UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended September 30, 2014March 31, 2015

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 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).    YesxNo  ¨

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”,filer,” “accelerated filer”,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  ¨    Nox

235,505,008233,368,512 Shares – $1.66 2/3 Par Value

(Shares of Common Stock Outstanding on September 30, 2014)March 31, 2015)

NORTHERN TRUST CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014MARCH 31, 2015

TABLE OF CONTENTS

i

CONSOLIDATED FINANCIAL HIGHLIGHTS

(UNAUDITED)

SELECTED RATIOS AND METRICS
		Three Months Ended March 31,
		2015				2014				% Change (*)
Financial Ratios:
Return on Average Common Equity			11.28	%			9.28	%			22	%
Return on Average Assets			0.87				0.73				19
Dividend Payout Ratio			35.1				41.3				(15	)
Net Interest Margin (**)			1.10				1.12				(2	)

PART I – FINANCIAL INFORMATION

ITEMSItems 2. ANDand 3. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk

THIRDFIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS

General

Northern Trust Corporation (the Corporation), together with its subsidiaries,(Corporation) is a financial holding company that is a leading provider of asset servicing, fund administration, asset management, fiduciary and banking solutions for corporations, institutions, families and individuals worldwide. Northern Trust focuses on servicingmanaging and managingservicing client assets through its two primary business units, Wealth Management (WM) andclient-focused reporting segments: Corporate & Institutional Services (C&IS) and Wealth Management (WM). Asset management and related services are provided to C&IS and Wealth Management and C&IS clients primarily by a third business unit,the Asset Management. The Corporation conducts business through various U.S. and non-U.S. subsidiaries, including through its principal subsidiary, The Northern Trust Company.Management business. Except where the context requires otherwise, requires, the term “Northern Trust” refers to Northern Trust,” “we”, “us”, “our” or similar terms mean the Corporation and its subsidiaries on a consolidated basis.

The following should be read in conjunction with the consolidated financial statements and related footnotes included in this report. Investors should also read the section entitled “Forward-Looking Statements.”

Overview

Net income per diluted common share in the current quarter was $0.84, consistent with $0.84$0.94, up from $0.75 in the thirdfirst quarter of 2013.2014. Net income was $204.5$230.7 million as compared to $206.5 million in the prior year quarter. The performance in the current quarter produced an annualizedas compared to $181.4 million in the prior-year quarter. Annualized return on average common equity of 10.1%in the quarter was 11.3% as compared to 10.6%9.3% in the prior yearprior-year quarter. The annualized return on average assets was 0.8%0.9% as compared to 0.9%0.7% in the prior yearprior-year quarter.

The prior year quarter included a $32.6 million pre-tax gain ($20.3 million after tax, or $0.08 per common share) on the sale of an office building property. Excluding this gain, net income per diluted common share, net income, and return on average common equity in the prior year quarter were $0.76, $186.2 million, and 9.6%, respectively.

Revenue of $1.08 billion was up $31.7 million, or 3%, from $1.05$1.13 billion in the prior yearcurrent quarter was up $94.0 million, or 9%, from $1.04 billion in the prior-year quarter. Noninterest income increased $19.4$79.1 million, or 2%10%, to $829.6$873.9 million from $794.8 million in the prior year quarter’s $810.2 million. Excluding the prior yearprior-year quarter, gain on the sale of an office building property, noninterest income increased $52.0 million, or 7%,primarily reflecting higher trust, investment and other servicing fees partially offset by lowerand foreign exchange trading income as compared to the prior year quarter.income.

Net interest income increased $12.3$14.9 million, or 5%6%, to $249.3$260.6 million in the current quarter as compared to $237.0$245.7 million in the prior yearprior-year quarter, due to higher levels of averagegrowth in earning assets, offset partially offset by a decreaselower net interest margin.

Net investment security gains totaled $0.1 million in the current quarter compared to net interest margin.investment security losses of $4.0 million in the prior-year quarter. The prior-year quarter included $3.9 million of charges relating to the other-than-temporary impairment (OTTI) of certain Community Reinvestment Act (CRA) eligible securities.

The provision for credit losses was a credit of $4.5 million in the current quarter, reflecting improved credit quality across the loan portfolio. A provision of $3.0 million was recorded in the prior-year quarter.

Noninterest expense totaled $774.7$789.0 million, up $34.0$21.0 million, or 5%3%, from $740.7$768.0 million in the prior yearprior-year quarter, primarily reflectingattributable to higher compensation, employee benefits and equipment and software and employee benefits expense, partially offset by lower outside services expense.

THIRDFIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Income

The components of noninterest income are provided below.

Table 1: Noninterest Income

Trust, investment and other servicing fees are based generally onprimarily 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. For a further discussion of trust, investment and can be based onother servicing fees and how they are derived, refer to the beginning, ending or daily average value of the client portfolio.“Reporting Segments” section.

The following tables presenttable presents Northern Trust’s assets under custody and assets under management by businessreporting segment.

Table 2: Assets Under Custody

Custodied assets by reporting segment were invested as follows at March 31, 2015, and 2014:

Table 3: Allocations of Assets Under Custody

C&IS assets under custody totaled $5.4$5.6 trillion up 13% from the prior year quarter,as of March 31, 2015, and includesincluded $3.4 trillion of global custody assets, 14%6% and 5% higher compared to the prior year quarter. C&ISMarch 31, 2014, respectively.

FIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Income (continued)

The following table presents Northern Trust’s assets under management include $120.9by reporting segment.

Table 4: Assets Under Management

The following table presents consolidated assets under management as of March 31, 2015, and March 31, 2014, by investment type.

Table 5: Assets Under Management by Investment Type

The 5% increase in consolidated assets under management from $915.4 billion at March 31, 2014, to $960.1 billion as of securities lending collateral, a 16% increaseMarch 31, 2015, primarily reflected higher equity and bond markets and net new business from the prior year quarter.institutional clients, primarily in fixed income and cash.

Custodied and managed assets by reporting segment were invested as follows at March 31, 2015, and 2014:

Table 6: Allocations of Assets Under Management

Changes in assets under custody and under management are in comparison to the twelve month increase in the S&P 500^® index of 10.4% and decline in the MSCI EAFE^® index (USD) of 17.3% and 1.5%, respectively.

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Income (continued)

Custodied and managed assets were invested as follows at September 30, 2014, and 2013:

Trust, investment and other servicing fees in C&IS increased $40.1 million, or 11%, to $399.9 million from the prior year quarter’s $359.8 million.

Custody and fund administration fees, the largest component of C&IS fees, increased 15%, driven by new business as well as the favorable impacts of equity markets and movements in foreign exchange rates. C&IS investment management fees increased 6%, as higher equity markets and new business were partially offset by higher waived fees in money market mutual funds. Money market mutual fund fee waivers in C&IS, attributable to persistent low short-term interest rates, totaled $16.7 million, compared to waived fees of $15.3 million in the prior year quarter. Securities lending revenue decreased 3%, primarily reflecting lower spreads offset by higher volumes in the current quarter. Other fees in C&IS increased 4%, primarily reflecting new business in investment risk and analytical services.

Trust, investment and other servicing fees in Wealth Management totaled $318.3 million, increasing $30.1 million, or 10%, from $288.2 million in the prior year quarter. The increased fee income is attributable to higher equity markets and new business. Money market mutual fund fee waivers in Wealth Management totaled $16.9 million compared with $17.1 million in the prior year quarter.3.5%.

Foreign exchange trading income totaled $46.4 million, down $16.4 million, or 26%, compared with $62.8$71.6 million in the prior yearcurrent quarter, up $21.5 million, or 43%, compared to $50.1 million in the prior-year quarter. The decrease isincrease was primarily attributable to lowerhigher currency market volatility and client volumes as compared to the prior yearprior-year quarter.

Security commissions and trading income totaled $19.8 million, up $5.1 million, or 35%, compared with $14.7 million in the prior-year quarter. The increase is attributable to higher income from interest rate protection products sold to clients as well as higher core brokerage revenues.

THIRDFIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Income (continued)

Other operating income totaled $34.1 million, down $33.1 million, or 49%, from $67.2$38.6 million in the prior yearcurrent quarter, up 2%, from $37.7 million in the prior-year quarter. The components of other operating income are provided below.

Table 7: Other Operating Income

The increase in the other income component of other operating income was primarily attributable to additional income in the current quarter associated with a third-party servicing agreement modified in the prior year quarter included the $32.6 million pre-tax gain on the sale of an office building property. Excluding the prior year quarter gain, other operating income was relatively unchanged.quarter.

Net Interest Income

Net interest income on an FTE basis totaled $256.2$266.8 million, up $11.4$12.4 million, or 5%, compared to $244.8$254.4 million in the prior yearprior-year quarter. The increase iswas primarily the result of higher levels ofgrowth in earning assets, partially offset by a decline in thelower net interest margin. Earning assets for the current quarter averaged $97.0$98.7 billion, up $11.5$6.9 billion, or 13%7%, from $85.5$91.8 billion in the prior yearprior-year quarter, primarily attributable toresulting from higher levels of Federal Reserve deposits, securities and securities,loans, reflecting higher levels of non-U.S. officedemand and interest-bearing deposits and demand deposits.

The net interest margin declined to 1.05% from 1.14%1.10% in the prior yearcurrent quarter from 1.12% in the prior-year quarter, primarily reflecting lower yields on earning assets, partially offset by a lower cost of interest-related funds.

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-generally accepted accounting principle (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 (a non-GAAP financial measure) is provided on page 21.19.

Federal Reserve deposits averaged $15.9$14.5 billion, as compared to $8.0up $1.8 billion, or 14%, from $12.7 billion in the prior year quarter, an increase of $7.9 billion.prior-year quarter.

Average securities, inclusive of Federal Reserve and Federal Home Loan Bank stock and certain community development investments which are recorded in other assets in the consolidated balance sheet,sheets, were $33.6$35.8 billion, up $3.0$3.4 billion, or 10%11%, from $30.6$32.4 billion in the prior yearprior-year quarter.

Loans and leases averaged $30.3$32.1 billion, up $1.6$2.9 billion, or 6%10%, from $28.7$29.2 billion in the prior yearprior-year quarter, primarily reflecting higher levels of commercial and institutional loans, and private client loans, and commercial real estate loans. Commercial and institutional loans averaged $8.0$8.8 billion, up $801.4 million,$1.3 billion, or 11%17%, from $7.5 billion for the prior year quarter’s average of $7.2 billion.prior-year quarter. Private client loans averaged $6.5$7.5 billion, up $655.3$1.2 billion, or 19%, from $6.2 billion for the prior-year quarter. Commercial real estate loans averaged $3.4 billion, up $461.0 million, or 11%16%, from $3.0 billion for the prior year quarter’s average of $5.9 billion.prior-year quarter.

Northern Trust utilizes a diverse mix of funding sources. Total interest-bearing deposits averaged $65.6$64.5 billion, compared to $59.3$63.1 billion in the prior yearprior-year quarter, an increase of $6.3$1.4 billion, or 11%2%. Other interest-bearing funds averaged $8.3$8.5 billion, a decrease of $624.5$21.1 million, or 7%, from $8.9$8.6 billion in the prior yearprior-year quarter, attributable to decreased senior notes and short-term borrowings, partially offset by increased long-term debt.

THIRDFIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Net Interest Income (continued)

to decreased senior notes and long-term debt, partially offset by increased short-term borrowings. The balances within short-term borrowing classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower-cost deposit sources, and the availability of collateral to secure these borrowings. Average net noninterest-related funds utilized to fund earning assets increased $5.7$5.5 billion, or 33%27%, to $23.0$25.7 billion from $17.3$20.2 billion in the prior yearprior-year quarter, primarily resulting from higher levels of 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 SheetSheets with Analysis of Net Interest Income and the Analysis of Net Interest Income Changes Due To Volume and Rate on pages 22 through 25.20 and 21.

Provision for Credit Losses

There was noThe provision for credit losses recordedwas a credit of $4.5 million in the current quarter.quarter, reflecting improved credit quality across the loan portfolio. A provision of $5.0$3.0 million was recorded in the prior yearprior-year quarter. Net charge-offs in the current quarter were $5.2$4.6 million, resulting from charge-offs of $8.6$7.5 million and recoveries of $3.4$2.9 million. The prior yearprior-year quarter included $8.3$1.5 million of net charge-offs, resulting from $11.6$11.5 million of charge-offs and $3.3$10.0 million of recoveries. Nonperforming assets decreased 19%15% from the prior yearprior-year quarter. Residential real estate loans and commercial real estate loans accounted for 67%72% and 18%, respectively, of total nonperforming loans and leases at September 30, 2014.March 31, 2015. For additional discussion of the provision and allowance for credit losses, refer to the “Asset Quality” section beginning on page 16.14.

Noninterest Expense

The components of noninterest expense are provided below.

Table 8: Noninterest Expense

Compensation expense, the largest component of noninterest expense, equaled $348.0 million, up $23.4 million, or 7%, from $324.6$354.3 million in the prior year quarter. The increase primarily reflectscurrent quarter, up $12.5 million, or 4%, from $341.8 million in the prior-year quarter, reflecting higher staff levels,performance-based compensation, base pay adjustments and staff growth, partially offset by the unfavorablefavorable impact of movements in foreign exchange rates. Staff on a full-time equivalent basis at September 30, 2014,March 31, 2015, totaled approximately 15,200,15,600, up 5% from a year ago.March 31, 2014.

Employee benefit expense totaled $70.6 million, up $7.1 million, or 11%, from $63.5$72.9 million in the prior yearcurrent quarter, up $6.0 million, or 9%, from $66.9 million in the prior-year quarter. The increase iswas primarily attributable to higher expense associated withpension and employee medical benefits and payroll tax expense, partially offset by lower pension expense.

Expense associated with outside services totaled $142.4 million, down 2% from $145.9 million in the prior year quarter, reflecting decreased consulting and technical services expense, partially offset by increased sub-custodian expense.

Equipment and software expense totaled $100.5 million, up $5.0 million, or 5%, from $95.5 million in the prior year quarter. The current quarter reflects higher software amortization and related software support costs.

THIRDFIRST QUARTER CONSOLIDATED RESULTS OF OPERATIONS (continued)

Noninterest Expense (continued)

Occupancy expense equaled $43.8 million, up 1% from $43.3Expense associated with outside services totaled $135.1 million in the prior yearcurrent quarter, down $9.3 million, or 6%, from $144.4 million in the prior-year quarter, primarily reflecting lower legal, third-party advisor fees, consulting and sub-custodian expense.

Equipment and software expense totaled $110.3 million in the current quarter, up $9.0 million, or 9%, from $101.3 million in the prior-year quarter. The current quarter included higher software amortization and related software support costs.

Other operating expense totaled $69.4 million, up 2% from $67.9$73.4 million in the prior yearcurrent quarter, up 6%, from $69.4 million in the prior-year quarter. The components of other operating expense are provided below.

Table 9: Other Operating Expense

The increase in the other expenses component of other operating expense in the current quarter was attributable to increased charitable contributions and deferred expenses related to client onboarding.

Provision for Income Taxes

Income tax expense was $99.7 million, representing an effective tax rate of 32.8%, and $95.0$119.3 million in the prior yearcurrent quarter, representing an effective tax rate of 31.5%34.1%, compared to $88.1 million in the prior-year quarter, representing an effective tax rate of 32.7%.

BUSINESS UNIT REPORTING SEGMENTS

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

The following tables reflecttable reflects the earnings contributions and average assets of Northern Trust’s business unitsreporting segments for the three and nine monththree-month periods ended September 30, 2014,March 31, 2015, and 2013. Business unit2014. Reporting segment financial information, presented on an internal management-reporting basis, is determined by accounting systems that are used to allocate revenue and expense related to each segment and incorporates processes for allocating assets, liabilities, and equity and the applicable interest income and expense.

REPORTING SEGMENTS (continued)

Table 10: Results of Reporting Segments