10-Q

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, 2004

OR

¨ 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	60675
(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 is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨

219,209,338 Shares - $1.66 2/3 Par Value

(Shares of Common Stock Outstanding on September 30, 2004)

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION

($ In Millions Except Share Information)	September 30 2004			December 31 2003			September 30 2003
Assets
Cash and Due from Banks	$	2,278.2		$	1,595.9		$	1,425.4
Federal Funds Sold and Securities Purchased under Agreements to Resell		751.9			754.6			836.7
Time Deposits with Banks		11,115.4			8,767.7			8,231.4
Other Interest-Bearing		28.8			42.8			118.6
Securities
Available for Sale		5,612.8			8,422.4			8,089.5
Held to Maturity (Fair value - $1,164.4 at September 2004, $1,081.6 at December 2003, $1,049.6 at September 2003)		1,127.5			1,041.5			1,008.8
Trading Account		2.2			7.4			4.1
Total Securities		6,742.5			9,471.3			9,102.4
Loans and Leases
Commercial and Other		9,656.0			9,838.5			10,095.3
Residential Mortgages		8,043.4			7,975.3			7,822.8
Total Loans and Leases (Net of unearned income - $482.9 at September 2004, $435.7 at December 2003, $400.1 at September 2003)		17,699.4			17,813.8			17,918.1
Reserve for Credit Losses Assigned to Loans and Leases		(140.4	)		(149.2	)		(164.9	)
Buildings and Equipment, net		469.8			498.3			503.9
Customers’ Acceptance Liability		1.0			11.2			15.1
Trust Security Settlement Receivables		234.9			170.6			318.3
Other Assets		1,928.5			2,473.2			2,439.2
Total Assets	$	41,110.0		$	41,450.2		$	40,744.2
Liabilities
Deposits
Demand and Other Noninterest-Bearing	$	4,668.3		$	5,084.1		$	4,525.7
Savings and Money Market		7,368.4			7,102.6			7,597.5
Savings Certificates		1,465.3			1,524.5			1,559.0
Other Time		366.5			273.6			283.9
Foreign Offices - Demand		1,363.6			683.2			1,189.2
- Time		13,385.7			11,602.0			10,498.7
Total Deposits		28,617.8			26,270.0			25,654.0
Federal Funds Purchased		1,294.6			2,629.4			3,661.1
Securities Sold Under Agreements to Repurchase		1,130.3			1,827.8			1,696.2
Commercial Paper		145.4			142.3			146.9
Other Borrowings		3,558.8			3,677.0			3,070.9
Senior Notes		350.0			350.0			450.0
Long-Term Debt		863.8			864.7			865.0
Floating Rate Capital Debt		276.3			276.2			267.9
Liability on Acceptances		1.0			11.2			15.1
Other Liabilities		1,646.5			2,346.3			1,916.8
Total Liabilities		37,884.5			38,394.9			37,743.9
Stockholders’ Equity
Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares at September 2004, December 2003, and September 2003; Outstanding 219,209,338 shares at
September 2004, 220,118,476 shares at December 2003 and 220,354,163 shares at September 2003		379.8			379.8			379.8
Retained Earnings		3,218.3			2,990.7			2,911.8
Accumulated Other Comprehensive Income		(14.3	)		(8.9	)		.8
Common Stock Issuable - Stock Incentive Plans		72.6			88.6			99.5
Deferred Compensation		(28.0	)		(26.4	)		(33.0	)
Treasury Stock - (at cost, 8,712,186 shares at September 2004, 7,803,048 shares at December 2003, and 7,567,361 shares at September 2003)		(402.9	)		(368.5	)		(358.6	)
Total Stockholders’ Equity		3,225.5			3,055.3			3,000.3
Total Liabilities and Stockholders’ Equity	$	41,110.0		$	41,450.2		$	40,744.2

2

CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION

	Three Months Ended September 30						Nine Months Ended September 30
($ In Millions Except Per Share Information)	2004			2003			2004			2003
Noninterest Income
Trust Fees	$	327.5		$	304.0		$	991.6		$	878.5
Foreign Exchange Trading Profits		26.5			28.9			115.4			82.4
Treasury Management Fees		22.4			24.1			68.1			72.4
Security Commissions and Trading Income		11.4			13.7			38.8			41.5
Other Operating Income		19.6			20.7			58.5			73.3
Investment Security Gains		—			—			.1			—
Total Noninterest Income		407.4			391.4			1,272.5			1,148.1
Net Interest Income
Interest Income		279.3			254.5			791.0			799.3
Interest Expense		140.3			120.2			380.5			387.3
Net Interest Income		139.0			134.3			410.5			412.0
Provision for Credit Losses		—			5.0			(5.0	)		17.5
Net Interest Income after Provision for Credit Losses		139.0			129.3			415.5			394.5
Noninterest Expenses
Compensation		161.7			157.9			493.9			493.6
Employee Benefits		33.5			32.9			114.8			101.4
Occupancy Expense		30.5			29.3			92.2			102.5
Equipment Expense		21.4			21.5			61.9			66.6
Other Operating Expenses		130.7			105.8			369.7			345.3
Total Noninterest Expenses		377.8			347.4			1,132.5			1,109.4
Income from Continuing Operations before Income Taxes		168.6			173.3			555.5			433.2
Provision for Income Taxes		53.9			58.5			182.8			140.4
Income from Continuing Operations		114.7			114.8			372.7			292.8
Discontinued Operations
Income (Loss) from Discontinued Operations of NTRC		.1			(1.7	)		.6			(8.8	)
Loss on Disposal of NTRC		—			—			—			(20.2	)
Income Tax Benefit (Expense)		(.1	)		.7			(.3	)		11.3
Income (Loss) from Discontinued Operations		—			(1.0	)		.3			(17.7	)
Net Income	$	114.7		$	113.8		$	373.0		$	275.1
Net Income Applicable to Common Stock	$	114.7		$	113.8		$	373.0		$	274.4
Per Common Share
Income from Continuing Operations
- Basic	$	.52		$	.52		$	1.70		$	1.33
- Diluted		.52			.51			1.67			1.31
Net Income
- Basic	$	.52		$	.52		$	1.70		$	1.25
- Diluted		.52			.51			1.67			1.23
Cash Dividends Declared		.19			.17			.57			.51
Average Number of Common Shares Outstanding - Basic		219,234,285			220,263,066			219,719,511			220,311,056
- Diluted		222,477,214			224,652,577			223,399,066			223,982,185

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NORTHERN TRUST CORPORATION

	Three Months Ended September 30						Nine Months Ended September 30
(In Millions)	2004			2003			2004			2003
Net Income	$	114.7		$	113.8		$	373.0		$	275.1
Other Comprehensive Income (net of tax)
Net Unrealized Gains (Losses) on Securities Available for Sale		1.7			(2.6	)		(3.4	)		(2.6	)
Net Unrealized Gains (Losses) on Cash Flow Hedge Designations		.4			(.5	)		(1.1	)		(3.9	)
Foreign Currency Translation Adjustments		(.1	)		(.1	)		(.9	)		.2
Other Comprehensive Income		2.0			(3.2	)		(5.4	)		(6.3	)
Comprehensive Income	$	116.7		$	110.6		$	367.6		$	268.8

3

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

	Nine Months Ended September 30
($ In Millions)	2004			2003
Preferred Stock
Balance at January 1	$	—		$	120.0
Series C Redeemed		—			(60.0	)
Series D Redeemed		—			(60.0	)
Balance at September 30		—			—
Common Stock
Balance at January 1 and September 30		379.8			379.8
Retained Earnings
Balance at January 1		2,990.7			2,775.3
Net Income		373.0			275.1
Dividends Declared - Common Stock		(125.3	)		(112.4	)
Dividends Declared - Preferred Stock		—			(.6	)
Stock Issued - Incentive Plan and Awards		(20.1	)		(25.6	)
Balance at September 30		3,218.3			2,911.8
Accumulated Other Comprehensive Income
Balance at January 1		(8.9	)		7.1
Other Comprehensive Income (Loss)		(5.4	)		(6.3	)
Balance at September 30		(14.3	)		.8
Common Stock Issuable - Stock Incentive Plans
Balance at January 1		88.6			118.2
Stock Issuable, net of Stock Issued		(16.0	)		(18.7	)
Balance at September 30		72.6			99.5
Deferred Compensation
Balance at January 1		(26.4	)		(40.2	)
Compensation Deferred		(11.4	)		(7.5	)
Compensation Amortized		9.8			14.7
Balance at September 30		(28.0	)		(33.0	)
Treasury Stock
Balance at January 1		(368.5	)		(360.4	)
Stock Options and Awards		84.1			71.9
Stock Purchased		(118.5	)		(70.1	)
Balance at September 30		(402.9	)		(358.6	)
Total Stockholders’ Equity at September 30	$	3,225.5		$	3,000.3

4

CONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION

	Nine Months Ended September 30
($ In Millions)	2004			2003
Cash Flows from Operating Activities:
Net Income	$	373.0		$	275.1
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses		(5.0	)		17.5
Depreciation on Buildings and Equipment		61.0			61.7
(Increase) Decrease in Receivables		20.7			(34.0	)
Decrease in Interest Payable		(7.7	)		(11.3	)
Amortization and Accretion of Securities and Unearned Income		(75.8	)		(84.7	)
Severance Costs Relating to Staff Reductions, net		(5.8	)		10.5
Reduction in Office Space Leased and Owned, net		(.8	)		18.2
Loss on Sale of NTRC Assets		—			20.2
Gain on Sale of Higgins Road Branch Assets		—			(17.8	)
Amortization and Retirement of Computer Software		61.4			73.4
Amortization of Other Intangibles		7.3			7.9
Net Decrease in Trading Account Securities		5.2			3.6
Other Operating Activities, net		162.1			187.3
Net Cash Provided by Operating Activities		595.6			527.6
Cash Flows from Investing Activities:
Net Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell		2.7			128.1
Net (Increase) Decrease in Time Deposits with Banks		(2,347.7	)		36.8
Net (Increase) Decrease in Other Interest-Bearing Assets		14.0			(19.3	)
Purchases of Securities-Held to Maturity		(143.0	)		(161.1	)
Proceeds from Maturity and Redemption of Securities-Held to Maturity		56.1			44.6
Purchases of Securities-Available for Sale		(10,371.6	)		(16,154.6	)
Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale		13,011.1			13,776.6
Net Decrease in Loans and Leases		148.1			169.8
Purchases of Buildings and Equipment		(34.2	)		(66.6	)
Purchases and Development of Computer Software		(61.5	)		(80.8	)
Net (Increase) Decrease in Trust Security Settlement Receivables		(64.3	)		290.2
Decrease in Cash Due to Acquisitions		(4.2	)		(126.5	)
Proceeds from Sale of Subsidiary and Branch Assets		—			35.4
Other Investing Activities, net		(94.6	)		(482.9	)
Net Cash Provided by (Used in) Investing Activities		110.9			(2,610.3	)
Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits		2,347.8			(408.1	)
Net Increase (Decrease) in Federal Funds Purchased		(1,334.8	)		1,988.6
Net Increase (Decrease) in Securities Sold under Agreements to Repurchase		(697.5	)		132.2
Net Increase in Commercial Paper		3.1			3.3
Net Decrease in Short-Term Other Borrowings		(114.6	)		(655.1	)
Proceeds from Term Federal Funds Purchased		634.1			3,590.2
Repayments of Term Federal Funds Purchased		(637.7	)		(3,605.2	)
Proceeds from Senior Notes & Long-Term Debt		—			200.0
Repayments of Senior Notes & Long-Term Debt		(.9	)		(100.8	)
Treasury Stock Purchased		(115.7	)		(67.3	)
Net Proceeds from Stock Options		24.8			13.3
Cash Dividends Paid on Common Stock		(125.4	)		(112.5	)
Cash Dividends Paid on Preferred Stock		—			(.8	)
Redemption of Preferred Stock		—			(120.0	)
Other Financing Activities, net		(7.4	)		(21.9	)
Net Cash Provided by (Used in) Financing Activities		(24.2	)		835.9
Increase (Decrease) in Cash and Due from Banks		682.3			(1,246.8	)
Cash and Due from Banks at Beginning of Year		1,595.9			2,672.2
Cash and Due from Banks at End of Period	$	2,278.2		$	1,425.4
Supplemental Disclosures of Cash Flow Information:
Interest Paid	$	388.2		$	398.6
Income Taxes Paid		131.7			62.7

5

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 September 30, 2004 and 2003, have not been audited by the Corporation’s independent public accountants. 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. As discussed in Note 3 of this Report, as a result of its disposition on June 15, 2003, the operating results of Northern Trust Retirement Consulting, L.L.C. (NTRC) for all periods presented have been shown as discontinued operations in the consolidated statement of income. Certain other 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 2003 Annual Report to Shareholders.

2. Recent Accounting Pronouncements - In December 2003, the Financial Accounting Standards Board (FASB) issued revised Interpretation No. 46 (FIN 46(R)), “Consolidation of Variable Interest Entities,” which replaced the original Interpretation No. 46 that had been issued in January 2003. FIN 46(R) clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Such entities are termed variable interest entities. Application of FIN 46(R) by public entities for all variable interest entities is required in financial statements for periods ending after March 15, 2004. Northern Trust re-evaluated the revised requirements of variable interest accounting with the issuance of FIN 46(R) and determined that there was no change required in Northern Trust’s accounting treatment currently in place for its existing variable interest entities. Northern Trust will continue to monitor, evaluate, and apply authoritative guidance and interpretations relating to variable interest accounting as it is issued.

In May 2004, the FASB issued Staff Position 106-2 (FSP 106-2), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the Act). FSP 106-2 provides guidance on the accounting for the effects of the Act for employers that sponsor post-retirement health care plans that provide prescription drug benefits. FSP 106-2 also requires employers to provide certain disclosures regarding the effect of the Federal subsidy provided by the Act. The disclosures required by this statement are included in Note 11.

6

Notes to Consolidated Financial Statements (continued)

3. Discontinued Operations - On June 15, 2003, Northern Trust completed the sale of substantially all of the assets of NTRC. NTRC provided defined benefit, defined contribution and retiree health and welfare administrative services, including recordkeeping and customer service, and also provided retirement consulting and actuarial services, including plan design and communication. The operating results of the NTRC business for the current and all prior periods presented, including the loss on its disposition, are reflected as discontinued operations in the Corporation’s consolidated statement of income and in the results of operations in the C&IS business unit.

The sale of NTRC assets resulted in a pre-tax net loss of $20.2 million in the second quarter of 2003, principally reflecting the write-off of unamortized technology investments, lease exit costs, and severance benefits.

In the nine months ended September 30, 2004, pre-tax income from discontinued operations of $.6 million was recorded primarily as a result of a change in the original estimates used to calculate the loss on the disposal of certain assets that were not transferred in the sale.

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

	September 30, 2004				December 31, 2003				September 30, 2003
(In Millions)	Book Value		Fair Value		Book Value		Fair Value		Book Value		Fair Value
Held to Maturity
Obligations of States and Political Subdivisions	$	906.7	$	948.6	$	851.2	$	896.3	$	847.2	$	893.0
Federal Agency		12.4		12.5		10.2		10.2		7.4		7.5
Other		208.4		203.3		180.1		175.1		154.2		149.1
Subtotal		1,127.5		1,164.4		1,041.5		1,081.6		1,008.8		1,049.6
Available for Sale
U.S. Government		57.0		57.0		103.3		103.3		103.9		103.9
Obligations of States and Political Subdivisions		33.3		33.3		33.0		33.0		33.2		33.2
Federal Agency		4,417.3		4,417.3		7,756.2		7,756.2		7,457.9		7,457.9
Preferred Stock		69.1		69.1		79.1		79.1		80.8		80.8
Other		1,036.1		1,036.1		450.8		450.8		413.7		413.7
Subtotal		5,612.8		5,612.8		8,422.4		8,422.4		8,089.5		8,089.5
Trading Account		2.2		2.2		7.4		7.4		4.1		4.1
Total Securities	$	6,742.5	$	6,779.4	$	9,471.3	$	9,511.4	$	9,102.4	$	9,143.2

7

Notes to Consolidated Financial Statements (continued)

Reconciliation of Book Values to Fair Values of Securities Held to Maturity	September 30, 2004
	Book Value		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
Obligations of States and Political Subdivisions	$	906.7	$	43.2	$	1.3	$	948.6
Federal Agency		12.4		.2		.1		12.5
Other		208.4		.2		5.3		203.3
Total	$	1,127.5	$	43.6	$	6.7	$	1,164.4

Reconciliation of Amortized Cost to Fair Values of Securities Available for Sale	September 30, 2004
	Amortized Cost		Gross Unrealized				Fair Value
(In Millions)			Gains		Losses
U.S. Government	$	57.0	$	—	$	—	$	57.0
Obligations of States and Political Subdivisions		30.6		2.7		—		33.3
Federal Agency		4,408.6		9.6		.9		4,417.3
Preferred Stock		69.1		—		—		69.1
Other		1,035.5		.6		—		1,036.1
Total	$	5,600.8	$	12.9	$	.9	$	5,612.8

5. Loans and Leases - Amounts outstanding in selected loan categories are shown below.

(In Millions)	September 30, 2004			December 31, 2003			September 30, 2003
Domestic
Residential Real Estate	$	8,043.4		$	7,975.3		$	7,822.8
Commercial		3,262.7			3,405.3			3,646.0
Broker		28.6			7.0			6.8
Commercial Real Estate		1,324.5			1,297.1			1,280.4
Personal		2,691.7			2,699.9			2,477.2
Other		522.8			743.9			676.6
Lease Financing		1,247.3			1,228.0			1,268.6
Total Domestic		17,121.0			17,356.5			17,178.4
International		578.4			457.3			739.7
Total Loans and Leases	$	17,699.4		$	17,813.8		$	17,918.1
Reserve for Credit Losses Assigned to Loans and Leases		(140.4	)		(149.2	)		(164.9	)
Net Loans and Leases	$	17,559.0		$	17,664.6		$	17,753.2

At September 30, 2004, other domestic and international loans included $682.5 million of overnight trust-related advances, compared with $672.2 million at December 31, 2003 and $810.2 million at September 30, 2003.

8

Notes to Consolidated Financial Statements (continued)

5. Loans and Leases (continued)

At September 30, 2004, nonperforming loans and leases totaled $64.2 million. Included in this amount were loans with a recorded investment of $62.7 million (net of $12.0 million in charge-offs) that were also classified as impaired. A loan is impaired when, based on available information, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans totaling $2.9 million (net of $4.8 million in charge-offs) had no portion of the reserve for credit losses allocated to them while impaired loans totaling $59.8 million (net of $7.2 million in charge-offs) had an allocated reserve of $30.9 million. For the third quarter of 2004, the total recorded investment in impaired loans averaged $63.6 million. There was approximately $12 thousand of interest income recorded on impaired loans for the three months ended September 30, 2004.

At September 30, 2003, nonperforming loans and leases totaled $99.8 million and included $97.3 million (net of $19.8 million in charge-offs) of impaired loans. Of these impaired loans, $12.6 million (net of $9.8 million in charge-offs) had no portion of the reserve for credit losses allocated to them while $84.7 million (net of $10.0 million in charge-offs) had an allocated reserve of $44.6 million. Total recorded investment in impaired loans for the third quarter of 2003 averaged $96.4 million. There was $99 thousand of interest income recognized on such loans for the three months ended September 30, 2003.

At September 30, 2004, residential real estate loans totaling $2.4 million were held for sale and carried at the lower of cost or market. Loan commitments for residential real estate loans that will be held for sale when funded are carried at fair value and had a total notional amount of $9.0 million at September 30, 2004. All other loan commitments are carried at the amount of unamortized fees with a reserve for credit loss liability recognized for any probable losses. At September 30, 2004, legally binding commitments to extend credit totaled $16.0 billion, compared with $16.5 billion at December 31, 2003 and September 30, 2003.

9

Notes to Consolidated Financial Statements (continued)

6. Reserve for Credit Losses - Changes in the reserve for credit losses were as follows:

	Three Months Ended September 30						Nine Months Ended September 30
(In Millions)	2004			2003			2004			2003
Balance at Beginning of Period	$	151.4		$	172.7		$	157.2		$	168.5
Charge-Offs		(1.5	)		(5.9	)		(6.2	)		(17.3	)
Recoveries		.2			.9			4.1			4.0
Net Charge-Offs		(1.3	)		(5.0	)		(2.1	)		(13.3	)
Provision for Credit Losses		—			5.0			(5.0	)		17.5
Balance at End of Period	$	150.1		$	172.7		$	150.1		$	172.7
Reserve for Credit Losses Assigned to:
Loans and Leases	$	140.4		$	164.9		$	140.4		$	164.9
Unfunded Commitments, Standby Letters of Credit and Derivatives		9.7			7.8			9.7			7.8
Total Reserve for Credit Losses	$	150.1		$	172.7		$	150.1		$	172.7

The reserve for credit losses represents management’s estimate of probable inherent losses that have occurred as of the date of the financial statements. The loan and lease portfolio and other credit exposures are regularly reviewed to evaluate the adequacy of the reserve for credit losses. In determining the level of the reserve, Northern Trust evaluates the reserve necessary for specific nonperforming loans and also estimates losses inherent in other credit exposures.

The result is a reserve with the following components:

Specific Reserve. The amount of specific reserve is determined through a loan-by-loan analysis of nonperforming loans that considers expected future cash flows, the value of collateral and other factors that may impact the borrower’s ability to pay.

Allocated Inherent Reserve. The amount of the allocated portion of the inherent loss reserve is based on loss factors assigned to Northern Trust’s credit exposures, which depend upon internal credit ratings. These loss factors primarily include management’s judgment concerning the effect of the current business cycle on the creditworthiness of Northern Trust’s borrowers as well as historical charge-off experience.

Unallocated Inherent Reserve. Management determines the unallocated portion of the inherent reserve based on factors that cannot be associated with a specific credit or loan category. These factors include management’s subjective evaluation of local and national economic and business conditions, portfolio concentration and changes in the character and size of the loan portfolio. The unallocated portion of the inherent reserve reflects management’s attempt to ensure that the overall reserve appropriately reflects a margin for the imprecision inherent in the process of estimating probable credit losses.

10

Notes to Consolidated Financial Statements (continued)

7. Goodwill and Other Intangibles - Goodwill and other intangible assets are included in other assets in the consolidated balance sheet. The following table shows the changes in the carrying amount of goodwill by business unit for the three months ended September 30, 2004.

(In Millions)	Corporate and Institutional Services		Personal Financial Services		Total
Balance at June 30, 2004	$	141.7	$	57.9	$	199.6
Goodwill Acquired – Legacy South		—		.4		.4
Balance at September 30, 2004	$	141.7	$	58.3	$	200.0

The gross carrying amount and accumulated amortization of other intangible assets at September 30, 2004 and September 30, 2003, was as follows:

	September 30
	2004				2003
(In Millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Other Intangible Assets- Subject to Amortization	$	115.3	$	76.9	$	114.3	$	67.2

Other intangible assets consist primarily of the value of acquired client relationships. Amortization expense related to other intangible assets totaled $2.4 million and $2.9 million for the three months ended September 30, 2004 and 2003, respectively. Amortization for the remainder of 2004 and for the years 2005, 2006, 2007 and 2008 is estimated to be $2.5 million, $8.8 million, $8.5 million, $6.2 million and $4.3 million, respectively.

11

Notes to Consolidated Financial Statements (continued)

8. Accumulated Other Comprehensive Income - The following tables summarize the components of accumulated other comprehensive income at September 30, 2004 and 2003, and changes during the three and nine-month periods then ended, presented on an after-tax basis.

	Three Months Ended September 30, 2004
	Beginning Balance (Net of Tax)			Period Change						Ending Balance (Net of Tax)
				Pre-Tax Amount			Tax Effect
(In Millions)
Unrealized Gains (Losses) on Securities Available for Sale	$	(2.4	)	$	2.8		$	(1.1	)	$	(.7	)
Less: Reclassification Adjustments		—			—			—			—
Net Unrealized Gains (Losses) on Securities Available for Sale		(2.4	)		2.8			(1.1	)		(.7	)
Unrealized Gains (Losses) on Cash Flow Hedge Designations		(1.2	)		(4.3	)		1.6			(3.9	)
Less: Reclassification Adjustments		—			(4.9	)		1.8			(3.1	)
Net Unrealized Gains (Losses) on Cash Flow Hedge Designations		(1.2	)		.6			(.2	)		(.8	)
Foreign Currency Translation Adjustments		(.7	)		(.1	)		—			(.8	)
Minimum Pension Liability		(12.0	)		—			—			(12.0	)
Accumulated Other Comprehensive Income	$	(16.3	)	$	3.3		$	(1.3	)	$	(14.3	)

	Three Months Ended September 30, 2003
	Beginning Balance (Net of Tax)			Period Change						Ending Balance (Net of Tax)
				Pre-Tax Amount			Tax Effect
(In Millions)
Unrealized Gains (Losses) on Securities Available for Sale	$	5.7		$	(4.1	)	$	1.5		$	3.1
Less: Reclassification Adjustments		—			—			—			—
Net Unrealized Gains (Losses) on Securities Available for Sale		5.7			(4.1	)		1.5			3.1
Unrealized Gains (Losses) on Cash Flow Hedge Designations		2.4			1.3			(.4	)		3.3
Less: Reclassification Adjustments		—			2.2			(.8	)		1.4
Net Unrealized Gains (Losses) on Cash Flow Hedge Designations		2.4			(.9	)		.4			1.9
Foreign Currency Translation Adjustments		(.1	)		(.1	)		—			(.2	)
Minimum Pension Liability		(4.0	)		—			—			(4.0	)
Accumulated Other Comprehensive Income	$	4.0		$	(5.1	)	$	1.9		$	.8
	Nine Months Ended September 30, 2004
	Beginning Balance (Net of Tax)			Period Change						Ending Balance (Net of Tax)
				Pre-Tax Amount			Tax Effect
(In Millions)
Unrealized Gains (Losses) on Securities Available for Sale	$	2.7		$	(5.2	)	$	1.8		$	(.7	)
Less: Reclassification Adjustments		—			—			—			—
Net Unrealized Gains (Losses) on Securities Available for Sale		2.7			(5.2	)		1.8			(.7	)
Unrealized Gains (Losses) on Cash Flow Hedge Designations		.3			(4.9	)		1.9			(2.7	)
Less: Reclassification Adjustments		—			(3.1	)		1.2			(1.9	)
Net Unrealized Gains (Losses) on Cash Flow Hedge Designations		.3			(1.8	)		.7			(.8	)
Foreign Currency Translation Adjustments		.1			(1.5	)		.6			(.8	)
Minimum Pension Liability		(12.0	)		—			—			(12.0	)
Accumulated Other Comprehensive Income	$	(8.9	)	$	(8.5	)	$	3.1		$	(14.3	)

	Nine Months Ended September 30, 2003
	Beginning Balance (Net of Tax)			Period Change						Ending Balance (Net of Tax)
				Pre-Tax Amount			Tax Effect
(In Millions)
Unrealized Gains (Losses) on Securities Available for Sale	$	5.7		$	(4.0	)	$	1.4		$	3.1
Less: Reclassification Adjustments		—			—			—			—
Net Unrealized Gains (Losses) on Securities Available for Sale		5.7			(4.0	)		1.4			3.1
Unrealized Gains (Losses) on Cash Flow Hedge Designations		5.8			3.2			(1.1	)		7.9
Less: Reclassification Adjustments		—			9.6			(3.6	)		6.0
Net Unrealized Gains (Losses) on Cash Flow Hedge Designations		5.8			(6.4	)		2.5			1.9
Foreign Currency Translation Adjustments		(.4	)		.4			(.2	)		(.2	)
Minimum Pension Liability		(4.0	)		—			—			(4.0	)
Accumulated Other Comprehensive Income	$	7.1		$	(10.0	)	$	3.7		$	.8

12

Notes to Consolidated Financial Statements (continued)

9. Net Income Per Common Share Computations - The computation of net income per common share is presented in the following table.

	Three Months Ended September 30					Nine Months Ended September 30
($ In Millions Except Per Share Information)	2004		2003			2004		2003
Basic Net Income Per Common Share
Average Number of Common Shares Outstanding		219,234,285		220,263,066			219,719,511		220,311,056
Reported Income from Continuing Operations	$	114.7	$	114.8		$	372.7	$	292.8
Less: Dividends on Preferred Stock		—		—			—		(.7	)
Income from Continuing Operations Applicable to Common Stock	$	114.7	$	114.8		$	372.7	$	292.1
Reported Basic Income from Continuing Operations Per Common Share	$	.52	$	.52		$	1.70	$	1.33
Income (Loss) from Discontinued Operations	$	—	$	(1.0	)	$	.3	$	(17.7	)
Basic Income (Loss) from Discontinued Operations Per Common Share	$	—	$	—		$	—	$	(.08	)
Net Income Applicable to Common Stock	$	114.7	$	113.8		$	373.0	$	274.4
Basic Net Income Per Common Share	$	.52	$	.52		$	1.70	$	1.25
Diluted Net Income Per Common Share
Average Number of Common Shares Outstanding		219,234,285		220,263,066			219,719,511		220,311,056
Plus Dilutive Potential Common Shares:
Stock Options		2,134,978		2,990,548			2,624,424		2,359,854
Stock Incentive Plans *		1,107,951		1,398,963			1,055,131		1,311,275
Average Common and Potential Common Shares		222,477,214		224,652,577			223,399,066		223,982,185
Income from Continuing Operations Applicable to Common Stock	$	114.7	$	114.8		$	372.7	$	292.1
Reported Diluted Income from Continuing Operations Per Common Share	$	.52	$	.51		$	1.67	$	1.31
Income (Loss) from Discontinued Operations	$	—	$	(1.0	)	$	.3	$	(17.7	)
Diluted Income (Loss) from Discontinued Operations Per Common Share	$	—	$	—		$	—	$	(.08	)
Net Income Applicable to Common Stock	$	114.7	$	113.8		$	373.0	$	274.4
Diluted Net Income Per Common Share	$	.52	$	.51		$	1.67	$	1.23

* Includes dilutive potential shares of common stock related to restricted stock and stock unit awards subject to vesting requirements. Refer to Note 22, “Stock-Based Compensation Plans” on pages 82 through 84 of the Corporation’s 2003 Annual Report to Shareholders.

13

Notes to Consolidated Financial Statements (continued)

10. Other Charges - During the second quarter of 2003, Northern Trust implemented a number of strategic steps to reduce operating costs and strategically position itself for improved profitability, resulting in pre-tax charges included in noninterest expenses of $48.5 million. Of this charge, $22.9 million represents severance costs, $16.1 million reflects a reduction in the amount of required leased and owned office space, and $9.5 million relates to other charges consisting primarily of asset retirements.

Third quarter 2003 noninterest expenses included pre-tax charges totaling $6.2 million. Of this amount, $2.8 million reflected reductions in the amount of required leased office space and $3.4 million related to asset retirements resulting from the replacement of software applications.

Changes in the other liabilities line item on the consolidated balance sheet related to these actions were as follows:

(In Millions)	Severance			Office Space			Total
Liabilities:
Established in 2003	$	24.0		$	18.7		$	42.7
Cash Payments in 2003		(16.3	)		(1.2	)		(17.5	)
Balance at December 31, 2003	$	7.7		$	17.5		$	25.2
Adjustments to Original Reserve		(1.2	)		1.2			—
Cash Payments in 2004		(4.6	)		(2.0	)		(6.6	)
Balance at September 30, 2004	$	1.9		$	16.7		$	18.6

11. Pension and Other Postretirement Plans - The following tables set forth the net periodic pension cost of the domestic qualified and nonqualified pension benefit plans and the other postretirement plan for the three- and nine-month periods ended September 30, 2004 and 2003.

	Three Months Ended September 30						Nine Months Ended September 30
Net Periodic Pension Expense Qualified Plan (In Millions)	2004			2003			2004			2003
Service Cost	$	5.4		$	4.4		$	16.2		$	13.2
Interest Cost		5.8			5.1			17.4			15.3
Expected Return on Plan Assets		(8.1	)		(6.9	)		(24.3	)		(20.7	)
Amortization:
Net Loss		1.9			.6			5.7			1.8
Prior Service Cost (Benefit)		—			—			—			—
Net Periodic Pension Expense	$	5.0		$	3.2		$	15.0		$	9.6

	Three Months Ended September 30				Nine Months Ended September 30
Net Periodic Pension Expense Nonqualified Plan (In Millions)	2004		2003		2004		2003
Service Cost	$	.5	$	.5	$	1.5	$	1.5
Interest Cost		.7		.7		2.1		2.1
Expected Return on Plan Assets		—		—		—		—
Amortization:
Net Loss		.6		.6		1.8		1.8
Prior Service Cost (Benefit)		—		—		—		—
Net Periodic Pension Expense	$	1.8	$	1.8	$	5.4	$	5.4

14

Notes to Consolidated Financial Statements (continued)

11. Pension and Other Postretirement Plans (continued)

	Three Months Ended September 30				Nine Months Ended September 30
Net Periodic Benefit Expense Other Postretirement Plan (In Millions)	2004		2003		2004		2003
Service Cost	$	.4	$	.4	$	1.2	$	1.2
Interest Cost		.7		.7		2.2		2.1
Amortization:
Transition Obligation		.1		.1		.3		.3
Net Loss		.1		.2		.6		.6
Net Periodic Benefit Expense	$	1.3	$	1.4	$	4.3	$	4.2

For the nine months ended September 30, 2004, Northern Trust made $55.0 million in contributions to its qualified pension plan. The nonqualified plan made benefit payments totaling $1.2 million and $3.5 million, respectively, for the three- and nine-month periods ended September 30, 2004. These payments are estimated to be approximately $3.8 million for all of 2004. The postretirement health care plan made benefit payments totaling $1.1 million and $3.0 million, respectively, for the three- and nine-month periods ended September 30, 2004. These payments are estimated to be approximately $3.7 million for all of 2004.

“The Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the Act) expands Medicare coverage, primarily by adding a voluntary prescription drug benefit for Medicare-eligibles starting in 2006. The Act provides employers currently sponsoring prescription drug programs for Medicare-eligibles with a range of options for coordinating with the new government-sponsored prescription drug program to potentially reduce program costs. These options include supplementing the government program on a secondary payer basis or accepting a direct subsidy from the government to support a portion of the cost of the employer’s program. Northern Trust anticipates that future benefit payments will be lower as a result of the new Medicare provision.

As permitted by FSP 106-2, Northern Trust made a one-time election in the third quarter to account for the prescription drug subsidy retrospectively. This action is expected to have a favorable impact on 2004 net periodic benefit expense for the medical post-retirement plan of $.2 million and the Accumulated Postretirement Benefit Obligation of $2.0 million. These amounts are based on preliminary estimates that depend on regulatory interpretations not yet available, and therefore, are subject to change.

15

Notes to Consolidated Financial Statements (continued)

12. Stock-Based Compensation Plans - The Northern Trust Corporation 2002 Stock Plan (2002 Plan) 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, 2004, shares available for future grant under the 2002 Plan totaled 11,238,562.

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” establishes financial accounting and reporting standards for stock-based compensation plans. SFAS No. 123 allows two alternative accounting methods: (1) a fair-value-based method, or (2) an intrinsic-value-based method as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB No. 25) and related interpretations. Northern Trust has elected to account for its stock-based incentive plans and awards under APB No. 25, and has 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. For purposes of estimating the fair value of the Corporation’s employee stock options at the grant date, a Black-Scholes option pricing model was used with the following weighted average assumptions for 2004 and 2003, respectively: risk-free interest rates of 3.13% and 3.94%; dividend yields of 2.54% and 2.08%; volatility factors of the expected market price of the Corporation’s common stock of 33.8% and 33.5%; and a weighted average expected life of the options of 5.5 years and 6.1 years.

The weighted average fair value of options granted in 2004 and 2003 was $13.65 per share and $10.40 per share, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ six-month to four-year vesting periods.

The Corporation’s pro forma information follows.

	Three Months Ended September 30						Nine Months Ended September 30
(In Millions Except per Share Information)	2004			2003			2004			2003
Net Income as Reported	$	114.7		$	113.8		$	373.0		$	275.1
Add: Stock-Based Employee Compensation Expense Included in Reported Net Income, Net of Tax		2.0			3.1			9.1			9.8
Deduct: Total Stock-Based Employee Compensation Expense Determined Under the Fair Value Method, Net of Tax		(8.0	)		(13.2	)		(30.6	)		(49.8	)
Pro Forma Net Income	$	108.7		$	103.7		$	351.5		$	235.1
Earnings Per Share as Reported:
Basic	$	.52		$	.52		$	1.70		$	1.25
Diluted		.52			.51			1.67			1.23
Pro Forma Earnings Per Share:
Basic	$	.50		$	.47		$	1.60		$	1.06
Diluted		.49			.46			1.57			1.04

16

Notes to Consolidated Financial Statements (continued)

13. Contingent Liabilities - 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. Northern Trust is obligated to meet the entire financial obligation of these agreements and in certain cases is able to recover the amounts paid through recourse against cash deposits or other participants. Standby letters of credit outstanding were $2.7 billion on September 30, 2004, $2.5 billion on December 31, 2003 and $2.6 billion on September 30, 2003. Northern Trust’s liability on the consolidated balance sheet for standby letters of credit, measured as the amount of unamortized fees on these instruments was $4.5 million at September 30, 2004, $4.4 million at December 31, 2003 and $3.6 million at September 30, 2003.

As part of securities custody activities and at the direction of trust clients, Northern Trust lends securities owned by clients to borrowers who are reviewed by the Credit Policy Credit Approval Committee. In connection with these activities, Northern Trust has issued certain indemnifications against loss resulting from the bankruptcy of the borrower of securities. The borrowing party is required to fully collateralize securities received with cash, marketable securities, or irrevocable standby letters of credit. As securities are loaned, collateral is maintained at a minimum of 100 percent 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 $97.9 billion at September 30, 2004, $74.0 billion at December 31, 2003 and $65.6 billion at September 30, 2003. Because of the requirement to fully collateralize securities borrowed, management believes that the exposure to credit loss from this activity is remote and there are no liabilities reflected on the consolidated balance sheet at September 30, 2004, December 31, 2003 or September 30, 2003 related to these indemnifications.

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 actions brought on behalf of various classes of claimants, and regulatory matters. In certain of these actions and proceedings, claims for substantial monetary damages are asserted. In view of the inherent difficulty of predicting the outcome of such matters, the Corporation cannot state what the eventual outcome of these matters will be; however, based on current knowledge and after consultation with legal counsel, management does not believe that judgments or settlements, if any, arising from pending or threatened legal actions or regulatory matters, either individually or in the aggregate, will have a material adverse effect on the consolidated financial position or liquidity of the Corporation, although they could have a material effect on operating results for a particular period.

17

Notes to Consolidated Financial Statements (continued)

13. Contingent Liabilities (continued)

In 2003, a putative class action was filed against Northern Trust Bank of California N.A. (later adding the Corporation) seeking class-wide reimbursement, with interest and punitive damages, for approximately 300 trust accounts that were allegedly charged fees in excess of fee provisions in the underlying trust documents. Virtually all of the trust accounts in the putative class were purchased in 1992 by the California bank from Trust Services of America, Inc., then a subsidiary of CalFed. Prior to the filing of this class action, the California bank had begun to file petitions seeking review and approval from the California probate court of reimbursements to these accounts, and 79 such petitions have already been approved with reimbursements for those accounts totaling approximately $2.5 million. During the second quarter 2004, the court dismissed the Corporation from the suit on jurisdictional grounds, but allowed most of the claims to proceed against the California bank, including claims challenging the previously approved petitions. On August 10, 2004, the Corporation announced that the California bank had entered into a settlement in principle to resolve the putative class action. The settlement remains subject to negotiation of a final written agreement and court approval. Upon final approval of the settlement, the California bank will pay approximately $21 million. The settlement, including estimated associated costs, resulted in a third quarter 2004 pre-tax charge of $17.0 million.

One subsidiary of the Corporation has been named as a defendant in several Enron-related class action suits that have been consolidated under a single complaint in the Federal District Court for the Southern District of Texas (Houston). Individual participants in the employee pension benefit plans sponsored by Enron Corp. sued various corporate entities and individuals, including The Northern Trust Company (Bank) in its capacity as the former directed trustee of the Enron Corp. Savings Plan and former service-provider for the Enron Corp. Employee Stock Ownership Plan. The lawsuit makes claims, inter alia, for breach of fiduciary duty to the plan participants, and seeks equitable relief and monetary damages in an unspecified amount against the defendants. On September 30, 2003, the court denied the Bank’s motion to dismiss the complaint as a matter of law. In an Amended Consolidated Complaint filed on January 2, 2004, plaintiffs continue to assert claims against the Bank and other defendants under the Employee Retirement Income Security Act of 1974, seeking a finding that defendants are liable to restore to the benefit plans and the plaintiffs hundreds of millions of dollars of losses allegedly caused by defendants’ alleged breaches of fiduciary duty. The trial date currently is scheduled for fall 2006. The Corporation and the Bank will continue to defend this action vigorously. In June 2003, after conducting an extensive investigation, which included the Bank and NTRC, the U.S. Department of Labor (DOL) filed a civil action against numerous parties charging that they violated their obligations to the Enron plan participants. The DOL did not name any Northern Trust entity or employee as a defendant in its suit. In another matter, in November and December 2003, Enron as debtor-in-possession filed two lawsuits seeking to recover for its bankruptcy estate more than $1 billion it paid in the fall of 2001 to buy back its commercial paper. Enron claims that the money it paid to buy back its commercial paper approximately six weeks prior to its bankruptcy filing represented “preference” payments and “fraudulent transfers” that can be reversed with

18

Notes to Consolidated Financial Statements (continued)

13. Contingent Liabilities (continued)

the money going back to Enron. Since the Bank sold approximately $197 million of this Enron commercial paper that it held for some of its clients, the Bank and those clients are among scores of defendants named in these complaints. The Corporation and the Bank will defend these actions vigorously.

14. Pledged Assets - Securities and loans pledged to secure public and trust deposits, repurchase agreements and for other purposes as required or permitted by law were $9.9 billion on September 30, 2004, $10.1 billion on December 31, 2003 and $9.7 billion on September 30, 2003. Included in the September 2004 pledged assets were securities available for sale of $1.0 billion, 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 also permitted to repledge or sell collateral from agreements to resell securities purchased transactions. The total fair value of accepted collateral as of September 30, 2004, December 31, 2003 and September 30, 2003 was $406.7 million, $407.2 million and $380.5 million, respectively. The fair value of repledged collateral as of September 30, 2004, December 31, 2003 and September 30, 2003 was zero, $50.4 million and $35.8 million, respectively. Repledged collateral was used in other agreements to repurchase securities sold transactions.

15. Business Units - The table on page 26, reflecting the earnings contribution of Northern Trust’s business units for the three- and nine-month periods ended September 30, 2004, is incorporated by reference.

19

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIRD QUARTER CONSOLIDATED RESULTS OF OPERATIONS

Overview

Net income per common share on a diluted basis was $.52 for the third quarter, an increase of 2% from $.51 per share earned in last year’s third quarter. Net income increased 1% to $114.7 million from $113.8 million earned in the third quarter of last year. These results were reduced by an after-tax charge of $10.6 million, or $.05 earnings per share, for a proposed litigation settlement relating to the Northern Trust Bank of California N.A. This performance produced an annualized return on average common equity (ROE) of 14.40% versus 15.40% reported for the comparable quarter last year and an annualized return on average assets (ROA) of 1.13% versus 1.15% in 2003.

As a result of its disposition in June 2003, the operating results of Northern Trust Retirement Consulting, L.L.C. (NTRC) for all periods presented are shown as discontinued operations in Northern Trust’s consolidated statement of income.

Revenues stated on a fully taxable equivalent basis of $560.0 million were up 4% from $538.8 million in last year’s third quarter, while expenses increased 9%. The current quarter operating expenses were negatively impacted by a pre-tax charge of approximately $17.0 million related to the proposed litigation settlement. The quarterly performance benefited from an increase in trust fees, higher net interest income, and continued strength in the quality of our loan portfolio, offset by lower foreign exchange trading results.

Noninterest Income

Noninterest income totaled $407.4 million for the quarter, up 4% from $391.4 million reported last year, and accounted for 73% of total taxable equivalent revenue. Trust fees were $327.5 million in the quarter, up 8% compared with $304.0 million in the third quarter of last year and represented 58% of total taxable equivalent revenue. The increase in trust fees resulted primarily from new business and improved equity markets. The components of noninterest income for the third quarters of 2004 and 2003 are listed in the following table:

	Three Months Ended September 30
Noninterest Income (In Millions)	2004		2003
Trust Fees	$	327.5	$	304.0
Foreign Exchange Trading Profits		26.5		28.9
Treasury Management Fees		22.4		24.1
Security Commissions and Trading Income		11.4		13.7
Other Operating Income		19.6		20.7
Total Noninterest Income	$	407.4	$	391.4

20

Noninterest Income (continued)

Assets under administration totaled a record $2.40 trillion at September 30, 2004. This represents an increase in assets under administration of 12% from December 31, 2003 and 25% from September 30, 2003. Assets under management also reached a new high and totaled $534.6 billion compared with $435.7 billion at September 30, 2003. As of current quarter-end, managed assets were invested 40% in equities, 19% in fixed-income securities and 41% in cash and other assets.

Consolidated Trust Assets Under Administration (In Billions)	September 30, 2004		December 31, 2003		September 30, 2003
Corporate & Institutional	$	428.9	$	374.3	$	336.7
Personal		105.7		104.3		99.0
Total Managed Trust Assets		534.6		478.6		435.7
Corporate & Institutional		1,769.4		1,585.8		1,399.5
Personal		99.7		90.7		81.8
Total Non-Managed Trust Assets		1,869.1		1,676.5		1,481.3
Consolidated Trust Assets Under Administration	$	2,403.7	$	2,155.1	$	1,917.0

Trust fees are generally based on the market value of assets managed and administered, the volume of transactions, securities lending volume and spreads, and fees for other services rendered. Certain investment management fee arrangements also may provide for performance fees, which are based on client portfolio returns exceeding predetermined levels. In addition, Corporate & Institutional Services (C&IS) trust relationships are generally priced to reflect earnings from activities such as foreign exchange trading and custody-related deposits that are not included in trust fees. Based on prior analysis and current trust 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 fees of approximately 4% and total revenues of approximately 2%.

Trust fees from Corporate & Institutional Services (C&IS) in the quarter were up 9% to $165.1 million, reflecting new business and improved equity markets. Custody fees increased 18% to $68.5 million for the quarter, driven by strong growth in global custody revenues. Fees from asset management grew 5% to $57.1 million. Securities lending fees increased 1% to $25.5 million, reflecting higher lending volumes, partially offset by lower spreads earned on the investment of collateral.

C&IS assets under administration totaled $2.20 trillion at September 30, 2004 compared with $1.74 trillion at September 30, 2003. Assets under administration include $867.8 billion of global custody assets, an increase of 31% compared with $660.7 billion one year ago. C&IS assets under management totaled $428.9 billion compared with $336.7 billion at September 30, 2003. As of current quarter-end, C&IS managed assets were invested 37% in equities, 15% in fixed-income securities and 48% in cash and other assets.

21

Noninterest Income (continued)

Trust fees from Personal Financial Services (PFS) in the quarter increased 6% and totaled $162.4 million. The increase in PFS trust fees resulted primarily from new business and improved equity markets. Revenue growth was broad-based, with all regions and the Wealth Management Group reporting year-over-year increases in trust fees. Personal trust assets under administration totaled $205.4 billion at September 30, 2004 compared with $180.8 billion at September 30, 2003. Of the total trust assets under administration, $105.7 billion is managed by Northern Trust compared with $99.0 billion at September 30, 2003. As of current quarter-end, PFS managed assets were invested 50% in equities, 38% in fixed-income securities and 12% in cash and other assets.

Foreign exchange trading profits were $26.5 million in the quarter compared with $28.9 million in the third quarter of last year, reflecting reduced volatility in the major currencies. Treasury management fees in the quarter were $22.4 million compared with $24.1 million in the same quarter last year. Revenues from security commissions and trading income were $11.4 million compared with $13.7 million recorded in the prior year quarter. Other operating income, the components of which are listed below, was $19.6 million for the third quarter compared with $20.7 million in the same period last year.

	Three Months Ended September 30
Other Operating Income (In Millions)	2004		2003
Loan Service Fees	$	5.5	$	5.9
Banking Service Fees		8.0		8.2
Other Income		6.1		6.6
Total Other Operating Income	$	19.6	$	20.7

22

Net Interest Income

Net interest income for the quarter totaled $139.0 million, 3% higher than the $134.3 million reported in the third quarter of 2003. 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 hedging activity. When net interest income is adjusted to a fully taxable equivalent (FTE) basis, yields on taxable, nontaxable and partially taxable assets are comparable, although the adjustment to a FTE basis has no impact on net income. Net interest income for the quarter stated on a FTE basis totaled $152.6 million, up 4% from $147.4 million from the prior year quarter. The improvement resulted primarily from a $1.4 billion increase in average earning assets, funded in large part by a 17% increase in net noninterest-related funds. The net interest margin decreased slightly to 1.66% from 1.67% in the prior year quarter. The change was due primarily to a decline in the average yield of the residential mortgage loan portfolio attributable to the prior year refinancing activity and the growth in lower margin short-term money market assets, offset in part by the higher level of noninterest-related funding. Total average earning assets of $36.5 billion were 4% higher than a year ago with the increase concentrated in money market assets. Average loans were virtually unchanged from a year ago at $17.5 billion.

Average domestic loans outstanding during the quarter, at $17.0 billion, were 1% below the $17.1 billion in the third quarter of last year, while average international loans increased $149 million from a year ago to $533 million. Residential mortgages averaged $8.0 billion in the quarter, up 3% from the prior year’s third quarter and represented 46% of the total average loan portfolio. Commercial and industrial loans averaged $3.2 billion, down 14% from $3.8 billion last year, while personal loans increased 7% to average $2.6 billion compared with last year’s third quarter.

Northern Trust utilizes a diverse mix of funding sources. Total interest-related deposits averaged $21.2 billion, up 9% from the third quarter of 2003. Foreign office time deposits increased $1.4 billion, up 14% as a result of global custody activity, while retail deposit levels increased $350 million due primarily to higher balances in money market deposit accounts, offset in part by a reduction in savings certificates. Other interest-related funds averaged $9.1 billion in the quarter compared with $10.5 billion in last year’s third quarter due primarily to lower levels of federal funds purchased and securities sold under agreements to repurchase. The balances within these 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. Noninterest-related funds utilized to fund earning assets increased 17% from the prior year, averaging $6.2 billion.

23

Provision for Credit Losses

The reserve for credit losses at September 30, 2004 was $150.1 million compared with $151.4 million at the previous quarter-end. There was no provision for credit losses and net charge-offs were $1.3 million in the quarter. The provision for the prior year third quarter was $5.0 million and net charge-offs totaled $5.0 million. For a discussion of the provision and reserve for credit losses, refer to the “Asset Quality” section beginning on page 32.

Noninterest Expenses

Noninterest expenses totaled $377.8 million for the quarter, up 9% from $347.4 million in the year-ago quarter. The current quarter includes a pre-tax charge of $17.0 million related to the proposed litigation settlement, including estimated associated costs. The components of noninterest expenses and a discussion of significant changes from the prior year quarter are provided below.

	Three Months Ended September 30
Noninterest Expenses (In Millions)	2004		2003
Compensation	$	161.7	$	157.9
Employee Benefits		33.5		32.9
Occupancy Expense		30.5		29.3
Equipment Expense		21.4		21.5
Other Operating Expenses		130.7		105.8
Total Noninterest Expenses	$	377.8	$	347.4

Compensation and employee benefit expenses totaled $195.2 million. This compares with $190.8 million last year. Current period compensation expense reflects annual salary increases offset in part by lower incentive compensation. Employee benefit expenses increased as a result of higher pension and health care costs. These increases were offset by a reduction in the accrual for the performance-based portion of the Employee Stock Ownership Plan. Compensation and employee benefit expense increases were partially offset by lower staffing levels. Staff on a full-time equivalent basis at September 30, 2004 totaled 7,980 compared with 8,094 a year ago.

Net occupancy expense totaled $30.5 million compared with $29.3 million in the third quarter of 2003. The increase in occupancy expense reflects higher net rental costs. The prior year quarter included a $2.8 million charge to rent expense associated with reduced leased office space needs essentially offset by real estate tax refunds.

Equipment expense, comprised of depreciation, rental and maintenance costs totaled $21.4 million, down 1% from $21.5 million reported in the third quarter of 2003. Lower levels of rental and maintenance of computer hardware and equipment were offset by increases in data line lease costs.

24

Noninterest Expenses (continued)

Other operating expenses in the quarter totaled $130.7 million compared with $105.8 million last year. The current quarter includes the $17.0 million proposed litigation settlement while the prior year quarter included $3.4 million related to asset retirements resulting from the replacement of software applications. The majority of the remaining increase resulted from higher subcustodian and sub-advisor fees related to higher volumes and new business, and increased business promotion and advertising efforts. The components of other operating expenses were as follows:

	Three Months Ended September 30
Other Operating Expenses (In Millions)	2004		2003
Outside Services Purchased	$	57.8	$	49.6
Software Amortization and Other Costs		26.2		25.2
Business Promotion		10.5		8.4
Other Intangibles Amortization		2.4		2.9
Software Asset Retirements		—		3.4
Litigation Settlement and Related Costs		17.0		—
Other Expenses		16.8		16.3
Total Other Operating Expenses	$	130.7	$	105.8

Provision for Income Taxes

The provision for income taxes was $53.9 million for the third quarter compared with $58.5 million in the year-ago quarter. The lower tax provision in 2004 primarily reflects lower pre-tax earnings, as well as changes in where income was earned, which reduced overall state income tax requirements. The effective income tax rate for the quarter was 32.0% compared with 33.8% in the third quarter of 2003.

25

BUSINESS UNIT REPORTING

The following tables reflect the earnings contribution and average assets of Northern Trust’s business units for the three- and nine-month periods ended September 30, 2004 and 2003.

	Corporate and Institutional Services						Personal Financial Services						Treasury and Other						Total Consolidated
Results of Operations Three Months ($ In Millions)	2004			2003			2004			2003			2004			2003			2004			2003
Noninterest Income
Trust Fees	$	165.1		$	151.5		$	162.4		$	152.5		$	—		$	—		$	327.5		$	304.0
Other		53.7			59.8			23.1			26.4			3.1			1.2			79.9			87.4
Net Interest Income *		44.5			37.5			112.3			108.8			(4.2	)		1.1			152.6			147.4
Provision for Credit Losses		.4			(7.0	)		(.4	)		12.0			—			—			—			5.0
Noninterest Expenses		168.6			162.3			195.7			173.4			13.5			11.7			377.8			347.4
Income before Income Taxes*		94.3			93.5			102.5			102.3			(14.6	)		(9.4	)		182.2			186.4
Provision for Income Taxes*		36.6			36.3			39.7			39.1			(8.8	)		(3.8	)		67.5			71.6
Income from Continuing Operations	$	57.7		$	57.2		$	62.8		$	63.2		$	(5.8	)	$	(5.6	)	$	114.7		$	114.8
Loss from Discontinued Operations		—			(1.0	)		—			—			—			—			—			(1.0	)
Net Income	$	57.7		$	56.2		$	62.8		$	63.2		$	(5.8	)	$	(5.6	)	$	114.7		$	113.8
Percentage of Net Income Contribution		50	%		49	%		55	%		56	%		(5	)%		(5	)%		100	%		100	%
Average Assets	$	20,397.0		$	16,924.0		$	16,196.7		$	15,855.9		$	3,774.4		$	6,537.8		$	40,368.1		$	39,317.7

* Stated on a fully taxable equivalent basis (FTE). Total includes FTE adjustments of $13.6 million for 2004 and $13.1 million for 2003.

Note: Certain reclassifications have been made to 2003 financial information to conform to the current year presentation.

	Corporate and Institutional Services						Personal Financial Services						Treasury and Other						Total Consolidated
Results of Operations Nine Months ($ In Millions)	2004			2003			2004			2003			2004			2003			2004			2003
Noninterest Income
Trust Fees	$	507.6		$	435.0		$	484.0		$	443.5		$	—		$	—		$	991.6		$	878.5
Other		204.5			175.4			69.8			90.8			6.6			3.4			280.9			269.6
Net Interest Income *		125.2			116.0			330.3			328.7			(4.7	)		6.3			450.8			451.0
Provision for Credit Losses		(2.9	)		(10.5	)		(2.1	)		28.0			—			—			(5.0	)		17.5
Noninterest Expenses		519.4			515.5			566.6			549.3			46.5			44.6			1,132.5			1,109.4
Income before Income Taxes*		320.8			221.4			319.6			285.7			(44.6	)		(34.9	)		595.8			472.2
Provision for Income Taxes*		124.8			86.1			123.8			109.7			(25.5	)		(16.4	)		223.1			179.4
Income from Continuing Operations	$	196.0		$	135.3		$	195.8		$	176.0		$	(19.1	)	$	(18.5	)	$	372.7		$	292.8
Income (Loss) from Discontinued Operations		.3			(17.7	)		—			—			—			—			.3			(17.7	)
Net Income	$	196.3		$	117.6		$	195.8		$	176.0		$	(19.1	)	$	(18.5	)	$	373.0		$	275.1
Percentage of Net Income Contribution		53	%		43	%		52	%		64	%		(5	)%		(7	)%		100	%		100	%
Average Assets	$	20,312.4		$	16,719.2		$	16,121.4		$	15,924.5		$	3,863.6		$	5,809.9		$	40,297.4		$	38,453.6

* Stated on a fully taxable equivalent basis (FTE). Total includes FTE adjustments of $40.3 million for 2004 and $39.0 million for 2003.

Note: Certain reclassifications have been made to 2003 financial information to conform to the current year presentation.

26

Corporate and Institutional Services

C&IS net income for the third quarter totaled $57.7 million compared with $56.2 million reported in 2003. Included in the above are the operating results of NTRC that have been classified and shown as discontinued operations for all periods presented. NTRC reported a net loss from operations of $1.0 million in the third quarter of 2003. Noninterest income from continuing operations was $218.8 million, up 4% from $211.3 million in last year’s third quarter. Trust fees in the quarter were up 9% to $165.1 million, reflecting new business and improved equity markets. Custody fees increased 18% to $68.5 million for the quarter, driven by strong growth in global custody revenues. Fees from asset management grew 5% to $57.1 million. Securities lending fees increased 1% to $25.5 million, reflecting higher lending volumes, partially offset by lower spreads earned on the investment of collateral. Other noninterest income was $53.7 million compared with $59.8 million in last year’s third quarter. Lower levels of foreign exchange trading profits and treasury management fees were the primary cause for the decline.

Net interest income stated on a FTE basis was $44.5 million, up 19% from $37.5 million in last year’s third quarter. Net interest income was positively impacted by a $3.2 billion or 22% increase in average earning assets. The increase was concentrated in short-term money market assets, offset in part by a 3% reduction in average loans outstanding. The net interest margin fell to .98% for the current quarter from 1.00% in last year’s third quarter. The net interest spread and margin were both negatively impacted by the change in the mix of the balance sheet as lower-rate money market assets grew while higher yielding loans declined.

The $.4 million provision for credit losses in the current quarter compares with a negative $7.0 million provision in the third quarter of last year. The negative provision in 2003 resulted primarily from the net impact of principal repayments and credit quality improvements. Total noninterest expenses of C&IS, which include both the direct expenses of the business unit and indirect expense allocations from Northern Trust Global Investments (NTGI) and Worldwide Operations and Technology (WWOT) for product and operating support, increased 4% and totaled $168.6 million for the third quarter. Increases in compensation expense resulting from annual salary increases and higher performance-based pay, costs associated with business promotion and advertising efforts, and fees for other professional services contributed to the overall increase in operating expenses.

27

Personal Financial Services

PFS net income for the quarter was $62.8 million, down slightly from $63.2 million reported a year ago. Trust fees increased 6% and totaled $162.4 million. The increase in PFS trust fees resulted primarily from new business and improved equity markets. Revenue growth was broad-based, with all regions and the Wealth Management Group reporting year-over-year increases in trust fees. Other operating income totaled $23.1 million compared with $26.4 million in the prior year quarter. The decrease from the prior year was due to lower revenues from security commissions and trading income and treasury management fees.

Net interest income stated on a FTE basis, was $112.3 million in the quarter compared with $108.8 million in the prior year’s third quarter. These results reflect a 2% increase in average earning assets that was split between loans and money market assets and an increase in the net interest margin from 2.85% last year to 2.88% in the current quarter.

The negative $.4 million provision for credit losses, down from $12.0 million last year, was due primarily to the improved credit quality of certain commercial loans. Total noninterest expenses of PFS, which include both the direct expenses of the business unit and indirect expense allocations from NTGI and WWOT for product and operating support, increased 13% to $195.7 million from $173.4 million in last year’s third quarter. The current quarter includes a charge of approximately $17.0 million related to the proposed litigation settlement, including estimated associated costs. Higher compensation expense resulting from annual salary increases, increased occupancy expense related to the remodeling and expansion of existing locations, and higher allocations for product and operating support contributed to the overall increase in operating expenses.

Treasury and Other

The Treasury Department is responsible for managing the Bank’s wholesale funding, capital position and interest rate risk, as well as the investment portfolio. The ‘Other’ category of corporate income and noninterest expenses represents items that are not allocated to the business units and generally represent certain nonrecurring items and certain executive level compensation. Net interest income for the third quarter was a negative $4.2 million compared with $1.1 million in the year-ago quarter. The decline in net interest income resulted from the decrease in the net interest margin, due in large part to the continued decline in the yield on the residential mortgage loan portfolio resulting from refinancing activity over the past year. Noninterest expenses totaled $13.5 million for the quarter compared with $11.7 million in the year-ago period, which included the charge associated with a reduction in office space. The increase after adjusting for the prior year office space charge, reflects costs associated with higher corporate-based executive level compensation plan expenses and fees for other professional services.

28

NINE-MONTH CONSOLIDATED RESULTS OF OPERATIONS

Net income per common share of $1.67 was 36% higher than the $1.23 per share reported in 2003. Net income was $373.0 million compared with $275.1 million earned last year. The ROE was 16.00% for the nine months compared with 12.64% last year, while the ROA was 1.24% compared with .96% in the previous year. Total revenues were 8% higher than the prior year while total expenses increased 2%, resulting in a productivity ratio of 152% compared with 144% last year.

As a result of the 2003 second quarter sale of the assets of NTRC, its operating results for all periods presented have been shown as discontinued operations in Northern Trust’s consolidated statement of income. The net income from discontinued operations in the current year totaled $.3 million compared with a $17.7 million net loss in the prior year, which included the $20.2 million pre-tax loss on the sale and NTRC’s net loss from operations.

Revenues stated on a FTE basis of $1.72 billion were up 8% from $1.60 billion last year. Trust fees were $991.6 million for the period, up 13% compared with last year. Trust fees represented 58% of total revenues and total fee-related income represented 74% of total revenues.

Noninterest Income

Trust fees from Corporate & Institutional Services (C&IS) increased 17% to $507.6 million. Custody fees increased 23% to $202.8 million for the period, reflecting strong growth in global custody revenues, while fees from asset management grew 11% to $171.6 million. Securities lending fees totaled $89.7 million compared with $75.4 million last year reflecting higher volumes, partially offset by lower spreads earned on the investment of collateral.

Trust fees from Personal Financial Services (PFS) in the period increased 9% and totaled $484.0 million compared with last year. The increase in PFS trust fees resulted primarily from new business and improved equity markets. Revenue growth was broad-based, with all regions and the Wealth Management Group reporting a year-over-year increase in trust fees.

Foreign exchange trading profits were $115.4 million in the period compared with $82.4 million last year. Treasury management fees were $68.1 million, down 6% from the comparable period last year. Revenues from security commissions and trading income were $38.8 million compared with $41.5 million in the prior year. Other operating income was $58.5 million for the period compared with $73.3 million in the same period last year. The prior year included a $17.8 million gain from the sale of a retail branch.

29

Net Interest Income

Net interest income for the nine months stated on a fully taxable equivalent basis, totaled $450.8 million, virtually unchanged from the $451.0 million reported in the prior year period. The net interest margin decreased to 1.66% from 1.76% in the prior year due in large part to a decline in the yield on the residential mortgage loan portfolio due to the impact of refinancing activity and the growth in lower margin short-term money market assets. Total average earning assets of $36.2 billion were 6% higher than a year ago with the increase concentrated in money market assets, which were up 26% and averaged $10.8 billion for the period. Average securities decreased 1% to $8.0 billion while average loans were down 1% to $17.4 billion.

Provision for Credit Losses

The 2004 provision for credit losses was a negative $5.0 million compared with $17.5 million required in 2003. Improved credit quality led to the negative provision for the current year. Net charge-offs totaled $2.1 million and represented .02% of average loans compared with $13.3 million or .10% of average loans in 2003.

Noninterest Expenses

Noninterest expenses totaled $1.13 billion for the period, up 2% from a year ago. The prior year included charges for severance, office space and software write-downs, which totaled $54.7 million.

Compensation and employee benefits represented 54% of total operating expenses and totaled $608.7 million. This compared with $595.0 million last year that included $19.5 million in severance-related costs. The current period expenses reflect annual salary increases, higher incentive compensation and increased retirement and health care costs.

Net occupancy expense totaled $92.2 million, down 10% from $102.5 million in the prior year. The prior period included $18.9 million associated with the reduction in leased office space needs. The remainder of the change from the prior year was the result of higher net rental costs, real estate taxes and building maintenance.

Equipment expense, comprised of depreciation, rental and maintenance costs, totaled $61.9 million, down 7% from $66.6 million in 2003. The current nine-month period reflects lower levels of rental and maintenance of computer hardware and equipment, data line lease costs and reduced depreciation of computer hardware and personal computers.

30

Noninterest Expenses (continued)

Other operating expenses totaled $369.7 million for the period, up 7% from $345.3 million in 2003. The prior year included the costs associated with the standardization, replacement and elimination of software ($12.9 million) and outplacement benefit charges ($3.4 million). The current period reflects the third quarter charge related to the proposed litigation settlement, in addition to higher insurance premiums, growth driven increases in fees for global custody and asset management sub-advisor services, and higher costs associated with operating risks related to servicing and managing financial assets. These increases were partially offset by lower expenses from strategic initiatives implemented in 2003 to reduce operating costs.

BALANCE SHEET

Total assets at September 30, 2004 were $41.1 billion and averaged $40.4 billion for the third quarter, compared with last year’s average of $39.3 billion. Loans and leases totaled $17.7 billion at September 30, 2004 and averaged $17.5 billion for the third quarter, compared with $17.9 billion at September 30, 2003 and $17.5 billion for the third quarter of last year. Securities totaled $6.7 billion at September 30, 2004 and averaged $7.5 billion for the quarter, compared with $9.1 billion at September 30, 2003 and $8.8 billion on average last year. Money market assets totaled $11.9 billion at September 30, 2004 and averaged $11.5 billion in the third quarter, up 31% from the year-ago quarter.

Common stockholders’ equity increased to $3.23 billion at September 30, 2004 and averaged $3.17 billion for the quarter, up 8% from last year’s third quarter average. The increase primarily reflects the retention of earnings offset in part by the repurchase of common stock pursuant to the Corporation’s share buyback program. During the quarter, the Corporation acquired 891,251 shares at a cost of $36.6 million. An additional 7.5 million shares are authorized for purchase after September 30, 2004 under the previously announced share buyback program.

Northern Trust’s risk-based capital ratios remained strong at 11.3% for tier 1 capital and 13.8% for total capital at September 30, 2004. These ratios are well above the minimum regulatory requirements of 4% for tier 1 and 8% for total risk-based capital ratios. The leverage ratio (tier 1 capital to third quarter average assets) of 8.1% at September 30, 2004, also exceeded the minimum regulatory requirement of 3%. The Bank’s risk-based capital ratios at September 30, 2004 were 9.4% for tier 1 capital, 12.3% for total capital and 6.6% for the leverage ratio. Each of Northern Trust’s other subsidiary banks had a ratio of 10.6% or higher for tier 1 capital, 11.2% or higher for total risk-based capital, and 8.2% or higher for the leverage ratio.

31

ASSET QUALITY

Nonperforming assets consist of nonaccrual loans and other real estate owned (OREO). Nonperforming assets at September 30, 2004 totaled $64.7 million compared with $67.9 million at June 30, 2004, $80.3 million at December 31, 2003 and $100.2 million at September 30, 2003. Domestic nonaccrual loans and leases, consisting primarily of commercial loans, totaled $64.2 million, or .37% of total domestic loans and leases at September 30, 2004, of which $40.5 million relates to two commercial clients that have exposure to asbestos-related claims. At June 30, 2004, December 31, 2003 and September 30, 2003, domestic nonaccrual loans and leases totaled $67.1 million, $80.0 million and $99.8 million, respectively. The $2.9 million decrease in nonperforming loans during the quarter is primarily the result of the charge-off of a commercial loan and net loan repayments.

The following table presents the outstanding amounts of nonaccrual loans and OREO. Also shown are loans that have interest or principal payments that are delinquent 90 days or more and are 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.

Nonperforming Assets and 90 Day Past Due Loans

(In Millions)	September 30, 2004		June 30, 2004		December 31, 2003		September 30, 2003
Nonaccrual Loans
Domestic
Residential Real Estate	$	2.4	$	4.0	$	4.5	$	3.5
Commercial		61.4		62.7		75.3		95.9
Commercial Real Estate		.1		.1		.1		.3
Personal		.3		.3		.1		.1
International		—		—		—		—
Total Nonaccrual Loans		64.2		67.1		80.0		99.8
Other Real Estate Owned		.5		.8		.3		.4
Total Nonperforming Assets	$	64.7	$	67.9	$	80.3	$	100.2
Total 90 Day Past Due Loans (still accruing)	$	12.2	$	17.8	$	21.0	$	15.5

Provision and Reserve for Credit Losses

The provision for credit losses is the charge against current earnings, determined through a disciplined credit risk management process, needed to maintain a reserve that is sufficient to absorb credit losses inherent in Northern Trust’s loan and lease portfolios and other credit undertakings. The reserve provides for probable losses that have been identified with specific borrower relationships (specific reserve) and for probable losses that are believed to be inherent in the loan and lease portfolios and other credit undertakings but that have not yet been specifically identified (inherent reserve).

Note 6 to the Consolidated Financial Statements includes a table that details the changes in the reserve for credit losses during the three- and nine-month periods ended September 30, 2004 and September 30, 2003 due to charge-offs, recoveries and the provision for credit losses during the respective periods. The following table shows (i) the specific reserve, (ii) the allocated portion of the inherent reserve and its components by loan category, and (iii) the unallocated portion of the inherent reserve at September 30, 2004, June 30, 2004, December 31, 2003 and September 30, 2003.

32

Provision and Reserve for Credit Losses (continued)

Allocation of the Reserve for Credit Losses

	September 30, 2004				June 30, 2004				December 31, 2003				September 30, 2003
($ in Millions)	Reserve Amount		Percent Loans to Total Loans		Reserve Amount		Percent of Loans to Total Loans		Reserve Amount		Percent of Loans to Total Loans		Reserve Amount		Percent of Loans to Total Loans
Specific Reserve	$	32.2	—	%	$	32.9	—	%	$	37.0	—	%	$	44.6	—	%
Allocated Inherent Reserve
Residential Real Estate		11.3	45			11.8	45			11.9	45			12.3	44
Commercial		53.1	19			54.6	19			60.9	19			68.3	20
Commercial Real Estate		17.5	8			16.7	7			16.8	7			17.2	7
Personal		5.2	15			5.5	15			5.2	15			4.9	14
Other		—	3			—	4			—	4			—	4
Lease Financing		4.5	7			4.1	7			4.3	7			4.6	7
International		1.7	3			1.7	3			1.6	3			1.7	4
Total Allocated Inherent Reserve	$	93.3	100	%	$	94.4	100	%	$	100.7	100	%	$	109.0	100	%
Unallocated Inherent Reserve		24.6	—			24.1	—			19.5	—			19.1	—
Total Reserve	$	150.1	100	%	$	151.4	100	%	$	157.2	100	%	$	172.7	100	%
Reserve Assigned to:
Loans and Leases	$	140.4			$	141.9			$	149.2			$	164.9
Unfunded Commitments and Standby Letters of Credit		9.7				9.5				8.0				7.8
Total Reserve	$	150.1			$	151.4			$	157.2			$	172.7

Specific Reserve. At September 30, 2004, the specific component of the reserve stood at $32.2 million compared with $32.9 million at June 30, 2004. The $.7 million decrease in specific reserves from June 30, 2004 is due primarily to the charge-off of a commercial loan that had been reserved for in a prior period, offset in part by an increase in the reserve required on a commercial credit exposure.

Allocated Inherent Reserve. The allocated inherent portion of the reserve totaled $93.3 million at September 30, 2004 compared with $94.4 million at June 30, 2004. This component of the reserve decreased by $1.1 million due primarily to the net reduction in the outstanding balance of lower-rated loans reflecting the receipt of principal repayments during a period of limited growth in commercial loan volumes.

Unallocated Inherent Reserve. The unallocated portion of the inherent reserve is based on management’s review of overall factors affecting the determination of probable inherent losses, primarily in the commercial portfolio, which are not necessarily captured by the application of historical loss ratios. This portion of the reserve analysis involves the exercise of judgment and reflects considerations such as management’s view that the reserve should have a margin that recognizes the imprecision inherent in the process of estimating probable credit losses. Although credit quality and business conditions have shown signs of improvement, there continues to be uncertainty with regard to the breadth of the economic recovery, the impact of record high oil prices and increases in interest rates from current historically low levels. The unallocated inherent portion of the reserve was $24.6 million at September 30, 2004.

33

Provision and Reserve for Credit Losses (continued)

Other Factors. At September 30, 2004, the total amount of the two highest risk loan groupings, those rated “7” and “8” (based on Northern Trust’s internal rating scale, which closely parallels that of the banking regulators) was $165 million (of which $62.7 million was classified as impaired), essentially unchanged from $166 million at June 30, 2004 when $65.0 million was classified as impaired, and down from $280 million at September 30, 2003 when $97.3 million was classified as impaired.

Total Reserve. Management’s evaluation of the factors above resulted in a reserve for credit losses of $150.1 million at September 30, 2004. The reserve of $140.4 million assigned to loans and leases, as a percentage of total loans and leases was .79% at September 30, 2004, compared with .81% at June 30, 2004.

Reserves assigned to unfunded loan commitments, standby letters of credit and derivative products, recorded as a liability on the consolidated balance sheet, totaled $9.7 million at September 30, 2004, an increase of $.2 million from June 30, 2004.

Provision. No provision for credit losses was recorded in the third quarter of 2004 compared with a $5.0 million provision in the prior year quarter. The $5.0 million decrease in the provision resulted from overall continued improvement in the credit quality of the loan portfolio.

34

MARKET RISK MANAGEMENT

As described in the 2003 Annual Report to Shareholders, Northern Trust manages its interest rate risk through measurement techniques which include simulation of earnings, simulation of the economic value of equity, and gap analysis. 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 model.

Based on this continuing evaluation process, Northern Trust’s interest rate risk position and the value at risk associated with the foreign exchange trading portfolio have not changed significantly since December 31, 2003.

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, dividend policy, expansion and business development plans, anticipated expense levels and projected profit improvements, business prospects and positioning with respect to market and pricing trends, strategic initiatives, re-engineering and outsourcing activities, new business results and outlook, changes in securities market prices, credit quality including reserve levels, planned capital expenditures and technology spending, and the effects of any extraordinary events and various other matters (including developments in litigation 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,” “strategy,” and similar expressions or future or conditional verbs such as “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 future health of the U.S. and international economies and other economic factors (such as the pace of inflation/deflation and consumer confidence in the securities markets) that affect wealth creation, investment and savings patterns and Northern Trust’s interest rate risk and credit risk exposure;

• Changes in U.S. and worldwide securities markets with respect to the market values of financial assets, the stability of particular securities markets and the level of volatility in certain markets such as foreign exchange;

• Changes in foreign currency exchange rates that, as Northern Trust’s business grows globally, and to the extent that they are not fully hedged, may impact Northern Trust’s level of revenue and expense and net income and the value of its investments in non-U.S. operations, in each case as expressed in U.S. dollars;

• U.S. and international economic factors that may impact Northern Trust’s interest rate risk, including the level of or change in interest rates, and credit risk exposure;

35

FACTORS AFFECTING FUTURE RESULTS (continued)

• Factors or conditions that may affect Northern Trust’s liquidity management objectives, including a decline in the confidence of potential debt and/or equity securities purchasers in the funds markets generally or in Northern Trust in particular or a change in Northern Trust’s credit ratings;

• The effect of geopolitical risks on the U.S. and international economies and securities markets as well as the effects of any extraordinary events (such as terrorist events, war and the U.S. government’s response to those events), contagious disease outbreaks or epidemics (such as a SARS outbreak) or natural disasters;

• Changes in the level of cross-border investing by clients resulting from changing economic factors, political conditions or currency markets;

• Regulatory, monetary and banking developments and changes in accounting requirements or interpretations in the U.S. and other countries where Northern Trust has significant business;

• The interpretation and implementation by U.S. and other regulators of the New Basel Capital Accord developed by the Basel Committee on Banking Supervision and its effect on the minimum regulatory capital requirements of the Corporation and its subsidiaries;

• Success in obtaining regulatory approvals when required;

• Changes in the nature of Northern Trust’s competition, including changes resulting from industry consolidation and the regulatory environment and changes in particular markets, as well as actions taken by particular competitors;

• Expansion or contraction of Northern Trust’s products, services, and targeted markets in response to strategic opportunities and changes in the nature of Northern Trust’s competition;

• Changes in the level of investment or reinvestment in Northern Trust’s products, services, and targeted markets and the pricing of those products and services;

• Northern Trust’s success in maintaining existing business and continuing to generate new business in its existing markets, as well as its success in identifying and penetrating targeted markets, through acquisition, strategic alliance or otherwise, and generating a profit in those markets in a reasonable time;

• Northern Trust’s ability to continue to generate strong investment results for clients and continue to develop its array of investment products, internally or through acquisition, in a manner that meets client needs;

36

FACTORS AFFECTING FUTURE RESULTS (continued)

• Northern Trust’s ability to continue to fund and accomplish technological innovation, improve internal processes and controls, address operating and technology risks (including material systems interruptions, human errors or omissions, fraud, and breaches of internal controls), and attract and retain capable staff in order to address operating and technology challenges and increasing volume and complexity in many of its businesses;

• Northern Trust’s success in integrating recent and future acquisitions, strategic alliances and preferred provider arrangements and using the acquired businesses, completed alliances and preferred provider arrangements to execute its business strategy;

• The success of Northern Trust’s strategic initiatives and its re-engineering and outsourcing activities;

• The impact of divestiture or discontinuance of portions of Northern Trust’s businesses;

• The ability of each of Northern Trust’s principal businesses to maintain a product mix that achieves acceptable margins;

• Changes in tax laws or other legislation in the U.S. or other countries (including pension reform legislation) that could affect Northern Trust or clients of its personal and institutional asset administration businesses; and

• Risks and uncertainties inherent in the regulatory and litigation process (including risks associated with pending and threatened legal actions and proceedings and the potential effects of adverse publicity arising from the failure or perceived failure to comply with legal and regulatory requirements) that are evaluated within the context of current judicial decisions and legislative and regulatory interpretations, and with respect to which a trier of fact, either a judge or jury, could decide a case contrary to Northern Trust’s evaluation of the relevant facts or law, and a court or regulatory agency could act to change or modify existing law on a particular issue.

Some of these risks and uncertainties that may affect future results are discussed in more detail in the sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” captioned “Risk Management,” “Market Risk Management” and “Operational and Fiduciary Risk Management” in the 2003 Annual Report to Stockholders (pages 46-56) and in the sections of “Item 1—Business” of the 2003 Annual Report on Form 10-K captioned “Government Policies,” “Competition” and “Regulation and Supervision” (pages 7-14). 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.

37

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.

CONSOLIDATED AVERAGE STATEMENT OF CONDITION WITH ANALYSIS OF NET INTEREST INCOME NORTHERN TRUST CORPORATION

	Third Quarter
	2004							2003
(Interest and rate on a fully taxable equivalent basis) ($ in Millions)	Interest		Average Balance			Rate		Interest		Average Balance			Rate
Average Earning Assets
Money Market Assets
Federal Funds Sold and Resell Agreements	$	4.0	$	1,016.5		1.57	%	$	2.4	$	769.9		1.23	%
Time Deposits with Banks		63.1		10,496.6		2.39			36.2		7,930.6		1.81
Other Interest-Bearing		—		32.2		1.15			.3		119.8		1.06
Total Money Market Assets		67.1		11,545.3		2.32			38.9		8,820.3		1.75
Securities
U.S. Government		.2		52.9		1.23			.3		104.0		1.25
Obligations of States and Political Subdivisions		16.5		933.9		7.05			15.8		872.8		7.27
Federal Agency		19.9		5,367.6		1.47			23.2		7,170.5		1.28
Trading and Other		9.3		1,116.6		3.35			6.9		657.3		4.15
Total Securities		45.9		7,471.0		2.45			46.2		8,804.6		2.09
Loans and Leases		179.9		17,474.7		4.09			182.5		17,452.8		4.15
Total Earning Assets	$	292.9		36,491.0		3.19	%	$	267.6		35,077.7		3.03	%
Reserve for Credit Losses Assigned to Loans		—		(142.6	)	—			—		(165.1	)	—
Cash and Due from Banks		—		1,614.1		—			—		1,773.0		—
Other Assets		—		2,405.6		—			—		2,632.1		—
Total Assets		—	$	40,368.1		—			—	$	39,317.7		—
Average Source of Funds
Deposits
Savings and Money Market	$	13.7	$	7,409.5		.73	%	$	12.2	$	6,927.0		.70	%
Savings Certificates		9.2		1,449.2		2.52			9.9		1,581.7		2.49
Other Time		1.4		347.4		1.63			1.3		300.5		1.63
Foreign Offices Time		49.9		11,979.8		1.66			29.0		10,551.2		1.09
Total Deposits		74.2		21,185.9		1.39			52.4		19,360.4		1.07
Federal Funds Purchased		13.3		3,907.2		1.35			10.7		4,448.0		.96
Securities Sold Under Agreements to Repurchase		5.0		1,497.3		1.33			4.8		2,005.2		.95
Commercial Paper		.5		132.3		1.47			.4		140.6		1.11
Other Borrowings		27.0		2,119.3		5.07			29.2		2,276.2		5.09
Senior Notes		5.1		350.0		5.89			7.8		450.0		6.92
Long-Term Debt		13.7		864.0		6.34			13.7		865.1		6.34
Floating Rate Capital Debt		1.5		276.2		2.13			1.2		267.9		1.74
Total Interest-Related Funds		140.3		30,332.2		1.84			120.2		29,813.4		1.60
Interest Rate Spread		—		—		1.35	%		—		—		1.43	%
Noninterest-Related Deposits		—		5,287.5		—			—		4,986.6		—
Other Liabilities		—		1,579.7		—			—		1,584.7		—
Stockholders’ Equity		—		3,168.7		—			—		2,933.0		—
Total Liabilities and Stockholders’ Equity		—	$	40,368.1		—			—	$	39,317.7		—
Net Interest Income/Margin (FTE Adjusted)	$	152.6		—		1.66	%	$	147.4		—		1.67	%
Net Interest Income/Margin (Unadjusted)	$	139.0		—		1.52	%	$	134.3		—		1.52	%

ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE

	Third Quarter 2004/2003
	Change Due To
(In Millions)	Average Balance		Rate			Total
Earning Assets (FTE)	$	14.0	$	11.3		$	25.3
Interest-Related Funds		—		20.1			20.1
Net Interest Income (FTE)	$	14.0	$	(8.8	)	$	5.2

38

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.

CONSOLIDATED AVERAGE STATEMENT OF CONDITION	NORTHERN TRUST CORPORATION
WITH ANALYSIS OF NET INTEREST INCOME

	Nine Months
	2004							2003
(Interest and rate on a fully taxable equivalent basis) ($ in Millions)	Interest		Average Balance			Rate		Interest		Average Balance			Rate
Average Earning Assets
Money Market Assets
Federal Funds Sold and Resell Agreements	$	9.5	$	963.7		1.32	%	$	6.3	$	651.7		1.28	%
Time Deposits with Banks		160.7		9,820.1		2.19			121.0		7,822.1		2.07
Other Interest-Bearing		.2		34.9		.80			.9		120.5		1.07
Total Money Market Assets		170.4		10,818.7		2.10			128.2		8,594.3		1.99
Securities
U.S. Government		.7		76.2		1.24			1.4		105.6		1.77
Obligations of States and Political Subdivisions		48.8		916.4		7.10			46.7		851.8		7.32
Federal Agency		60.4		6,135.0		1.32			67.6		6,489.2		1.39
Trading and Other		24.0		889.1		3.62			20.9		674.8		4.13
Total Securities		133.9		8,016.7		2.23			136.6		8,121.4		2.25
Loans and Leases		527.0		17,341.4		4.06			573.5		17,521.8		4.38
Total Earning Assets	$	831.3		36,176.8		3.07	%	$	838.3		34,237.5		3.27	%
Reserve for Credit Losses Assigned to Loans		—		(146.6	)	—			—		(163.4	)	—
Cash and Due from Banks		—		1,634.4		—			—		1,753.1		—
Other Assets		—		2,632.8		—			—		2,626.4		—
Total Assets		—	$	40,297.4		—			—	$	38,453.6		—
Average Source of Funds
Deposits
Savings and Money Market	$	37.6	$	7,305.2		.69	%	$	39.2	$	6,723.0		.78	%
Savings Certificates		27.0		1,475.5		2.44			34.0		1,695.1		2.68
Other Time		3.5		307.7		1.54			4.5		327.4		1.81
Foreign Offices Time		127.2		11,897.6		1.43			99.4		10,191.4		1.30
Total Deposits		195.3		20,986.0		1.24			177.1		18,936.9		1.25
Federal Funds Purchased		30.8		3,780.2		1.09			34.2		4,126.9		1.11
Securities Sold Under Agreements to Repurchase		13.1		1,662.5		1.05			14.1		1,726.6		1.09
Commercial Paper		1.2		132.6		1.20			1.2		140.6		1.22
Other Borrowings		79.7		2,103.6		5.06			90.8		2,368.4		5.13
Senior Notes		15.4		350.0		5.89			23.4		450.0		6.92
Long-Term Debt		41.1		864.3		6.34			42.6		888.8		6.39
Floating Rate Capital Debt		3.9		276.2		1.86			3.9		267.9		1.89
Total Interest-Related Funds		380.5		30,155.4		1.69			387.3		28,906.1		1.79
Interest Rate Spread		—		—		1.38	%		—		—		1.48	%
Noninterest-Related Deposits		—		5,300.6		—			—		4,991.6		—
Other Liabilities		—		1,726.7		—			—		1,588.4		—
Stockholders’ Equity		—		3,114.7		—			—		2,967.5		—
Total Liabilities and Stockholders’ Equity		—	$	40,297.4		—			—	$	38,453.6		—
Net Interest Income/Margin (FTE Adjusted)	$	450.8		—		1.66	%	$	451.0		—		1.76	%
Net Interest Income/Margin (Unadjusted)	$	410.5		—		1.52	%	$	412.0		—		1.61	%

ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE

	Nine Months 2004/2003
	Change Due To
(In Millions)	Average Balance			Rate			Total
Earning Assets (FTE)	$	32.1		$	(39.1	)	$	(7.0	)
Interest-Related Funds		(1.9	)		(4.9	)		(6.8	)
Net Interest Income (FTE)	$	34.0		$	(34.2	)	$	(.2	)

39

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information called for by this item is incorporated herein by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Market Risk Management” on page 35 of this document.

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

40

PART II - OTHER INFORMATION

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, 2004 pursuant to the Corporation’s share buyback program:

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 Shares That May Be Purchased Under the Plan
July 1 – 31, 2004	—	$	—	—
August 1 – 31, 2004	772,500		40.83	772,500
September 1 – 30, 2004	118,751		42.89	118,751
Total (Third Quarter)	891,251	$	41.10	891,251	7,501,891

⁽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 April 16, 2003, authorizes the purchase of up to 12.0 million shares of the Corporation’s common stock. The program has no fixed expiration date.

41

Item 6. Exhibits

(a) Exhibits

(10	)	Material Contracts
		(i)      Northern Partners Incentive Plan adopted July 19, 2004.
(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.

42

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.

		NORTHERN TRUST CORPORATION
		(Registrant)
Date:	November 1, 2004	By:	/s/ Steven L. Fradkin
			Steven L. Fradkin
			Executive Vice President and Chief
			Financial Officer
Date:	November 1, 2004	By:	/s/ Harry W. Short
			Harry W. Short
			Executive Vice President and Controller
			(Chief Accounting Officer)

43

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, 2004. 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 60675.

Exhibit Number	Description
(10)	Material Contracts
	(i)      Northern Partners Incentive Plan adopted July 19, 2004.
(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.

44

EX-10.I

Exhibit 10(i)

Northern Partners Incentive Plan — U.S. Plan (adopted July 19, 2004)

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 / Adoption 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 are determined and paid on quarterly, semi-annual and 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;

• April 1 to June 30;

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

• 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 specified by management in a participant’s performance expectations.

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:

• Northern Performance Incentives

• Northern Sales Incentives

• Northern Technical Incentives

5. Award Target Ranges

• A target award range, 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 an expected range of payment provided that Corporate and Business Unit goals and individual performance expectations are achieved.

6. Individual Performance Measures

• Each participant will receive performance 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.

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 depending upon actual results and each Business Unit’s relative contribution to actual results.

8. Individual Award Determination

• All awards 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 are determined by Business Unit management, 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;

• 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 to adjust all awards up or down based on subjective performance evaluation, funding considerations, and any other factors which management, in its discretion, determines appropriate.

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 is designated by a Business Unit and thereafter during the applicable performance period transfers to another Business Unit 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, based on individual performance. Payment of such pro-rata awards will be made at the same time all other awards are paid for such performance period.

• No award shall be deemed earned unless the participant has continued employment with Northern Trust in good standing during the entire performance period established for the award. Good standing means:

• The participant has satisfactorily met all performance expectations as determined by the participant’s manager;

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

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

• Notwithstanding the foregoing, management may, in its 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.

• 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 be paid to a participant who terminates employment by voluntary resignation 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

• Generally, awards will be paid in cash as soon as practicable following the completion of the applicable performance period(s), generally on the payroll date following the payroll period commencing after award determination has been completed by management. The Plan also permits awards to be paid as a combination of cash and equity components.

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 Committee, 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 determination of incentive award calculations and determinations;

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

• Prepare communications to Plan participants; 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. 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. In the event of the death of a non-US participant, the Plan will be administered in accordance with applicable local rules.

• 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.

• 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.

13. 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.

14. 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.

EX-31.I

Exhibit 31(i)

Certification of CEO Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, William A. Osborn, Chief Executive Officer, certify that:

1. I have reviewed this report on Form 10-Q for the quarterly period ending September 30, 2004 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;

4. 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)) 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) 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

(c) 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: November 1, 2004

/s/ William A. Osborn

William A. Osborn

Chief Executive Officer

EX-31.II

Exhibit 31(ii)

Certification of CFO Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Steven L. Fradkin, Chief Financial Officer, certify that:

1. I have reviewed this report on Form 10-Q for the quarterly period ending September 30, 2004 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;

4. 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)) 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) 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

(c) 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: November 1, 2004

/s/ Steven L. Fradkin

Steven L. Fradkin

Chief Financial Officer

EX-32.I

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, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), William A. Osborn, as Chief Executive Officer of the Corporation, and Steven L. Fradkin, 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/ William A. Osborn

William A. Osborn

Chief Executive Officer

November 1, 2004

/s/ Steven L. Fradkin

Steven L. Fradkin

Chief Financial Officer

November 1, 2004

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.

A signed original of this written statement required by section 906 has been provided to Northern Trust Corporation and will be retained by Northern Trust Corporation and furnished to the Securities and Exchange Commission or its staff upon request.