UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended JuneSeptember 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

217,914,130217,989,875 Shares - $1.66 ²/ 2/3 Par Value

(Shares of Common Stock Outstanding on JuneSeptember 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 JuneSeptember 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 - - On July 13,September 29, 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS No. 158). SFAS No.158 requires an employer to recognize the funded status of a defined benefit postretirement plan in its statement of financial position and to recognize changes in the funded status, in the year in which the changes occur, as a component of other comprehensive income. The funded status of a defined benefit plan is measured as the difference between the fair value of plan assets and the projected benefit obligation. SFAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. For public companies, the requirement to recognize the funded status of a plan is effective for fiscal years ending after December 15, 2006, while the requirement to measure the funded status as of the employer’s year-end statement of financial position is effective for fiscal years ending after December 15, 2008. Although Northern Trust’s primary qualified pension plan is fully funded, the December 31, 2006 adoption of this statement is currently expected to reduce stockholders’ equity, net of tax, by approximately $150 million to $160 million due to the requirement in SFAS No. 158 that an employer recognize any previously unrecognized actuarial gains and losses and prior service costs, net of tax, in accumulated other comprehensive income, a component of stockholders’ equity.

On July 13, 2006, the FASB issued its Interpretation No. 48, (FIN 48), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109,”109” (FIN 48), 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

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Notes to Consolidated Financial Statements (continued)

balance of retained earnings in the period of adoption. FIN 48 is effective for fiscal years beginning after December 15, 2006. AdoptionNorthern Trust is currently evaluating this interpretation and its application; however, adoption as of January 1, 2007 is not expected to have a material effect on Northern Trust’s consolidated financial position or results of operations.

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Notes to Consolidated Financial Statements (continued)

On July 13, 2006, the FASB issued Staff Position No. FAS 13-2, (FSP 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,”Transaction” (FSP 13-2), which amends FASB Statement No. 13, “Accounting for Leases.” This Staff Position addresses 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 that lease. FSP 13-2 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 includes actual cash flows that occurred up to the date of the recalculation and projected cash flows thereafter. The change in the leveraged lease net investment balances as a result of the recalculation is recognized as a gain or loss in the year that the estimated 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 13-2 is required as of January 1, 2007 for calendar year-end companies. The adoption of this standard is expected to reduce Northern TrustTrust’s stockholders’ equity by approximately $55 million to $65 million based on currently available information.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” which amends SFAS No. 133. SFAS No. 155 establishes a requirement to evaluate interests in securitized financial assets to identify hybrid instruments that contain embedded derivatives requiring bifurcation. SFAS No. 155 permits companies to irrevocably elect, on a deal by deal basis, fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS No. 155 is currently evaluating the provisionseffective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. Adoption as of FSP 13-2 and applicationJanuary 1, 2007 is not expected to its leveraged lease portfolio.have a material effect on Northern Trust’s consolidated financial position or results of operations.

3. Stock-Based Compensation Plans - Northern Trust adopted the FASB’s Statement of Financial Accounting StandardsSFAS 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-basedequity-

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Notes to Consolidated Financial Statements (continued)

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 JuneSeptember 2006, including Northern Trust’s primary grant of 2006 options forin February 2006, increased pre-tax compensation expense by $2.7$2.4 million in the quarter, resulting in a $.01 reduction in diluted earnings per share. For the sixnine months ended JuneSeptember 30, 2006, expense treatment increased pre-tax compensation expense by $12.9$15.3 million resulting in a $.04 reduction in diluted earnings per share. The pre-tax expense recorded in 2006 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 was as follows:

As of JuneSeptember 30, 2006, there was $67.1$63.0 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 3.13 years.

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 thatdoes not include an estimate of future forfeitures in its recognition of stock-based compensation as historical forfeitures of its share-based awards have not been significant and has notsignificant. Stock-based compensation is adjusted forbased on forfeitures in its share-based awards expensed under SFAS No. 123(R).as they occur.

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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 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 sixnine months ended JuneSeptember 30, 2005 presented below includes $29.7 million of pro forma expense reflecting the full vesting of the February 2005 option grant on March 31, 2005.

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 Statementstatement of Cash Flows.cash flows. For the sixnine months ended JuneSeptember 30, 2006 and 2005, excess tax benefits of $12.9$16.5 million and $5.1$10.4 million, respectively, are shown as financing cash inflows and operating cash inflows, respectively, in the Consolidated Statementconsolidated statement of Cash Flows.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 within the statement of the Statement of Changeschanges in Stockholders’ Equitystockholders’ equity was revised to reflect the transfer of balances previously reported in the Deferred Compensationdeferred compensation and Common Stock Issuablecommon stock issuable – Stock Incentive Plans accountsAccounts to Additional Paid-InPaid-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 JuneSeptember 30, 2006, shares available for future grant under the Plan totaled 6,496,677.6,442,954.

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.

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 sixnine months ended JuneSeptember 30, 2006 and JuneSeptember 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 grant-date fair value of options granted during the sixnine months ended JuneSeptember 30, 2006 and 2005 was $27.0 million and $29.7$29.8 million, respectively. The total intrinsic value of options exercised during the sixnine months ended JuneSeptember 30, 2006 and June,September, 30 2005 was $41.8$55.3 million and $19.8$38.0 million, respectively. Cash received from options exercised totaled $45.0$60.6 million and $17.2$34.6 million for the sixnine months ended JuneSeptember 30, 2006 and 2005, respectively. The actual tax benefit realized from tax deductions on options exercised during the sixnine months ended JuneSeptember 30, 2006 and 2005 was $10.6$13.6 million and $4.8$9.0 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 JuneSeptember 30, 2006, and changes during the sixnine months then ended, are presented in the table below.

The following is a summary of changes in nonvested stock options for the sixnine months ended JuneSeptember 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 Corporationthe Corporation’s common stock under the terms of the Plan and such other terms and conditions as the Committee deems appropriate. The stock units granted in 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 322,430380,661 and 412,663425,663 with a weighted average grant-date fair value of $52.12$52.46 and $44.47$44.61 for the sixnine months ended JuneSeptember 30, 2006 and 2005, respectively. Grant-date fair values are based on the average of the high and the low prices of Northern Trust’sthe Corporation’s stock on the date of grant.

A summary of the status of outstanding stock and stock unit awards under the Plan and the 1992 Plan at JuneSeptember 30, 2006, and changes during the sixnine months then ended, are presented in the table below.

The following is a summary of the changes in nonvested stock and stock unit awards for the sixnine months ended JuneSeptember 30, 2006, and changes during the quarter then ended.