UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended March 31,June 30, 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  x    No  ¨

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

Large Accelerated Filer  x    Accelerated 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).    Yes  ¨    No  x

218,046,297217,914,130 Shares - $1.66 2/ ²/3 Par Value

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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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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, as of March 31,June 30, 2006 and 2005, 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 2005 Financial Annual Report to Shareholders.

2. Recent Accounting Pronouncements - In MarchOn July 13, 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)FASB Interpretation No. 156,48 (FIN 48), “Accounting for ServicingUncertainty in Income Taxes – an Interpretation of Financial Assets” (SFAS No. 156), which amends FASB Statement No. 140, “Accounting109,” which provides guidance on the measurement, recognition, and disclosure of tax positions taken or expected to be taken in a tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, and disclosure. FIN 48 prescribes that a tax position should only be recognized if it is more-likely-than-not that the position will be sustained upon examination by the appropriate taxing authority. A tax position that meets this threshold is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The cumulative effect of applying the provisions of FIN 48 is to be reported as an adjustment to the beginning balance of retained earnings in the period of adoption. FIN 48 is effective 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 SeptemberDecember 15, 2006. The adoptionAdoption as of this standardJanuary 1, 2007 is not expected to have a material impacteffect on Northern Trust’s consolidated financial position or results of operations.

In

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Notes to Consolidated Financial Statements (continued)

On July 2005,13, 2006, the FASB issued for comment proposed Staff Position No. FAS 13-a13-2 (FSP 13-a)13-2), “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 amendamends FASB Statement No. 13, “Accounting for Leases,Leases.” and modify certain related interpretations and industry practices. This proposed Staff Position has implications relatedaddresses how a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged lease affects the accounting by a lessor for potential income tax settlements in connection with leveraged leases. If approved as currently written,that lease. FSP 13-a would require13-2 requires 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 includeincludes actual cash flows that occurred up to the date of the recalculation and including the point of actual or expected settlement and the estimatedprojected cash flows thereafter. The original effective datechange in the leveraged lease net investment balances as a result of the recalculation is recognized as a gain or loss in the year cash flows change. Additionally, a lessor must apply the provisions of FIN 48 to its tax positions when initially calculating or subsequently recalculating leveraged lease cash flows and determining the related income allocation. The cumulative effect of applying the provisions of this Staff Position is reported as an adjustment to the beginning balance of retained earnings in the period of adoption. Adoption of FSP 13-a has been deferred13-2 is required as of January 1, 2007 for calendar year-end companies. Northern Trust is currently evaluating the provisions of FSP 13-2 and the FASB has not yet finalized a revised required adoption date. Application of proposed FSP 13-a as currently writtenapplication to certain of Northern Trust’s structured leasing transactions under review by the Internal Revenue Service (IRS) (see note 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 affectedits leveraged leases.

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Notes to Consolidated Financial Statements (continued)lease portfolio.

3. Stock-Based Compensation Plans - Northern Trust adopted the FASB’s SFASStatement of Financial Accounting Standards 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 granted 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.

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Notes to Consolidated Financial Statements (continued)

Expense treatment under SFAS No. 123(R) for stock options granted through MarchJune 2006, including Northern Trust’s primary grant of options for 2006, increased pre-tax compensation expense by $10.2$2.7 million ($6.4 million after-tax) in the quarter, resulting in a $.03$.01 reduction in diluted earnings per share. For the six months ended June 30, 2006, expense treatment increased pre-tax compensation expense by $12.9 million resulting in a $.04 reduction in diluted earnings per share. The pre-tax expense recorded in the quarter2006 year-to-date includes $7.5 million attributable to options granted in the first quarter of 2006 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,June 30, 2006, there was $76.1$67.1 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 be recognized as expense over a weighted-average period of approximately 3.23.1 years.

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Notes to Consolidated Financial Statements (continued)

Certain of Northern Trust’s share-based award grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. As provided for under SFAS No. 123(R), Northern Trust has elected to recognize 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 materialsignificant and has not adjusted for forfeitures in its share-based awards expensed under SFAS No. 123(R).

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Notes to Consolidated Financial Statements (continued)

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 compensation: (1) a fair-value-based method, or (2) an intrinsic-value-based method prescribed by APB No. 25 and related interpretations. Northern Trust elected to use the intrinsic-value-based method of accounting for stock-based compensation under APB No. 25, and adopted the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based 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. In February 2005, options with a weighted average fair value of $12.37 per share were granted. The terms of this option grant provided for full vesting on March 31, 2005. The pro forma information for the quartersix months ended March 31,June 30, 2005 presented in the following tablebelow includes $29.7 million ($18.5 million after-tax) of pro forma expense reflecting the full vesting of the February 2005 option grant on March 31, 2005.

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Notes to Consolidated Financial Statements (continued)

SFAS No. 123 (R)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 quarterssix months ended March 31,June 30, 2006 and 2005, excess tax benefits of $4.7$12.9 million and $1.2$5.1 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.

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Notes to Consolidated Financial Statements (continued)

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,June 30, 2006, shares available for future grant under the planPlan totaled 6,432,797.6,496,677.

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 ofsix months ended June 30, 2006 and June 30, 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.

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Notes to Consolidated Financial Statements (continued)

The weighted-average grant-date fair value of options granted during the first quarters ofsix months ended June 30, 2006 and 2005 was $26.9$27.0 million and $29.7 million, respectively. The total intrinsic value of options exercised during the quarterssix months ended March 31,June 30, 2006 and June, 30 2005 was $16.6$41.8 million and $5.3$19.8 million, respectively. Cash received from options exercised totaled $16.8$45.0 million and $4.2$17.2 million for the quarterssix months ended March 31,June 30, 2006 and 2005, respectively. The actual tax benefit realized from tax deductions on options exercised during the quarterssix months ended March 31,June 30, 2006 and 2005 was $3.7$10.6 million and $1.0$4.8 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,June 30, 2006, and changes during the quartersix months then ended, isare 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 quartersix months ended March 31,June 30, 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.

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Notes to Consolidated Financial Statements (continued)

Stock and stock unit grants totaled 319,730322,430 and 412,663 with a weighted average grant-date fair value of $52.09$52.12 and $44.47 for the quarterssix months ended March 31,June 30, 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,June 30, 2006, and changes during the quartersix months then ended, isare 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 quartersix months ended March 31,June 30, 2006, and changes during the quarter then ended.

Performance Stock Units - Each performance stock unit entitlesprovides the award recipient the opportunity to receive one share of stock in the year in which the awardfor each stock unit that 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 quartersix months ended March 31,June 30, 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.

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Notes to Consolidated Financial Statements (continued)

A summary of the status of performance stock units under the Plan and the 1992 Plan at March 31,June 30, 2006, and changes during the quartersix months then ended, isare presented in the table below.

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