stock Unit Award is subject to the provisions of the Northern Trust Corporation 2012 Stock Plan (the “Plan”), the Stock Unit Award notice (the “Award Notice”), and this Terms and Conditions document (“Terms and Conditions”). The Award Notice and these Terms and Condition constitute the “Stock Unit Agreement” as defined in the Plan. If there is any conflict between the information in the Stock Unit Agreement and the Plan, the Plan will govern. Capitalized terms not defined in the Stock Unit Agreement shall have the meanings assigned to them in the Plan.

Grant . The Corporation hereby grants to the Participant an Award of Stock Units, as set forth in the Award Notice, subject to the terms and conditions of the Plan and the Stock Unit Agreement. A Stock Unit is the right, subject to the terms and conditions of the Plan and the Stock Unit Agreement, to receive a distribution of a share of Common Stock pursuant to Paragraph 8 of these Terms and Conditions.

Dividend Equivalents . Upon the payment of any dividend on Common Stock occurring during the period preceding the distribution of the Participant’s Stock Unit Award pursuant to Paragraph 8 of these Terms and Conditions, the Corporation shall promptly (and in any event no later than March 15 of the calendar year following the calendar year in which the dividend is declared) pay to the Participant an amount in cash equal in value to the dividends that the Participant would have received had the Participant been the actual owner of the number of shares of Common Stock represented by the Stock Units in the Participant’s Stock Unit Account on that date (“Dividend Equivalents”).

Forfeiture . The Stock Units granted to the Participant pursuant to the Stock Unit Agreement shall be forfeited and revert to the Corporation (a) in accordance with Paragraph 9, if the Participant engages in conduct or activity described in Paragraph 9 of these Terms and Conditions, or (b) except as described in Paragraphs 5, 6, and 7 and of these Terms and Conditions, if the Participant’s employment with the Corporation and all of its Subsidiaries terminates prior to the expiration of the Vesting Period described in Paragraph 5.

5.	Vesting . Subject to all of the provisions of the Stock Unit Agreement, including, without limitation, the provisions of Paragraphs 4, 6, 7 and 9 of these Terms and Conditions, the Participant shall become vested in the Stock Units upon the vesting dates specified, and

in accordance with the vesting schedule set forth, in the Award Notice. If the Participant’s employment with the Corporation and its Subsidiaries terminates for any reason prior to the end of the period ending on the latest vesting date set forth in the Award Notice (“Vesting Period”), the Stock Units in the Participant’s Stock Unit Account that have not yet vested and do not become vested under Paragraph 6 or have not become vested under Paragraph 7, shall be forfeited and revert to the Corporation on such termination date, and the Corporation shall have no further obligation after such date to pay Dividend Equivalents pursuant to Paragraph 3 of these Terms and Conditions with respect to such forfeited Stock Units. The Corporation shall have no further obligation to the Participant under these Terms and Conditions following the Participant’s forfeiture of Stock Units.

6.	Prorated Vesting .

(a)

(b)

If the Participant’s termination of employment is on account of death, Retirement or Disability and occurs prior to the end of the Vesting Period, or, if prior to the end of the Vesting Period, the Participant’s employment with the Corporation and its Subsidiaries is terminated under circumstances that entitle the Participant to severance benefits under the Northern Trust Corporation Severance Plan (the “Severance Plan”) and the Participant has timely executed and not revoked a settlement agreement, waiver and release under the Severance Plan (a “Release”) then, on such date of death, Retirement, Disability or termination of employment, the Participant shall have credited and become vested in a pro-rated number of unvested Stock Units, determined by multiplying the number of the Participant’s Stock Units that were unvested immediately prior to the date of the Participant’s death, Retirement, Disability or termination of employment and that would have become vested and distributable to the Participant if the Participant had participated in the Plan for the full Vesting Period, by a fraction, the numerator of which is the number of full calendar months of the Participant’s actual participation in the Plan under these Terms and Conditions during the Vesting Period, and the denominator of which is the number of full calendar months in the Vesting Period, in all cases as determined by the Committee or the Executive Vice President of Human Resources.

(c)

If, prior to the end of the Vesting Period, the Participant’s employment with the Corporation and its Subsidiaries terminates and (i) the Participant is a Management Group member on the date of the grant of the Stock Units, (ii) the Participant is 55 years or older on the date of such termination of employment, and (iii) the Participant does not engage in conduct or activity described in Paragraph 9 of these Terms and Conditions during the Vesting Period, then, upon each remaining vesting date in the Vesting Period set forth in the Award Notice, the Participant shall have credited and become vested in a pro-rated number of unvested Stock Units, determined by multiplying the number of Stock Units that

would have become vested and distributable to the Participant on such vesting date if the Participant had participated in the Plan for the full Vesting Period, by a fraction, the numerator of which is the number of full calendar months of the Participant’s actual participation in the Plan under these Terms and Conditions during the Vesting Period, and the denominator of which is the number of full calendar months in the Vesting Period, in all cases as determined by the Committee or the Executive Vice President of Human Resources.

(d)

7.	Vesting Upon a Change in Control .

(a)

In the event of a Change in Control, the Participant’s unvested Stock Units shall be converted to units with respect to equity of the acquirer (“Acquirer Units”) with a fair market value equal to the fair market value of the Corporation’s common stock subject to such Stock Units on the date of the Change in Control, and shall continue to vest and be payable, or shall be forfeited, in accordance with the provisions of the Terms and Conditions that would apply in the absence of a Change in Control, provided, however, that if the Participant incurs a Qualifying Termination the Participant shall be credited and become vested in 100 percent of the Participant’s unvested Acquirer Units upon the date of such Qualifying Termination, which shall be distributed in accordance with Paragraph 8(d).

(b)

Notwithstanding the foregoing, if for any reason the acquirer does not agree to the provisions of Paragraph 7(a), then (A) if the Participant is employed on the date of the Change in Control, the Participant shall have credited and become vested in, upon the date of the Change in Control, 100 percent of the Participant’s unvested Stock Units, and (B) if the Participant previously terminated employment under circumstances described in Paragraph 6(c), the Participant shall have credited and become vested in the number of Stock Units in which the Participant would have become vested had the Participant complied with the conditions of Paragraph 6(c) through the end of the Vesting Period.

8.	Distribution .

(a)

In the case of Stock Units that become vested upon a vesting date within the Vesting Period pursuant to Paragraph 5 or Paragraph 6(c), such Stock Units shall be distributed on such vesting date, provided that such Stock Units shall be treated

as distributed on such vesting date if they are distributed no later than the last day of the calendar year in which such vesting date occurs, or, if later, by the 15 ^th day of the third calendar month after such vesting date occurs, subject to and in accordance with the provisions of Treasury Regulation Section 1.409A-3(d), including without limitation the requirement that the employee shall in no event have the right directly or indirectly to designate the taxable year of payment.

(b)

In the case of Stock Units that become vested prior to the expiration of the Vesting Period upon an individual’s Retirement, Disability or termination of employment in the circumstances described in Paragraph 6(b) (“distribution event”), with the number of unvested Stock Units that become vested on such distribution event determined in accordance with Paragraph 6 of these Terms and Conditions, distribution shall be made, as soon as practicable, but no later than 90 days, after such distribution event, subject to and in accordance with the provisions of, Treasury Regulation Section 1.409A-3(b), including without limitation the requirement that the employee shall in no event have the right directly or indirectly to designate the taxable year of payment.

(c)

In the case of Stock Units that become vested prior to the expiration of the Vesting Period upon a Participant’s death pursuant to Paragraph 6(b), with the number of unvested Stock Units that become vested on death determined in accordance with Paragraph 6 of these Terms and Conditions, distribution shall be made to the Participant’s beneficiary as soon as practicable, but no later than 90 days, after the Participant’s death, subject to and in accordance with the provisions of Treasury Regulation Section 1.409A-3(b), including without limitation the requirement that the beneficiary shall in no event have the right directly or indirectly to designate the taxable year of payment. Such distribution shall be made to such beneficiary and in such proportions as the Participant may designate in writing, and in the absence of a designation, the Participant’s beneficiary shall be one of the following persons determined in the order provided below:

•

The Participant’s spouse; if none, then,

•

The Participant’s children (in equal amounts); if none, then,

•

The Participant’s parents (in equal amounts); if none, then,

•

The Participant’s brothers and sisters (in equal amounts); if none, then,

•

The Participant’s estate.

In the event of the Participant’s death after the expiration of the Vesting Period but prior to full distribution of the Stock Units pursuant to these Terms and Conditions, the Participant’s Stock Units shall be distributed, within the period described in clause (a) above, to the Participant’s beneficiary determined in accordance with the foregoing provisions of this clause (c) of Paragraph 8.

(d)

In the case of Acquirer Units that become vested upon a Qualifying Termination under Paragraph 7(a), distribution shall be made, as soon as practicable, but no later than 90 days, after such Qualifying Termination, subject to and in accordance with the provisions of, Treasury Regulation Section 1.409A-3(b), including without limitation the requirement that the employee shall in no event have the right directly or indirectly to designate the taxable year of payment.

(e)

In the event of a Change in Control, if the acquirer does not agree to the provisions of Paragraph 7(a), this Stock Unit Award shall be terminated upon such Change in Control and the Participant shall be entitled to a distribution of all Stock Units which become vested pursuant to Paragraph 7(b) and such distribution shall be made consistent with Treas. Reg. 1.409A-3(j)(4)(ix)(B), subject to satisfaction of the conditions thereof.

(f)

Stock Units shall be distributed only in shares of Common Stock so that, pursuant to Paragraph 1 of these Terms and Conditions and this Paragraph 8, a Participant shall be entitled to receive one share of Common Stock for each Stock Unit in the Participant’s Stock Unit Account. Notwithstanding the foregoing, in the event of a Change in Control, Acquirer Units described in Paragraph 7(a) (or Stock Units vested prior to the Change in Control under Paragraph 6(b) that have not yet been distributed as of the Change in Control) shall be settled in equity of the acquirer, and Stock Units that become vested in accordance with Paragraph 7(b) may be settled in cash.

(g)

Notwithstanding anything herein to the contrary, the provisions of this Stock Unit Award, including without limitation this Paragraph 8, shall be subject to the provisions of the Plan, including without limitation Sections 14(a), (b), (c), (d) and (e) of the Plan. Pursuant to and not by way of limitation of the preceding sentence, notwithstanding anything herein to the contrary, “termination of employment” as used herein shall mean “Separation from Service” as defined in the Plan, a Participant shall in no event be eligible for a distribution on account of Retirement, Disability or termination of employment unless the Participant incurs a “Separation from Service”, as defined in the Plan, and any distribution described herein shall be delayed as necessary to meet the requirements of Section 14(e) of the Plan.

9.	Forfeitures and Recoupments .

(a)

(i)

at any time after the date of these Terms and Conditions, has divulged, directly or indirectly, or used, for the Participant’s own or another’s benefit, any Confidential Information;

(ii)

(iii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after the Participant ceases to be employed by the Corporation and its Subsidiaries for any reason, has solicited, encouraged, advised, induced or caused any employee of the Corporation or any of its Subsidiaries to terminate his or her employment with the Corporation or any of its Subsidiaries, or provided any assistance, encouragement, information, or suggestion to any person or entity regarding the solicitation or hiring of any employee of the Corporation or any of its Subsidiaries;

(b)

(i)

the Corporation is required to restate its financial statements filed with the U.S. Securities and Exchange Commission on Form 10-Q or Form 10-K or re-file quarterly financial data with the U.S. Federal Reserve due to any reason other than changes in accounting policy or applicable law (a “Restatement”), and the Committee determines that such Restatement resulted, in whole or in material part, from the Participant (A) intentionally engaging in conduct that resulted in a material weakness in internal control over financial reporting and was inconsistent with the standards of conduct of the business judgment rule, as defined below, or (B) personally and knowingly engaging in practices that materially contributed to circumstances that resulted in a material weakness in internal control over financial reporting and that were inconsistent with the standards of conduct of the business judgment rule; or

(ii)

In the event of a Restatement described in clause (i), the Committee shall declare the Participant’s then outstanding, vested Stock Units that would not have become vested based on accurate financial data or restated results to be forfeited to the Corporation by notice in writing to the Participant within a reasonable period of time after the date of the Restatement, and the Corporation shall, to the extent the Committee determines it practicable and in the best interests of the Corporation, and as permitted by applicable law, rescind any payment or delivery with respect to any Stock Units occurring within 36 months prior to the date of the Restatement that would not have become vested or been paid based on accurate financial data or restated results, and recoup any gain realized in connection with such Stock Units as described in Paragraph 9(c), below. In the event of Misconduct described in clause (ii) (other than any actions included in Paragraph 9(a) or clause (i) of this Paragraph 9(b)), the Committee shall declare the Participant’s then outstanding Stock Units (whether vested or unvested) to be forfeited to the Corporation by notice in writing to the Participant within a reasonable period of time after the date of the discovery of the Misconduct, and the Corporation shall, to the extent the Committee determines it practicable and in the best interests of the Corporation and as permitted by applicable law, rescind any payment or delivery with respect to any Stock Units occurring after the date such Misconduct occurred and recoup any gain realized in connection with such Stock Units as described in Paragraph 9(c), below.

(c)

Stock (or proceeds attributable to the sale thereof ) paid or delivered in settlement of, and (iii) any other amounts determined by the Committee to have been realized in connection with, such rescinded Stock Units. If the Participant fails to repay any such amounts to the Corporation within 60 days after receipt of written demand, the Corporation shall be entitled, subject to applicable law and the requirements of Internal Revenue Code Section 409A, to deduct from any amounts the Corporation owes the Participant from time to time the amount of all gains realized, or to sue for repayment of such amounts, or to pursue both remedies.

10.

11.

Adjustment . The Stock Units provided herein are subject to adjustment in accordance with the provisions of Section 11 of the Plan.

12.

13.

Nontransferability . No interest hereunder of the Participant is transferable except as provided in the Stock Unit Agreement.

14.

15.

16.

No Rights as Shareholder . Except as provided herein, the Participant will have no rights as a shareholder with respect to the Stock Units.

17.

Interpretation and Applicable Law . Any interpretation by the Committee of the terms and conditions of the Plan, the Stock Unit Agreement or any guidelines shall be final. All

questions pertaining to the validity, construction and administration of the Plan or the Stock Unit Agreement, and all claims or causes of action arising under, relating to, or in connection with, the Plan or the Stock Unit Agreement shall be determined in conformity with the laws of the State of Delaware, without regard to the conflict of law provisions of any state.

18.

19.

Definitions . As provided above, capitalized terms not defined in the Stock Unit Agreement shall have the meanings assigned to them in the Plan. For purposes of the Stock Unit Agreement:

(a)

(b)

(c)

(d)

or proposed transactions), any internal analysis of clients, marketing strategies, financial reports or projections, business or other plans, data, procedures, methods, computer data or system program or design, devices, lists, tools, or compilation, which relate to the present or planned business of the Corporation or any of its Subsidiaries and which has not been made generally known to the public by authorized representatives of the Corporation.

(e)

“Good Cause” means (i) Participant’s conviction of any criminal violation involving dishonesty, fraud or breach of trust which involves the business of Northern Trust; (ii) Participant’s willful engagement in any misconduct in the performance of Participant’s duty that materially injures the Corporation; (iii) Participant’s performance of any act which, if known to the customers, clients, stockholders or regulations of Northern Trust, would materially and adversely impact the business of Northern Trust; (iv) any act or omission by Participant that causes a regulatory body with jurisdiction over Northern Trust, to demand, request, or recommend that Participant be suspended or removed from any position in which Participant serves with Northern Trust, or (v) Participant’s willful and substantial nonperformance of assigned duties, provided that such nonperformance has continued more than ten days after Northern Trust has given written notice of such nonperformance and of its intention to terminate Participant’s employment because of such nonperformance. For purposes of clauses (ii) and (v) of this definition, no act, or failure to act, on Participant’s part shall be deemed “willful” unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant’s act, or failure to act, was in the best interest of the Corporation. In the event of a dispute concerning the application of this provision, no claim by the Corporation that Good Cause exists shall be given effect unless the Corporation establishes to the Board of Directors of the Corporation by clear and convincing evidence that Good Cause exists.

(f)

“Good Reason” shall exist if, without Participant’s express written consent: (i) the Corporation (or an affiliate) shall materially diminish (A) the Participant’s authority, duties, or responsibilities; (B) the authority, duties, or responsibilities of the position or entity to which Participant is required to report; or (C) the budget, if any, over which Participant has authority, in each case as compared to Participant’s circumstances immediately prior to a Change in Control; (ii) the Corporation (or an affiliate) shall materially diminish Participant’s base compensation from that in effect as of the date of grant hereunder of the Stock Unit (or as of a Change in Control, if greater), including a diminution of Participant’s salary or the material diminution in the aggregate value to Participant of participation in cash or stock-based incentive or bonus plans, retirement plans, welfare benefit plans, or other benefit plans, programs or arrangements (as computed by an independent employee benefits consultant selected by the Corporation); (iii) the Corporation (or an affiliate) shall materially change the geographic location at which Participant must perform services from that in effect prior to a Change in Control (including by assigning to Participant

duties that would reasonably require such relation or which would require Participant to spend more than fifty normal working days away from the location in effect prior to a Change in Control); or (iv) any other action or inaction by the Corporation (or an affiliate) that constitutes a material breach of the employment agreement, if any, under which Participant provides services to the Corporation.

(g)

“Northern Trust” means the Corporation and its Subsidiaries, collectively.

(h)

(i)

“Prospective Client” means any person or entity to which the Corporation, or any of its Subsidiaries, provided, or from which the Corporation, or any of its Subsidiaries received, a proposal, bid, or written inquiry (general advertising or promotional materials and mass mailings excepted) and with which the Participant had contact, or about which the Participant had access to Confidential Information, during the last twelve (12) months of his or her employment.

(j)

“Solicit” and “Solicitation” (with respect to Clients or Prospective Clients) mean directly or indirectly, and without the Corporation’s written authorization, to invite, encourage, request, or induce (or to assist another to invite, encourage, request or induce) any Client or Prospective Client of the Corporation, or any of its Subsidiaries, to: (i) surrender, redeem or terminate a product, service or relationship with the Corporation, or any of its Subsidiaries; (ii) obtain any Competitive Service or Product from the Participant or any third party; or (iii) transfer a product, service or relationship from the Corporation, or any of its Subsidiaries, to the Participant or any third party.

Exhibit (10)(vi)

TERMS AND CONDITIONS

2012 STOCK UNIT AWARD

UNDER THE

NORTHERN TRUST CORPORATION 2012 STOCK PLAN

Grant . The Corporation hereby grants to the Participant an Award of Stock Units, as set forth in the Award Notice, subject to the terms and conditions of the Plan and the Stock Unit Agreement. A Stock Unit is the right, subject to the terms and conditions of the Plan and the Stock Unit Agreement, to receive a distribution of a share of Common Stock pursuant to Paragraph 8 of these Terms and Conditions.

Forfeiture . The Stock Units granted to the Participant pursuant to the Stock Unit Agreement shall be forfeited and revert to the Corporation (a) in accordance with Paragraph 9, if the Participant engages in conduct or activity described in Paragraph 9 of these Terms and Conditions, or (b) except as described in Paragraphs 5, 6, and 7 and of these Terms and Conditions, if the Participant’s employment with the Corporation and all of its Subsidiaries terminates prior to the expiration of the Vesting Period described in Paragraph 5.

5.	Vesting . Subject to all of the provisions of the Stock Unit Agreement, including, without limitation, the provisions of Paragraphs 4, 6, 7 and 9 of these Terms and Conditions, the Participant shall become vested in the Stock Units upon the vesting dates specified, and

6.	Prorated Vesting .

(a)

(b)

(c)

(d)

7.	Vesting Upon a Change in Control .

(a)

(b)

8.	Distribution.

(a)

In the case of Stock Units that become vested upon a vesting date within the Vesting Period pursuant to Paragraph 5 or Paragraph 6(c), such Stock Units shall be distributed on the first day following the expiration of the six-month period beginning on such vesting date.

(b)

(c)

In the case of Stock Units that become vested prior to the expiration of the Vesting Period upon a Participant’s death pursuant to Paragraph 6(b), with the number of unvested Stock Units that become vested on death determined in accordance with Paragraph 6 of these Terms and Conditions, distribution shall be made to the Participant’s beneficiary on the first day following the expiration of the six-month period beginning on the date of death. Such distribution shall be made to such beneficiary and in such proportions as the Participant may designate in writing, and in the absence of a designation, the Participant’s beneficiary shall be one of the following persons determined in the order provided below:

•

The Participant’s spouse; if none, then,

•

The Participant’s children (in equal amounts); if none, then,

•

The Participant’s parents (in equal amounts); if none, then,

•

The Participant’s brothers and sisters (in equal amounts); if none, then,

•

The Participant’s estate.

In the event of the Participant’s death after the expiration of the Vesting Period but prior to full distribution of the Stock Units pursuant to these Terms and Conditions, the Participant’s Stock Units shall be distributed, on the first day following the expiration of the six-month period beginning on the Participant’s date of death, to the Participant’s beneficiary determined in accordance with the foregoing provisions of this clause (c) of Paragraph 8.

(d)

In the case of Acquirer Units that become vested upon a Qualifying Termination under Paragraph 7(a), distribution shall be made on the first day following the expiration of the six-month period beginning on the date of such Qualifying Termination.

(e)

Stock Units shall be treated as distributed on the applicable distribution date specified in Paragraphs 8(a), (b), (c) and (d), above, if they are distributed no later than the last day of the calendar year in which such distribution date occurs, or, if later, by the 15 ^th day of the third calendar month after such distribution date occurs, subject to and in accordance with the provisions of, Treasury Regulation Section 1.409A-3(b), including without limitation the requirement that the employee shall in no event have the right directly or indirectly to designate the taxable year of payment.

(f)

In the event of a Change in Control, if the acquirer does not agree to the provisions of Paragraph 7(a), this Stock Unit Award shall be terminated upon

such Change in Control and the Participant shall be entitled to a distribution of all Stock Units which become vested pursuant to Paragraph 7(b) and such distribution shall be made consistent with Treas. Reg. 1.409A-3(j)(4)(ix)(B), subject to satisfaction of the conditions thereof, and in no event earlier than the first day following the expiration of the six-month period beginning on the date such Stock Units become vested pursuant to Paragraph 7(b).

(g)

Stock Units shall be distributed only in shares of Common Stock so that, pursuant to Paragraph 1 of these Terms and Conditions and this Paragraph 8, a Participant shall be entitled to receive one share of Common Stock for each Stock Unit in the Participant’s Stock Unit Account. Notwithstanding the foregoing, in the event of a Change in Control, Acquirer Units described in Paragraph 7(a) (or Stock Units vested prior to the Change in Control that have not yet been distributed as of the Change in Control) shall be settled in equity of the acquirer, and Stock Units that become vested in accordance with Paragraph 7(b) may be settled in cash.

(h)

9.	Forfeitures and Recoupments .

(a)

(i)

at any time after the date of these Terms and Conditions, has divulged, directly or indirectly, or used, for the Participant’s own or another’s benefit, any Confidential Information;

(ii)

(iii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after the Participant ceases to be employed

by the Corporation and its Subsidiaries for any reason, has solicited, encouraged, advised, induced or caused any employee of the Corporation or any of its Subsidiaries to terminate his or her employment with the Corporation or any of its Subsidiaries, or provided any assistance, encouragement, information, or suggestion to any person or entity regarding the solicitation or hiring of any employee of the Corporation or any of its Subsidiaries;

(b)

(i)

the Corporation is required to restate its financial statements filed with the U.S. Securities and Exchange Commission on Form 10-Q or Form 10-K or re-file quarterly financial data with the U.S. Federal Reserve due to any reason other than changes in accounting policy or applicable law (a “Restatement”), and the Committee determines that such Restatement resulted, in whole or in material part, from the Participant (A) intentionally engaging in conduct that resulted in a material weakness in internal control over financial reporting and was inconsistent with the standards of conduct of the business judgment rule, as defined below, or (B) personally and knowingly engaging in practices that materially contributed to circumstances that resulted in a material weakness in internal control over financial reporting and that were inconsistent with the standards of conduct of the business judgment rule; or

(ii)

(c)

10.

Cancellation by the Committee . The Committee will consider cancelling and may cancel all or a portion of the Participant’s unvested Stock Units when (a) there is reasonable evidence of material employee misbehavior or error, (b) the Corporation or the relevant business unit of the Corporation suffers a material downturn in its financial performance, attributable to a prior period and materially greater than was previously anticipated in risk adjusting incentive compensation, or (c) the Corporation or the relevant business unit of the Corporation suffers a material failure of risk management. In the event that any of the Participant’s unvested Stock Units are cancelled pursuant to the preceding sentence, the Corporation shall have no obligation to distribute the Stock Units to the Participant (or the Participant’s beneficiary) pursuant to Paragraph 8 or to pay any Dividend Equivalents pursuant to Paragraph 3 with respect to such Stock Units.

11.

12.

Adjustment . The Stock Units provided herein are subject to adjustment in accordance with the provisions of Section 11 of the Plan.

13.

14.

Nontransferability . No interest hereunder of the Participant is transferable except as provided in the Stock Unit Agreement.

15.

16.

17.

No Rights as Shareholder . Except as provided herein, the Participant will have no rights as a shareholder with respect to the Stock Units.

18.

19.

Sole Agreement . The Stock Unit Agreement, together with the Plan, is the entire Agreement between the parties hereto, all prior oral and written representations being merged herein. No amendment or modification of the terms of the Stock Unit Agreement shall be binding on either party unless reduced to writing and signed by the party to be bound. The Stock Unit Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors. Notwithstanding anything in the Stock Unit Agreement to the contrary, including without limitation the foregoing provisions of this Paragraph 19, in the event that the Committee determines that the Stock Unit Award, or the performance by the Corporation of any of its obligations under the Stock Unit Agreement, would violate any applicable law, the Stock Units shall be forfeited to the Corporation and cancelled, and the Corporation shall have no obligation to distribute the Stock Units to the Participant or the Participant’s Beneficiary or to pay any Dividend Equivalents.

20.

Definitions . As provided above, capitalized terms not defined in the Stock Unit Agreement shall have the meanings assigned to them in the Plan. For purposes of the Stock Unit Agreement:

(a)

(b)

(c)

(d)

(e)

“Good Cause” means (i) Participant’s conviction of any criminal violation involving dishonesty, fraud or breach of trust which involves the business of Northern Trust; (ii) Participant’s willful engagement in any misconduct in the performance of Participant’s duty that materially injures the Corporation; (iii) Participant’s performance of any act which, if known to the customers, clients, stockholders or regulations of Northern Trust, would materially and adversely impact the business of Northern Trust; (iv) any act or omission by Participant that causes a regulatory body with jurisdiction over Northern Trust, to demand, request, or recommend that Participant be suspended or removed from any position in which Participant serves with Northern Trust, or (v) Participant’s willful and substantial nonperformance of assigned duties, provided that such nonperformance has continued more than ten days after Northern Trust has given written notice of such nonperformance and of its intention to terminate Participant’s employment because of such nonperformance. For purposes of clauses (ii) and (v) of this definition, no act, or failure to act, on Participant’s part shall be deemed “willful” unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant’s act, or failure to act, was in the best interest of the Corporation. In the event of a dispute concerning the application of this provision, no claim by the Corporation that Good Cause exists shall be given effect unless the Corporation establishes to the Board of Directors of the Corporation by clear and convincing evidence that Good Cause exists.

(f)

selected by the Corporation); (iii) the Corporation (or an affiliate) shall materially change the geographic location at which Participant must perform services from that in effect prior to a Change in Control (including by assigning to Participant duties that would reasonably require such relation or which would require Participant to spend more than fifty normal working days away from the location in effect prior to a Change in Control); or (iv) any other action or inaction by the Corporation (or an affiliate) that constitutes a material breach of the employment agreement, if any, under which Participant provides services to the Corporation.

(g)

“Northern Trust” means the Corporation and its Subsidiaries, collectively.

(h)

(i)

“Prospective Client” means any person or entity to which the Corporation, or any of its Subsidiaries, provided, or from which the Corporation, or any of its Subsidiaries received, a proposal, bid, or written inquiry (general advertising or promotional materials and mass mailings excepted) and with which the Participant had contact, or about which the Participant had access to Confidential Information, during the last twelve (12) months of his or her employment.

(j)

“Solicit” and “Solicitation” (with respect to Clients or Prospective Clients) mean directly or indirectly, and without the Corporation’s written authorization, to invite, encourage, request, or induce (or to assist another to invite, encourage, request or induce) any Client or Prospective Client of the Corporation, or any of its Subsidiaries, to: (i) surrender, redeem or terminate a product, service or relationship with the Corporation, or any of its Subsidiaries; (ii) obtain any Competitive Service or Product from the Participant or any third party; or (iii) transfer a product, service or relationship from the Corporation, or any of its Subsidiaries, to the Participant or any third party.

Exhibit (10)(vii)

TERMS AND CONDITIONS

2012 STOCK UNIT AWARD

UNDER THE

NORTHERN TRUST CORPORATION 2012 STOCK PLAN

Grant . The Corporation hereby grants to the Participant an Award of Stock Units, as set forth in the Award Notice, subject to the terms and conditions of the Plan and the Stock Unit Agreement. A Stock Unit is the right, subject to the terms and conditions of the Plan and the Stock Unit Agreement, to receive a distribution of a share of Common Stock pursuant to Paragraph 8 of these Terms and Conditions.

Forfeiture . The Stock Units granted to the Participant pursuant to the Stock Unit Agreement shall be forfeited and revert to the Corporation (a) in accordance with Paragraph 9, if the Participant engages in conduct or activity described in Paragraph 9 of these Terms and Conditions, or (b) except as described in Paragraphs 5, 6, and 7 and of these Terms and Conditions, if the Participant’s employment with the Corporation and all of its Subsidiaries terminates prior to the expiration of the Vesting Period described in Paragraph 5.

5.	Vesting . Subject to all of the provisions of the Stock Unit Agreement, including, without limitation, the provisions of Paragraphs 4, 6, 7 and 9 of these Terms and Conditions, the Participant shall become vested in the Stock Units upon the vesting dates specified, and

6.	Prorated Vesting .

(a)

(b)

(c)

(d)

7.	Vesting Upon a Change in Control .

(a)

(b)

8.	Distribution.

(a)

(b)

(c)

In the case of Stock Units that become vested prior to the expiration of the Vesting Period upon a Participant’s death pursuant to Paragraph 6(b), with the number of unvested Stock Units that become vested on death determined in accordance with Paragraph 6 of these Terms and Conditions, distribution shall be made to the Participant’s beneficiary on the first day following the expiration of the six-month period beginning on the date of death. Such distribution shall be made to such beneficiary and in such proportions as the Participant may designate in writing, and in the absence of a designation, the Participant’s beneficiary shall be one of the following persons determined in the order provided below:

•

The Participant’s spouse; if none, then,

•

The Participant’s children (in equal amounts); if none, then,

•

The Participant’s parents (in equal amounts); if none, then,

•

The Participant’s brothers and sisters (in equal amounts); if none, then,

•

The Participant’s estate.

In the event of the Participant’s death after the expiration of the Vesting Period but prior to full distribution of the Stock Units pursuant to these Terms and Conditions, the Participant’s Stock Units shall be distributed, on the first day following the expiration of the six-month period beginning on the Participant’s date of death, to the Participant’s beneficiary determined in accordance with the foregoing provisions of this clause (c) of Paragraph 8.

(d)

(e)

Stock Units shall be treated as distributed on the applicable distribution date specified in Paragraphs 8(a), (b), (c), and (d), above, if they are distributed no later than the last day of the calendar year in which such distribution date occurs, or, if later by the 15 ^th day of the third calendar month after such distribution date occurs, subject to and in accordance with the provisions of, Treasury Regulation Section 1.409A-3(b), including without limitation the requirement that the employee shall in no event have the right directly or indirectly to designate the taxable year of payment.

(f)

(g)

Stock Units shall be distributed only in shares of Common Stock so that, pursuant to Paragraph 1 of these Terms and Conditions and this Paragraph 8, a Participant shall be entitled to receive one share of Common Stock for each Stock Unit in the Participant’s Stock Unit Account. Notwithstanding the foregoing, in the event of a Change in Control, Acquirer Units described in Paragraph 7(a) (or Stock Units vested prior to the Change in Control that have not yet been distributed as of the Change in Control) shall be settled in equity of the acquirer, and Stock Units that become vested in accordance with Paragraph 7(b) may be settled in cash.

(h)

9.	Forfeitures and Recoupments .

(a)

(i)

at any time after the date of these Terms and Conditions, has divulged, directly or indirectly, or used, for the Participant’s own or another’s benefit, any Confidential Information;

(ii)

(iii)

at any time after the date of these Terms and Conditions and through a period of twelve (12) months after the Participant ceases to be employed by the Corporation and its Subsidiaries for any reason, has solicited, encouraged, advised, induced or caused any employee of the Corporation or any of its Subsidiaries to terminate his or her employment with the Corporation or any of its Subsidiaries, or provided any assistance, encouragement, information, or suggestion to any person or entity regarding the solicitation or hiring of any employee of the Corporation or any of its Subsidiaries;

(b)

(i)

the Corporation is required to restate its financial statements filed with the U.S. Securities and Exchange Commission on Form 10-Q or Form 10-K or re-file quarterly financial data with the U.S. Federal Reserve due to any reason other than changes in accounting policy or applicable law (a “Restatement”), and the Committee determines that such Restatement resulted, in whole or in material part, from the Participant (A) intentionally engaging in conduct that resulted in a material weakness in internal control over financial reporting and was inconsistent with the standards of conduct of the business judgment rule, as defined below, or (B) personally and knowingly engaging in practices that materially contributed to circumstances that resulted in a material weakness in internal control over financial reporting and that were inconsistent with the standards of conduct of the business judgment rule; or

(ii)

(c)

10.

11.

Adjustment . The Stock Units provided herein are subject to adjustment in accordance with the provisions of Section 11 of the Plan.

12.

13.

Nontransferability . No interest hereunder of the Participant is transferable except as provided in the Stock Unit Agreement.

14.

15.

16.

No Rights as Shareholder . Except as provided herein, the Participant will have no rights as a shareholder with respect to the Stock Units.

17.

18.

19.

Definitions . As provided above, capitalized terms not defined in the Stock Unit Agreement shall have the meanings assigned to them in the Plan. For purposes of the Stock Unit Agreement:

(a)

(b)

(c)

(d)

methods, computer data or system program or design, devices, lists, tools, or compilation, which relate to the present or planned business of the Corporation or any of its Subsidiaries and which has not been made generally known to the public by authorized representatives of the Corporation.

(e)

“Good Cause” means (i) Participant’s conviction of any criminal violation involving dishonesty, fraud or breach of trust which involves the business of Northern Trust; (ii) Participant’s willful engagement in any misconduct in the performance of Participant’s duty that materially injures the Corporation; (iii) Participant’s performance of any act which, if known to the customers, clients, stockholders or regulations of Northern Trust, would materially and adversely impact the business of Northern Trust; (iv) any act or omission by Participant that causes a regulatory body with jurisdiction over Northern Trust, to demand, request, or recommend that Participant be suspended or removed from any position in which Participant serves with Northern Trust, or (v) Participant’s willful and substantial nonperformance of assigned duties, provided that such nonperformance has continued more than ten days after Northern Trust has given written notice of such nonperformance and of its intention to terminate Participant’s employment because of such nonperformance. For purposes of clauses (ii) and (v) of this definition, no act, or failure to act, on Participant’s part shall be deemed “willful” unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant’s act, or failure to act, was in the best interest of the Corporation. In the event of a dispute concerning the application of this provision, no claim by the Corporation that Good Cause exists shall be given effect unless the Corporation establishes to the Board of Directors of the Corporation by clear and convincing evidence that Good Cause exists.

(f)

“Good Reason” shall exist if, without Participant’s express written consent: (i) the Corporation (or an affiliate) shall materially diminish (A) the Participant’s authority, duties, or responsibilities; (B) the authority, duties, or responsibilities of the position or entity to which Participant is required to report; or (C) the budget, if any, over which Participant has authority, in each case as compared to Participant’s circumstances immediately prior to a Change in Control; (ii) the Corporation (or an affiliate) shall materially diminish Participant’s base compensation from that in effect as of the date of grant hereunder of the Stock Unit (or as of a Change in Control, if greater), including a diminution of Participant’s salary or the material diminution in the aggregate value to Participant of participation in cash or stock-based incentive or bonus plans, retirement plans, welfare benefit plans, or other benefit plans, programs or arrangements (as computed by an independent employee benefits consultant selected by the Corporation); (iii) the Corporation (or an affiliate) shall materially change the geographic location at which Participant must perform services from that in effect prior to a Change in Control (including by assigning to Participant duties that would reasonably require such relation or which would require Participant to spend more than fifty normal working days away from the location

in effect prior to a Change in Control); or (iv) any other action or inaction by the Corporation (or an affiliate) that constitutes a material breach of the employment agreement, if any, under which Participant provides services to the Corporation.

(g)

“Northern Trust” means the Corporation and its Subsidiaries, collectively.

(h)

(i)

“Prospective Client” means any person or entity to which the Corporation, or any of its Subsidiaries, provided, or from which the Corporation, or any of its Subsidiaries received, a proposal, bid, or written inquiry (general advertising or promotional materials and mass mailings excepted) and with which the Participant had contact, or about which the Participant had access to Confidential Information, during the last twelve (12) months of his or her employment.

(j)

“Solicit” and “Solicitation” (with respect to Clients or Prospective Clients) mean directly or indirectly, and without the Corporation’s written authorization, to invite, encourage, request, or induce (or to assist another to invite, encourage, request or induce) any Client or Prospective Client of the Corporation, or any of its Subsidiaries, to: (i) surrender, redeem or terminate a product, service or relationship with the Corporation, or any of its Subsidiaries; (ii) obtain any Competitive Service or Product from the Participant or any third party; or (iii) transfer a product, service or relationship from the Corporation, or any of its Subsidiaries, to the Participant or any third party.

Exhibit (10)(viii)

NORTHERN TRUST CORPORATION

MANAGEMENT PERFORMANCE PLAN

(As Amended and Restated Effective October 16, 2012)

I.	Purposes of Plan

The purposes of the Northern Trust Corporation Management Performance Plan (the “Plan”) are to (i) promote the achievement of superior financial and operating performance of Northern Trust Corporation and its subsidiaries (the “Corporation”), and to further the objective of delivering unrivaled service quality to clients through the awarding of annual cash incentives to participants in the Plan (“Participants”), (ii) reward Participants who make significant contributions to the Corporation’s success, enabling them to share in this success, (iii) provide the Corporation a means to attract, motivate and retain key senior officers and (iv) qualify any compensation paid under the Plan for tax deductibility under Section 162(m) of the Internal Revenue Code of 1986, as amended.

II.

Administration

The Plan shall be administered by the Compensation and Benefits Committee (the “Committee”) of the Board of Directors (the “Board”) of the Corporation. The Committee shall have authority for selecting Participants and determining final award amounts to be paid to Participants. Subject to the express provisions of the Plan, the Committee shall be authorized to interpret the Plan and to establish, amend and rescind any rules and regulations relating to the Plan and to make all other determinations deemed necessary or advisable for the proper administration of the Plan. The determinations of the Committee in the proper administration of the Plan shall be conclusive and binding.

III.

Term

The Plan was originally effective as of January 1, 1999 (the “Effective Date”), subject to approval by the Corporation’s shareholders at the 1999 Annual Meeting of Shareholders, which was obtained. The Plan was amended and restated effective July 15, 2008, and was again amended and restated October 16, 2012. The Plan shall remain in effect until terminated by the Board.

IV.

Eligibility and Participation

Eligibility to participate in the Plan shall be limited to any key officer of the Corporation at or above the level of an executive vice president. Participants in the Plan shall be selected annually by the Committee from those key senior officers eligible to participate in the Plan.

Page 1 of 4

V.	Performance Objective

The Corporation’s fiscal year shall be the performance period. For each fiscal year, the Plan’s performance objective (the “Performance Objective”) and the corresponding Funding Opportunity (described below) for each Participant shall be established with reference to the Corporation’s consolidated net income as determined in accordance with generally accepted accounting principles and Section VI below.

VI.

Award Funding Opportunity

The Funding Opportunity for Participants for each fiscal year shall be as follows:


		Position (if a Participant in any fiscal year)		Funding Opportunity

		(1) Chairman, (2) Chief Executive Officer or (3) Chairman and Chief Executive Officer		0.6% of the Corporation’s consolidated net income for that fiscal year

		(1) President, (2) Vice Chairman, (3) Chief Operating Officer, or (4) President and Chief Operating Officer		0.4% of the Corporation’s consolidated net income for that fiscal year

		Any other Participant		0.3% of the Corporation’s consolidated net income for that fiscal year

In the event that any individual holds more than one of the above listed positions concurrently, the Funding Opportunity in any fiscal year for such individual (if a Participant for such fiscal year) shall be the greatest of each of the amounts otherwise applicable to each of the concurrently held positions. The maximum award payable to a Participant under this Plan for any fiscal year shall not exceed the Participant’s Funding Opportunity described in this Section VI.

VII.

Award Determination

As soon as practicable (but in no event later than 90 days) following completion of a fiscal year, the Committee shall (i) calculate the dollar amount of each Participant’s Funding Opportunity for that fiscal year solely on the basis of the Performance Objective and the provisions of Section VI and (ii) approve each Participant’s actual award for that fiscal year on a discretionary basis as provided in the next sentence. The Committee shall have the right to reduce a Participant’s actual award below the Funding Opportunity in its sole discretion based on an assessment of individual contribution, performance relative to performance expectations, competitive levels of compensation and corporate performance, and as appropriate to meet all applicable regulatory requirements, and shall in no event increase a Participant’s award in any fiscal year above the Funding Opportunity. The “performance expectations” referenced in the preceding sentence refer to performance expectations, including a risk management expectation, that each Participant will receive for the applicable fiscal year of the Corporation.

Page 2 of 4

VIII.

Payment of Awards

Awards for a fiscal year will be paid in cash (or deferred at the election of a Participant as provided in Section IX(b) below) as soon as practicable following the Committee’s determination of awards for that fiscal year, and in no event later than the 15 ^th day of the third month following the calendar year in which the award is no longer subject to a substantial risk of forfeiture.

IX.

Other Provisions

The following miscellaneous provisions are applicable to the Plan:

(a)

Awards paid under the provisions of the Plan are considered pensionable earnings when paid.

(b)

Awards paid from the Plan may be deferred into the Northern Trust Corporation Deferred Compensation Plan, subject to all of the terms and conditions, including without limitation, the election deadlines of that Plan. Deferred amounts will be considered pensionable earnings under the provisions of the Supplemental Pension Plan.

(c)

Termination of employment of a participant during the Plan year, either voluntarily, or involuntarily with cause for reasons other than death, disability, or retirement, shall result in immediate exclusion from the Plan.

(d)

Except in the event of the death of a participant, the rights and interests of a participant under the Plan shall not be assigned, encumbered, or transferred.

(e)

Each participant shall designate a beneficiary (the “Designated Beneficiary”) to receive the award, if any, allocated to a participant, in the event of such participant’s death. If no Designated Beneficiary survives the participant, it shall be the surviving spouse of the participant or, if there is no surviving spouse, it shall be the participant’s estate.

(f)

No employee or other person shall have any claim or right to be granted an award under the plan. Neither the Plan, nor any action taken thereunder, shall be construed as giving the Participant or other person any right to be retained in the employ of the Corporation.

(g)

The Corporation shall have the right to deduct from all payments made under the Plan any taxes required by law to be withheld with respect to such payment.

(h)

All questions pertaining to the validity, construction and administration of the Plan and any award hereunder shall be determined in conformity with the laws of the State of Illinois.

Page 3 of 4

(i)

The Board, in its sole discretion, may modify or amend any or all of the Plan at any time and, without notice, may suspend or terminate the Plan entirely. However, no such modification or amendment may, without the consent of the Participant, reduce the right of a Participant to a payment or distribution to which the Participant is entitled by reason of an outstanding award.

(j)

All obligations of the Corporation under the Plan with respect to awards granted hereunder shall be binding on any successor to the Corporation, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business or assets of the Corporation.

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Exhibit (10)(ix)

Northern Partners Incentive Plan – North American Plan

1. Purpose of Plan

•

The purpose of the Northern Partners Incentive Plan (the “Plan”) is to promote the achievement of superior financial and operating performance of Northern Trust Corporation and its subsidiaries (hereinafter referred to as “Northern Trust”), and further the objective of delivering unrivaled service quality to its clients and partners through the awarding of incentive payments to selected employees.

•

The Plan supercedes all incentive plans previously established or maintained by Northern Trust providing for any form of incentive, bonus or commission compensation, including, but not limited to the 2003 Annual Performance, Annual Incentive, and respective Business Unit Specialized Incentive Plans. ¹ No further awards will be made under any such predecessor plans for any period after June 30, 2004.

2. Plan Year / Effective Date / Termination

•

The Plan Year is the calendar year from January 1 to December 31.

•

The Plan was adopted by the Board of Directors of Northern Trust Corporation on July 19, 2004.

•

The Plan shall remain in effect until terminated by the Board of Directors of Northern Trust Corporation.

3. Plan Performance Periods

•

Under the Plan, incentives may be determined and paid on a quarterly, semi-annual, or an annual basis, depending upon the incentive category to which a participant is assigned and the structure of the potential award determined for the participant. The applicable performance periods and frequency of award payments are determined by Business Unit management.

•

The performance periods for the Plan Year for incentives with quarterly payments are as follows:

•

January 1 to March 31;

¹	However, nothing herein shall be interpreted to supercede the Management Performance Plan.

•

April 1 to June 30;

•

July 1 to September 30; and

•

October 1 to December 31.

•

The performance periods for the Plan Year incentives with semi-annual payments are as follows:

•

January 1 to June 30; and

•

July 1 to December 31.

•

The performance period for all other awards under the Plan is the Plan Year, unless otherwise approved by the Executive Vice President of Human Resources.

4. Eligibility / Participation

•

Participants in the Plan for the Plan Year are those employees designated by their respective Business Units as eligible to participate in the Plan. Participants are generally designated at the beginning of the Plan Year. In addition, those employees who have a change in job duties are promoted, or who are hired during the performance period may be considered for inclusion and designated by their respective Business Units for partial Plan Year participation.

•

Designation for participation in this Plan for one Plan Year or a portion thereof does not establish eligibility for participation in any subsequent Plan Year or for any form of incentive, bonus or commission compensation with respect to any subsequent period.

•

Participants are assigned for the Plan Year to one of the following incentive categories within the Plan as their primary eligibility for their current role. However, participants may receive payments under multiple incentive categories within a Plan Year:

•

Northern Performance Incentives

•

Northern Sales Incentives

•

Northern Technical Incentives

5. Award Targets

•

An award target, generally expressed as a percent of a participant’s base salary at the beginning of the Plan Year, will be communicated to each participant annually as a potential award goal provided that Corporate and Business Unit goals and individual performance expectations are achieved.

•

The award and payment of any incentive amount is at the absolute discretion of Northern Trust. Management has the discretion not to award participants an incentive payout or to reduce the amount of the incentive payout if either Corporate, Business Unit or individual performances are not in line with expectations or due to any other reason as the Management deems fit in its sole discretion. This may mean that, regardless of individual performance, where Corporate or Business Unit performance is not in line with expectations (or any other factors as Northern Trust determines appropriate), participants may receive no payout.

6. Individual Performance Measures

•

Each participant will receive performance expectations, including a risk management expectation, for the Plan Year that will consist of both objective goals and subjective performance assessments.

•

Each participant’s manager will establish the participant’s performance expectations as early in the Plan Year as practicable.

•

Weighting of each individual performance expectation will be determined by the participant’s manager, with the exception that the risk management expectation cannot be weighted less than 10%.

7. Plan Funding

•

At the beginning of each Plan Year, the Compensation and Benefits Committee of the Board of Directors of Northern Trust Corporation will determine a Corporate Earnings Target and projected funding for awards under the Plan. Likewise, Business Unit management will determine appropriate earnings targets, performance standards, and projected funding for awards to Plan participants in their respective Business Unit. Management reserves the right to either increase or decrease the original projected funding amount for the Corporate and Business Unit levels due to actual results and each Business Unit’s relative contribution to actual results, effective risk management, or for any other reason as Management deems fit in its sole discretion. Where funding is reduced in respect of Corporate or Business Unit amounts, this may result in no incentive payout, regardless of individual performance or any other factors. In addition, the funding amount is subject to final approval by, and may be further reduced by, the Committee after the end of the performance period, as described at Section 10, below.

8. Individual Award Determination

•

All awards (if any) are impacted by available Plan funding, as determined and adjusted by Corporate and Business Unit management in its discretion.

•

Awards (if any) are determined by Business Unit management after the end of the applicable performance period, based upon an assessment of individual performance during the applicable performance period, taking into consideration:

•

Individual performance expectations, including the risk management expectation;

•

Overall contribution to Corporate and Business Unit earnings, relative to peers; and

•

Competitiveness of a participant’s total compensation.

•

Formula-driven performance measures are one of several factors for determination of award amounts. Both quantitative and qualitative performance criteria will be used to evaluate performance. Thus, management has the full discretion both during and after the performance period, up until the actual settlement of the award, as described in Paragraph 10, not to make an award or to adjust all awards up or down based on subjective performance evaluation, funding considerations, and any other factors which management, in its absolute discretion, determines appropriate.

•

In addition to the foregoing, all awards must also comply with applicable regulatory requirements and may be risk-adjusted within management’s discretion for all individual employees or groups of employees who, individually or collectively, may expose Northern Trust Corporation to more substantial amounts of risk.

9. Conditions on Eligibility for Payment of Awards.

•

In order for a participant to be eligible for payment of an award, except as specifically set forth below, the participant must continue in employment with Northern Trust and the Business Unit that designated him or her as a participant, and contribute toward achievement of Corporate and Business Unit goals, throughout the applicable performance period.

•

A participant who was designated by a Business Unit and transfers to another Business Unit during the applicable performance period may, as determined by management of the transferring Business Unit in its sole discretion, be determined eligible for a pro-rata payment of an award for work performed during the performance period for the transferring Business Unit, provided that Corporate and Business Unit goals and individual performance expectations, and any other factors which Northern Trust may determine applicable, are achieved. Payment of such pro-rata awards will be made at the same time all other awards are paid for such performance period.

•

In order for a participant to be eligible for consideration for payment of an award, the participant must continue employment with Northern Trust in good standing during the entire performance period established for the award. Good standing means:

•

The participant has satisfactorily met performance expectations, including risk management performance expectations, as determined by the participant’s manager;

•

The participant has complied with all Northern Trust policies and standards of conduct;

•

The participant has not engaged in any activity competitive with Northern Trust’s business or otherwise detrimental to Northern Trust’s business; and

•

The participant has not served or been served with notice to terminate the participant’s employment.

•

Notwithstanding the foregoing, management may, in its absolute discretion, determine that a pro-rata award will be paid in the event of termination of employment with Northern Trust by a participant on account of death, disability (as defined below), retirement (as defined below), or involuntary termination by Northern Trust without cause (as defined below), such as job elimination or redundancy, taking into consideration the portion of the performance period worked by the participant, the individual performance of the participant during such portion of the performance period worked, and the availability of Corporate, Business Unit and individual performance measurements as of the date of termination and any other factors as Northern Trust may from time to time take into account.

•

For this purpose, “cause” means the participant’s conviction or no contest pleading with respect to a felony, the participant’s other conduct which would require regulatory approval for employment or continued employment (e.g., under FDIC rules), or a determination by management that the participant has failed to meet performance expectations to the extent that termination is warranted, has violated Northern Trust policies or standards of conduct to the extent that termination is warranted, has abandoned or engaged in negligence with respect to his or her responsibilities, has engaged in fraud upon Northern Trust, or has disclosed Northern Trust confidential or proprietary information to an unauthorized person.

•

For this purpose, termination on account of “retirement” means termination of the participant’s employment by reason of the participant having qualified for Normal, Early, or Postponed Retirement Pension benefits under any of Northern Trust’s U.S. or non-U.S. pension plans.

•

For this purpose, termination on account of “disability” means, for a U.S. participant, the participant is eligible for and receives short-term and/or long-term disability benefits for twelve (12) consecutive months under the Northern Trust managed Disability Program, and for a non-US participant, as determined by management based on formal local country-specific definitions and eligibility criteria for disability benefits.

•

In no circumstances will a pro-rata award or any accrued and retained but unpaid award be paid to a participant who terminates employment by resigning before the end of the applicable performance period or whose employment is terminated by Northern Trust for cause (as defined above).

10. Payment of Awards

•

After the end of the performance period, Northern Trust shall make recommendations with respect to the final funding amount for the performance period, and whether each Participant’s award shall be settled in cash, a grant of equity-based compensation (e.g., restricted stock units or options) under the Northern Trust Corporation 2012 Stock Plan, or a combination thereof. Such recommendations (including the terms and conditions of each equity grant, which may include, but are not limited to, a deferred vesting schedule and possible forfeiture upon the occurrence of specified events (such as termination of employment, regulatory events, risk based events or behaviors, or changes in business conditions)), are subject to the review and approval of the Compensation and Benefits Committee of the Board of Directors of Northern Trust Corporation, and no grant of any equity award shall occur until the date of Committee action.

•

Notwithstanding anything herein to the contrary, until the date of settlement of the award (whether by actual payment in cash and/or the grant by the Committee of equity-based compensation in accordance with the preceding paragraph), Northern Trust may in its absolute discretion reduce or eliminate any award.

•

It is intended that all cash-settled awards made under the Plan shall constitute short-term deferrals for purposes of the regulations issued under Code Section 409A, and shall be paid within the deadline for short term deferrals, that all other awards hereunder shall constitute short-term deferrals for purposes of the regulations under Code Section 409A or comply with that Code Section and the regulations thereunder, and all provisions of this Plan shall be interpreted in all events in a manner consistent with such intent.

11. Administration

•

The Plan shall be administered by the Executive Vice President of Human Resources and the Compensation Division of the Human Resources Department. Subject to the provisions of the Plan, the Executive Vice President of Human Resources shall be authorized to interpret the Plan, to establish, amend, and rescind rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The determination of the Executive Vice President of Human Resources in the administration of the Plan, as described herein, shall, upon consultation with members of the Management Group, be final and conclusive. The Executive Vice President of Human Resources shall be responsible for final approval of all awards to be paid under the Plan.

•

Responsibilities of the Compensation Division of the Human Resources Department:

•

Guide incentive award determinations;

•

Review and monitor financial accruals in conjunction with the Controller’s Department;

•

Prepare communications to Plan participants;

•

Participate in a yearly review of all compensation plans so that the designs do not encourage imprudent risk taking;

•

Participate in a yearly assessment of the full range of inherent risks in order to identify those partners whose responsibilities might lead to imprudent risk-taking; and

•

Direct processing of incentive awards.

•

Business Unit Responsibilities:

•

Identification of Plan participants;

•

Prepare and communicate individual performance expectations;

•

Determine and recommend awards for approval by Business Unit Head; and

•

Communicate award decisions to participants

•

Risk Management Responsibilities

•

Participate in a yearly review of all compensation plans so that the designs do not encourage imprudent risk taking;

•

Undertake a yearly assessment of the full range of inherent risks in order to identify those partners whose responsibilities might lead to imprudent risk-taking;

•

Participate in the design of any NPIP Addendum and any other new or revised incentive plan to assess plans’ effectiveness in balancing imprudent risk taking; and

12. Contractual Rights

•

Neither the Plan, nor any action taken thereunder, shall be construed as creating a contract or any contractually enforceable rights to any employee, retiree, terminated employee, or other person. The Plan is entirely discretionary in nature; the award of any incentive and its amount will be at Northern Trust’s absolute discretion. No employee, retiree, terminated employee or other person shall have any claim or right to be designated a participant or granted an award under the Plan. No participant, or any other person claiming a right under the Plan, shall have any right to any specific assets of Northern Trust, regardless of whether Northern Trust establishes an account for purposes of accumulating funds to be used for payment of Plan awards. Neither the Plan, nor any action taken thereunder, shall be construed as giving any employee or other person any right to be retained in the employ of Northern Trust or otherwise alter any U.S. participant’s status as an at-will employee.

13. Other Provisions

The following miscellaneous provisions are applicable to the Plan:

•

Except in the event of death of a participant, the rights and interests of the participant under the Plan shall not be assigned, encumbered, or transferred. In the event of a US participant’s death, the award, if any, shall be made payable to the participant’s beneficiary as designated on the benefits online resource, My Place. If a US participant has not designated a beneficiary or if no designated beneficiary is living on the date of the US participant’s death, the award, if any, shall be paid to those persons who would be entitled to receive distribution of the US participant’s accounts under The Northern Trust Company Thrift-Incentive Plan (“TIP”) as if the US participant had not designated a TIP beneficiary. In the event of the death of a non-US participant, the Plan will be administered in accordance with applicable local rules.

•

All awards are subject to legally required withholdings.

•

For U.S. participants, all questions pertaining to the validity, construction, interpretation and administration of the Plan and any award hereunder shall be determined in conformity with the laws of the State of Illinois without application of its laws regarding conflict of laws. For non-U.S. participants, all questions pertaining to the validity, construction, interpretation and administration of the Plan and any award hereunder shall be determined in conformity with the applicable local laws and regulations to the extent in conflict with Illinois law, and otherwise shall be determined in conformity with the laws of the State of Illinois absent such conflict.

•

It is intended that all awards payable under the Plan shall be in compliance with Regulation R of the Board of Governors of the Federal Reserve System, and similar regulations promulgated by the Securities and Exchange Commission.

14. Internal Audit

•

All awards may be subject to review and approval by the Auditing Department and final review and approval by the Executive Vice President of Human Resources, prior to any award distribution.

15. Plan Amendment and Termination

•

Northern Trust reserves the right to suspend or terminate the Plan, or to amend any or all of the provisions of the Plan, at any time, including during a performance period and without prior notice to participants. The Board of Directors of Northern Trust Corporation shall approve any material amendments to the Plan. The Executive Vice President of Human Resources shall have the authority to make any non-material amendments to the Plan or amendments deemed required, authorized or desirable under applicable statutes, regulations or rulings without the approval of the Board of Directors of Northern Trust Corporation. In the event of termination of the Plan, only awards determined for completed performance periods and which are approved by the Executive Vice President of Human Resources shall be payable.

Exhibit (10)(x)

Northern Partners Incentive Plan – EMEA Plan

1. Purpose of Plan

•

The Plan supercedes all incentive plans previously established or maintained by Northern Trust providing for any form of incentive, bonus or commission compensation, including, but not limited to the 2003 Annual Performance and respective Business Unit Specialized Incentive Plans. ¹ No further awards will be made under any such predecessor plans for any period after June 30, 2004.

2. Plan Year / Effective Date / Termination

•

The Plan Year is the calendar year from January 1 to December 31.

•

The Plan was adopted by the Board of Directors of Northern Trust Corporation on July 19, 2004.

•

The Plan shall remain in effect until terminated by the Board of Directors of Northern Trust Corporation.

3. Plan Performance Periods

•

The performance periods for the Plan Year for incentives with quarterly payments are as follows:

•

January 1 to March 31;

•

April 1 to June 30;

•

July 1 to September 30; and

•

October 1 to December 31.

¹	However, nothing herein shall be interpreted to supercede the Management Performance Plan.

•

The performance periods for the Plan Year incentives with semi-annual payments are as follows:

•

January 1 to June 30; and

•

July 1 to December 31.

•

The performance period for all other awards under the Plan is the Plan Year, unless otherwise approved by the Executive Vice President of Human Resources.

4. Eligibility / Participation

•

Northern Performance Incentives

•

Northern Sales Incentives

•

Northern Technical Incentives

5. Award Targets

•

reason as the Management deems fit in its sole discretion. This may mean that, regardless of individual performance, where Corporate or Business Unit performance is not in line with expectations (or any other factors as Northern Trust determines appropriate), participants may receive no payout.

6. Individual Performance Measures

•

Each participant will receive performance expectations, including risk management expectations, for the Plan Year that will consist of both objective goals and subjective performance assessments.

•

Each participant’s manager will establish the participant’s performance expectations as early in the Plan Year as practicable.

•

Weighting of each individual performance expectation will be determined by the participant’s manager, with the exception that the risk management expectation cannot be weighted less than 10%.

7. Plan Funding

•

At the beginning of each Plan Year, the Compensation and Benefits Committee of the Board of Directors of Northern Trust Corporation will determine a Corporate Earnings Target and projected funding for awards under the Plan. Likewise, Business Unit management will determine appropriate earnings targets, performance standards, and projected funding for awards to Plan participants in their respective Business Unit. Management reserves the right to either increase or decrease the original projected funding amount for the Corporate and Business Unit levels at its discretion, depending upon actual results and each Business Unit’s relative contribution to actual results, as well as their effective risk management Where funding is reduced in respect of Corporate or Business Unit amounts, this may result in no incentive payout, regardless of individual performance or any other factors. In addition, the funding amount is subject to final approval by, and may be further reduced by, the Committee after the end of the performance period, as described at Section 10, below.

8. Individual Award Determination

•

All awards (if any) are impacted by available Plan funding, as determined and adjusted by Corporate and Business Unit management in its discretion, and subject to final approval by the Executive Vice President of Human Resources.

•

Awards (if any) are determined by Business Unit management after the end of the applicable performance period, subject to final approval by the Executive Vice President of Human Resources, based upon an assessment of individual performance during the applicable performance period, taking into consideration:

•

Individual performance expectations, including the risk management expectation;

•

Overall contribution to Corporate and Business Unit earnings, relative to peers;

•

Competitiveness of a participant’s total compensation; and

•

The participant has not served or been served with notice to terminate the participant’s employment prior to the first day in February after the close of the plan year.

•

Formula-driven performance measures are one of several factors for determination of award amounts. Both quantitative and qualitative performance criteria will be used to evaluate performance. Thus, management has the full discretion both during and after the performance period, up to the actual settlement of the award, as described in Paragraph 10, not to make an award or to adjust all awards up or down based on subjective performance evaluation, funding considerations, and any other factors which management, in its absolute discretion, determines appropriate.

•

9. Conditions on Eligibility for Payment of Awards.

•

The participant has satisfactorily met all performance expectations, including risk management performance expectations, as determined by the participant’s manager;

•

The participant has complied with all Northern Trust policies and standards of conduct;

•

The participant has not engaged in any activity competitive with Northern Trust’s business or otherwise detrimental to Northern Trust’s business; and

•

The participant has not served or been served with notice to terminate the participant’s employment.

•

For this purpose, “cause” means the participant’s conviction for a criminal offence (other than a minor road traffic offence); the employee being prevented by regulatory requirements from carrying out his duties; or a determination by management that the participant has failed to meet performance expectations to the extent that termination, whether with or without notice is warranted; the participant has violated Northern Trust policies or standards of conduct to the extent that termination with or without notice is warranted; the participant has been negligent to a material extent with respect to his or her responsibilities; the participant has been engaged in fraud upon Northern Trust, or has disclosed Northern Trust confidential or proprietary information to an unauthorized person, or his or her actions amount to misconduct under common law.

•

For this purpose, termination on account of “disability” means the participant’s employment is terminated pursuant to Northern Trust’s Long Term Ill Health Procedure as amended from time to time.

•

A participant who is terminated with cause (as defined above) after the end of the Plan Year but before the date of payment will forfeit entitlement to any unpaid award (and termination includes having received notice of termination).

•

A participant who resigns after the end of the Plan Year but prior to the first day in February after the close of the plan year will forfeit entitlement to any unpaid award (and resignation includes having given notice of resignation).

10. Payment of Awards

•

11. Administration

•

Responsibilities of the Compensation Division of the Human Resources Department:

•

Guide determination of incentive award calculations and determinations;

•

Review and monitor financial accruals in conjunction with the Controller’s Department;

•

Prepare communications to Plan participants;

•

Participate in a yearly review of all compensation plans so that the designs do not encourage imprudent risk taking;

•

Participate in a yearly assessment of the full range of inherent risks in order to identify those partners whose responsibilities might lead to imprudent risk-taking; and

•

Direct processing of incentive awards.

•

Business Unit Responsibilities:

•

Identification of Plan participants;

•

Prepare and communicate individual performance expectations;

•

Determine and recommend awards for approval by the Executive Vice President of Human Resources; and

•

Communicate award decisions to participants

12. Contractual Rights

•

13. Other Provisions

The following miscellaneous provisions are applicable to the Plan:

•

Except in the event of death of a participant, the rights and interests of the participant under the Plan shall not be assigned, encumbered, or transferred. In the event of the death of a participant, the Plan will be administered in accordance with applicable local rules.

•

All awards are subject to legally required withholdings and deductions.

•

All questions pertaining to the validity, construction, interpretation and administration of the Plan and any award hereunder shall be determined in conformity with the applicable local laws of the jurisdiction in which the employee primarily provides services.

14. Internal Audit

•

All awards may be subject to review and approval by the Auditing Department and final review and approval by the Executive Vice President of Human Resources, prior to any award distribution.

15. Plan Amendment and Termination

•

Exhibit (10)(xi)

Northern Partners Incentive Plan – APAC Plan

1. Purpose of Plan

•

2. Plan Year / Effective Date / Termination

•

The Plan Year is the calendar year from January 1 to December 31.

•

The Plan was adopted by the Board of Directors of Northern Trust Corporation on July 19, 2004.

•

The Plan shall remain in effect until terminated by the Board of Directors of Northern Trust Corporation.

3. Plan Performance Periods

•

The performance periods for the Plan Year for incentives with quarterly payments are as follows:

•

January 1 to March 31;

¹	However, nothing herein shall be interpreted to supercede the Management Performance Plan.

•

April 1 to June 30;

•

July 1 to September 30; and

•

October 1 to December 31.

•

The performance periods for the Plan Year incentives with semi-annual payments are as follows:

•

January 1 to June 30; and

•

July 1 to December 31.

•

The performance period for all other awards under the Plan is the Plan Year, unless otherwise approved by the Executive Vice President of Human Resources.

4. Eligibility / Participation

•

Northern Performance Incentives

•

Northern Sales Incentives

•

Northern Technical Incentives

5. Award Targets

•

6. Individual Performance Measures

•

Each participant will receive performance expectations, including a risk management expectation, for the Plan Year that will consist of both objective goals and subjective performance assessments.

•

Each participant’s manager will establish the participant’s performance expectations as early in the Plan Year as practicable.

•

Weighting of each individual performance expectation will be determined by the participant’s manager, with the exception that the risk management expectation cannot be weighted less than 10%.

7. Plan Funding

•

8. Individual Award Determination

•

All awards (if any) are impacted by available Plan funding, as determined and adjusted by Corporate and Business Unit management in its discretion.

•

Individual performance expectations, including the risk management expectation;

•

Overall contribution to Corporate and Business Unit earnings, relative to peers; and

•

Competitiveness of a participant’s total compensation; and

•

The participant has not served or been served with notice to terminate the participant’s employment prior to the first day in February after the close of the plan year.

•

9. Conditions on Eligibility for Payment of Awards.

•

The participant has satisfactorily met performance expectations, including risk management performance expectations, as determined by the participant’s manager;

•

The participant has complied with all Northern Trust policies and standards of conduct;

•

The participant has not engaged in any activity competitive with Northern Trust’s business or otherwise detrimental to Northern Trust’s business; and

•

The participant has not served or been served with notice to terminate the participant’s employment.

•

For this purpose, termination on account of “retirement” means termination of the participant’s employment by reason of the participant having qualified for Normal or Early Retirement Pension benefits under any of Northern Trust’s Asia pension plans.

•

A participant who resigns after the end of the Plan Year but prior to the first day in February (or the first day of January if a resident of India) after the close of the plan year will forfeit entitlement to any unpaid award (and resignation includes having given notice of resignation).

10. Payment of Awards

•

After the end of the performance period, Northern Trust shall make recommendations with respect to the final funding amount for the performance period, and whether each Participant’s award shall be settled in cash, a grant of equity-based compensation ( e.g. , restricted stock units or options) under the Northern Trust Corporation 2012 Stock Plan, or a combination thereof. Such recommendations (including the terms and conditions of each equity grant, which may include, but are not limited to, a deferred vesting schedule and possible forfeiture upon the occurrence of specified events (such as termination of employment, regulatory events, risk based events or behaviors, or changes in business conditions)), are subject to the review and approval of the Compensation and Benefits Committee of the Board of Directors of Northern Trust Corporation, and no grant of any equity award shall occur until the date of Committee action.

•

11. Administration

•

Responsibilities of the Compensation Division of the Human Resources Department:

•

Guide incentive award determinations;

•

Review and monitor financial accruals in conjunction with the Controller’s Department;

•

Prepare communications to Plan participants;

•

Participate in a yearly review of all compensation plans so that the designs do not encourage imprudent risk taking;

•

Participate in a yearly assessment of the full range of inherent risks in order to identify those partners whose responsibilities might lead to imprudent risk-taking; and

•

Direct processing of incentive awards.

•

Business Unit Responsibilities:

•

Identification of Plan participants;

•

Prepare and communicate individual performance expectations;

•

Determine and recommend awards for approval by Business Unit Head; and

•

Communicate award decisions to participants

•

Risk Management Responsibilities

•

Participate in a yearly review of all compensation plans so that the designs do not encourage imprudent risk taking;

•

Undertake a yearly assessment of the full range of inherent risks in order to identify those partners whose responsibilities might lead to imprudent risk-taking;

•

Participate in the design of any NPIP Addendum and any other new or revised incentive plan to assess plans’ effectiveness in balancing imprudent risk taking; and

12. Contractual Rights

•

employ of Northern Trust. For India participants, any award made under this Plan are not and shall not be deemed or construed to be wages, allowance, compensation or benefits payable to the employee either under their contract of employment or under any applicable law

13. Other Provisions

The following miscellaneous provisions are applicable to the Plan:

•

All awards are subject to legally required withholdings and deductions.

•

14. Internal Audit

•

All awards may be subject to review and approval by the Auditing Department and final review and approval by the Executive Vice President of Human Resources, prior to any award distribution.

15. Plan Amendment and Termination

•

Exhibit 31(i)

Certification of CEO Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Frederick H. Waddell, certify that:

1.	I have reviewed this report on Form 10-Q for the quarterly period ending September 30, 2012 of Northern Trust Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: October 26, 2012				/s/ Frederick H. Waddell
				Frederick H. Waddell
				Chief Executive Officer

Exhibit 31(ii)

Certification of CFO Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael G. O’Grady, certify that:

1.	I have reviewed this report on Form 10-Q for the quarterly period ending September 30, 2012 of Northern Trust Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: October 26, 2012				/s/ Michael G. O’Grady
				Michael G. O’Grady
				Chief Financial Officer

Exhibit 32(i)

Certifications of CEO and CFO Pursuant to

18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Northern Trust Corporation (the “Corporation”) on Form 10-Q for the period ending September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Frederick H. Waddell, as Chief Executive Officer of the Corporation, and Michael G. O’Grady, as Chief Financial Officer of the Corporation, each hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Frederick H. Waddell

Frederick H. Waddell

Chief Executive Officer

October 26, 2012

/s/ Michael G. O’Grady

Michael G. O’Grady

Chief Financial Officer

October 26, 2012

This certification accompanies the Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by Northern Trust Corporation for purposes of section 18 of the Securities Exchange Act of 1934, as amended.