UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended September 30, 2005March 31, 2006

OR

For the transition period from            to            

Commission File No. 0-5965

NORTHERN TRUST CORPORATION

(Exact name of registrant as specified in its charter)

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  xNo  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act Rule 12b-2).    Yes  Act. (Check one):

Large Accelerated Filer  x    NoAccelerated Filer  ¨

    Non-Accelerated Filer  ¨

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

218,246,333218,046,297 Shares - $1.66 2/3 Par Value

(Shares of Common Stock Outstanding on September 30, 2005)March 31, 2006)

PART I - FINANCIAL INFORMATION

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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - NORTHERN TRUST CORPORATION

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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), all of which are wholly-owned. Significant intercompany balances and transactions have been eliminated. The consolidated financial statements, reflect Northern Trust’s purchase onas of March 31, 2005 of Baring Asset Management’s Financial Services Group (FSG), as discussed in Note 7. In June 2003, the Corporation disposed of substantially all of the assets of Northern Trust Retirement Consulting, L.L.C. (NTRC). The operating results of NTRC, previously presented as discontinued operations, are immaterial to,2006 and have been incorporated within, the consolidated results of operations of Northern Trust. The consolidated financial statements, as of September 30, 2005, and 2004, 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. Certain reclassifications have been made to prior periods’ consolidated financial statements to place them on a basis comparable with the current period’s consolidated financial statements. For a description of Northern Trust’s significant accounting policies, refer to Note 1 of the Notes to Consolidated Financial Statements in the 20042005 Financial Annual Report to Shareholders.

2. Recent Accounting Pronouncements - On July 14, 2005,In March 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 156, “Accounting for Servicing of Financial Assets” (SFAS No. 156), which amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 156 requires an entity to separately recognize servicing assets and servicing liabilities and to report these balances at fair value upon inception. Future methods of assessing values can be performed using either the amortization or fair value measurement techniques. Adoption of SFAS No. 156 is required for transactions occurring in fiscal years beginning after September 15, 2006. The adoption of this standard is not expected to have a material impact on Northern Trust’s consolidated financial position or results of operations.

In July 2005, the FASB issued for comment proposed Staff Position No. FAS 13-a (FSP 13-a),Accounting “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction,,” which would amend FASB Statement No. 13,Accounting “Accounting for Leases,,” and modify certain related interpretations and industry practices. This proposed Staff Position has implications related to the accounting for potential income tax settlements in connection with leveraged leases. If approved as proposed,currently written, FSP 13-a would require a recalculation of the rate of return and allocation of income from the inception of a leveraged lease if, during the lease term, the expected timing of the income tax cash flows generated by a leveraged lease is revised. The recalculation would include cash flows that occurred up to and including the point of actual or expected settlement including interest and penalties assessed or expected to be assessed by the taxing authority, and the estimated cash flows thereafter. If approved as proposed, the guidance inThe original effective date of FSP 13-a would be effective as ofhas been deferred and the end of the first fiscal year ending after December 15, 2005.FASB has not yet finalized a revised required adoption date. Application of proposed FSP 13-a as currently written to certain of Northern Trust’s structured leasing transactions under review by the Internal Revenue Service (IRS) (see note 13)12) could result in a one-time charge to Northern Trust’s earnings. However, an amount approximating this one-time charge would be recognized into income over the remaining term of the affected leveraged leases.

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Notes to Consolidated Financial Statements (continued)

In October 2004, the American Jobs Creation Act of 2004 (AJCA), which allows for a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, was signed into law. In December 2004, the FASB staff issued Staff Position 109-2 (FSP 109-2), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” to provide accounting and disclosure guidance related to the tax impact of this repatriation provision. Northern Trust expects to complete its evaluation of available elections under the AJCA during the fourth quarter of 2005. Based on its current analysis, Northern Trust anticipates that it will repatriate dividends from foreign subsidiaries totaling approximately $45 million to $55 million and that the related tax benefit realized will range from $4 million to $5 million.

3. Stock-Based Compensation Plans - The Northern Trust Corporation 2002 Stock Plan (2002 Plan), administered byadopted the Compensation Committee of the Corporation’s Board of Directors, provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, performance shares and stock units. As of September 30, 2005, shares available for future grant under the 2002 Plan totaled 8,651,410.

In December 2004, the FASB issuedFASB’s SFAS No. 123 (revised 2004), “Share-Based Payment,” (SFAS No. 123(R)). on the required effective date, January 1, 2006, using the modified prospective transition method provided for under the standard. SFAS No. 123(R) addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123(R) requires an entity to recognize as compensation expense the grant-date fair value of stock options and other equity-based compensation issuedgranted to employees within the income statement using a fair-value-based method, eliminating the intrinsic value method of accounting previously permissible under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related interpretations.

On April 15, 2005, the Securities and Exchange Commission (SEC) issued a ruling amending the date for compliance with SFAS No. 123(R). It requires registrants to adopt FAS 123(R) beginning with the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. Northern Trust will adopt SFAS No. 123(R) on its required effective date, currently January 1, 2006. Expense treatment under SFAS No. 123(R) for the vesting of stock options granted through September 30,March 2006, including Northern Trust’s primary grant of options for 2006, increased pre-tax compensation expense by $10.2 million ($6.4 million after-tax) in the quarter, resulting in a $.03 reduction in diluted earnings per share. The pre-tax expense recorded in the quarter includes $7.5 million attributable to options granted to retirement-eligible employees, which were expensed in their entirety on the grant date. Northern Trust’s estimate of the full year increase in compensation expense due to the expensing of stock options for 2006 is approximately $18 million, which would result in an approximate $.05 reduction in diluted earnings per share.

Northern Trust’s share-based payment arrangements are described under “2002 Stock Plan” below. Total compensation expense for share-based payment arrangements for the quarters ended March 31, 2006 and 2005 was as follows:

The related tax benefits recognized for the quarters ended March 31, 2006 and March 31, 2005 were $5.5 million and $1.4 million, respectively. As of March 31, 2006, there was $76.1 million of unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Corporation’s stock-based compensation plans. That cost is expected to increase pre-tax compensationbe recognized as expense for the fiscal year 2006 byover a weighted-average period of approximately $5 million, resulting in an approximate $.02 reduction in 2006 earnings per share. Future stock option grants will result in additional expense recognition through their respective vesting periods. The amount and timing of expense to be recorded under SFAS No. 123(R) for future grants will be dependent upon the volumes, terms, and valuations of such grants.3.2 years.

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Notes to Consolidated Financial Statements (continued)

Prior toCertain of Northern Trust’s share-based award grants contain terms that provide for a graded vesting schedule whereby portions of the required adoption ofaward vest in increments over the requisite service period. As provided for under SFAS No. 123(R), Northern Trust has elected to accountrecognize compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for the entire award. Additionally, SFAS No. 123(R) requires companies to recognize compensation expense based on the estimated number of stock options and awards for which service is expected to be rendered. Northern Trust has determined that historical forfeitures of its share-based awards have not been material and has not adjusted for forfeitures in its share-based awards expensed under SFAS No. 123(R).

Prior to January 1, 2006, Northern Trust accounted for its share-based incentives under the FASB’s SFAS No. 123, “Accounting for Stock-Based Compensation,” which allowed two alternative accounting methods for stock-based incentive planscompensation: (1) a fair-value-based method, or (2) an intrinsic-value-based method prescribed by APB No. 25 and awardsrelated interpretations. Northern Trust elected to use the intrinsic-value-based method of accounting for stock-based compensation under APB No. 25, and has adopted the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Compensation—Transition and Disclosure.”

Pro forma information regarding net income and earnings per share for the three months ended March 31, 2005 is presented below as if the Corporation had accounted for all stock-based compensation under the fair value method of SFAS No. 123. For purposes of estimating the fair value of the Corporation’s employee stockIn February 2005, options at the grant date,with a Black-Scholes option pricing model was used with the following weighted average assumptions for 2005 and 2004, respectively: risk-free interest rates of 4.21% and 3.13%; dividend yields of 3.03% and 2.54%; volatility factors of the expected market price of the Corporation’s common stock of 33.7% and 33.8%; and a weighted average expected option life of 5.5 years for both years.

The weighted average fair value of options granted through September 30, 2005 and for the full year 2004 was $12.38$12.37 per share, and $13.62 per share, respectively. For purposes of pro forma disclosures, the estimated fair value of 2004 options are amortized over the lesser of the options’ one- to four-year vesting periods or the period to retirement eligibility.were granted. The terms of the 2005 optionsthis option grant provided for full vesting on March 31, 2005 and the2005. The pro forma information for the nine monthsquarter ended September 30,March 31, 2005 presented belowin the following table includes $29.7 million ($18.5 million after-tax) of pro forma expense reflecting theirthe full vesting. As a result, no compensation expense relating to thesevesting of the February 2005 options will be included within Northern Trust’s results of operations after its adoption of SFAS No. 123(R).option grant on March 31, 2005.

The Corporation’s pro forma information follows.

The pro forma information presented above for 2004 has been revised to adjust the amortization period for options granted to the lesser of the options’ vesting periods or the period to retirement eligibility. Previously, pro forma compensation cost for all stock options was amortized over the options’ vesting periods.

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Notes to Consolidated Financial Statements (continued)

SFAS No. 123 (R) requires that cash flows resulting from the realization of tax deductions in excess of the compensation cost recognized (excess tax benefits) are to be classified as financing cash flows. Before the adoption of SFAS No. 123(R), Northern Trust presented all tax benefits realized from the exercise of stock options as operating cash flows in the Statement of Cash Flows. For the quarters ended March 31, 2006 and 2005, excess tax benefits of $4.7 million and $1.2 million, respectively, are shown as financing cash inflows and operating cash inflows, respectively, in the Consolidated Statement of Cash Flows.

In addition, SFAS No. 123(R) requires that any deferred compensation related to awards granted prior to its adoption must be eliminated against the appropriate equity accounts. As a result, the presentation of the Statement of Changes in Stockholders’ Equity was revised to reflect the transfer of balances previously reported in the Deferred Compensation and Common Stock Issuable – Stock Incentive Plans accounts to Additional Paid-In Capital.

2002 Stock Plan

Effective April 16, 2002, the Corporation adopted the Northern Trust Corporation 2002 Stock Plan (the Plan) to replace the Northern Trust Corporation Amended 1992 Incentive Stock Plan (1992 Plan). The Plan is administered by the Compensation and Benefits Committee (Committee) of the Board of Directors. All employees of the Corporation and its subsidiaries and all directors of the Corporation are eligible to receive awards under the Plan. The Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units and performance shares. The total number of shares of the Corporation’s common stock authorized for issuance under the Plan is 22,000,000. As of March 31, 2006, shares available for future grant under the plan totaled 6,432,797.

The following description applies to awards under the Plan and the 1992 Plan, as applicable.

Stock Options - Stock options consist of options to purchase common stock at purchase prices not less than 100% of the fair market value thereof on the date the option is granted. Options have a maximum ten-year life and generally vest and become exercisable in one to four years after the date of grant. In addition, all options may become exercisable upon a “change of control” as defined in the Plan or the 1992 Plan. All options terminate at such time as determined by the Committee and as provided in the terms and conditions of the respective option grants.

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Notes to Consolidated Financial Statements (continued)

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-average assumptions used for options granted during the first quarter of 2006 and 2005 were as follows:

Expected volatility is determined based on the historical daily volatility of Northern Trust’s stock price over a period equal to the contractual life of the option. The expected term of the options represents the period of time that options granted are expected to be outstanding based primarily on the historical exercise behavior attributable to previous option grants. The risk free interest rate is based on the U.S. Treasury yield curve at the time of grant for a period equal to the expected term of the options granted.

The weighted-average grant-date fair value of options granted during the first quarters of 2006 and 2005 was $26.9 million and $29.7 million, respectively. The total intrinsic value of options exercised during the quarters ended March 31, 2006 and 2005 was $16.6 million and $5.3 million, respectively. Cash received from options exercised totaled $16.8 million and $4.2 million for the quarters ended March 31, 2006 and 2005, respectively. The actual tax benefit realized from tax deductions on options exercised during the quarters ended March 31, 2006 and 2005 was $3.7 million and $1.0 million, respectively.

Shares purchased under the Corporation’s share buyback program are held as treasury shares and can be used for general purposes of the Corporation, including the issuance of shares for stock options and other stock incentive plans. A summary of the status of stock options under the Plan and the 1992 Plan at March 31, 2006, and changes during the quarter then ended, is presented in the table below.

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Notes to Consolidated Financial Statements (continued)

The following is a summary of changes in nonvested stock options for the quarter ended March 31, 2006.

Stock and Stock Unit Awards - Stock or stock unit awards can be granted by the Committee to participants entitling them to receive a payment in cash or Northern Trust Corporation common stock under the terms of the Plan and such other terms and conditions as the Committee deems appropriate. The stock units granted in the first quarter of 2006 vest at a rate equal to 50% on the third anniversary date of the grant and 50% on the fourth anniversary date. Dividend equivalents on the stock units are paid on a current basis prior to vesting and distribution.

Stock and stock unit grants totaled 319,730 and 412,663, with a weighted average grant-date fair value of $52.09 and $44.47, for the quarters ended March 31, 2006 and 2005, respectively. Grant-date fair values are based on the average of the high and the low prices of Northern Trust’s stock on the date of grant.

A summary of the status of stock and stock unit awards under the Plan and the 1992 Plan at March 31, 2006, and changes during the quarter then ended, is presented in the table below.

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Notes to Consolidated Financial Statements (continued)

The following is a summary of the changes in nonvested stock and stock unit awards for the quarter ended March 31, 2006, and changes during the quarter then ended.

Performance Stock Units - Each performance stock unit entitles the award recipient to receive one share of stock in the year in which the award vests. The number of performance stock units granted in the first quarter of 2006 that will vest can range from 0% to 125% of the original award granted based on the level of attainment of an average earnings per share goal for the three-year period ending December 31, 2008. Distribution of the award is then made after vesting. Dividend equivalents on the performance stock units are paid on a current basis prior to vesting and distribution.

Performance stock unit grants totaled 152,280 with a weighted average grant-date fair value of $52.09 for the quarter ended March 31, 2006. Grant-date fair values are based on the average of the high and the low prices of Northern Trust’s stock on the date of grant. There were no performance stock units granted in 2005.

A summary of the status of performance stock units under the Plan and the 1992 Plan at March 31, 2006, and changes during the quarter then ended, is presented in the table below.

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4. Securities - The following table summarizes the book and fair values of securities.