Edgar Filing: NORTHERN TRUST CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 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, 2010

¨	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		60603
(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

242,193,970 Shares - $1.66 2/3 Par Value

(Shares of Common Stock Outstanding on September 30, 2010)

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements


CONSOLIDATED BALANCE SHEET		NORTHERN TRUST CORPORATION


	September 30 2010			December 31 2009			September 30 2009
($ In Millions Except Share Information)	September 30 2010			December 31 2009			September 30 2009
	(Unaudited)						(Unaudited)
Assets
Cash and Due from Banks	$	3,489.5		$	2,491.8		$	2,885.9
Federal Funds Sold and Securities Purchased under Agreements to Resell		428.7			250.0			53.8
Time Deposits with Banks		16,100.6			12,905.2			14,155.8
Federal Reserve Deposits and Other Interest-Bearing		6,340.0			14,973.0			9,924.7
Securities
Available for Sale		19,540.3			17,462.1			16,260.4
Held to Maturity (Fair value – $1,210.4 at Sept. 2010, $1,185.7 at Dec. 2009, $1,215.5 at Sept. 2009)		1,176.4			1,161.4			1,186.5
Trading Account		10.9			9.9			10.0

Total Securities		20,727.6			18,633.4			17,456.9

Loans and Leases
Commercial and Other		17,019.9			16,998.0			17,304.7
Residential Mortgages		10,846.4			10,807.7			10,818.2

Total Loans and Leases (Net of unearned income – $469.0 at Sept. 2010, $486.0 at Dec. 2009, and $499.6 at Sept. 2009)		27,866.3			27,805.7			28,122.9

Reserve for Credit Losses Assigned to Loans and Leases		(324.7	)		(309.2	)		(307.8	)
Buildings and Equipment		532.4			543.5			542.7
Client Security Settlement Receivables		704.2			794.8			787.1
Goodwill		399.7			401.6			401.4
Other Assets		4,459.1			3,651.7			3,878.1

Total Assets	$	80,723.4		$	82,141.5		$	77,901.5

Liabilities
Deposits
Demand and Other Noninterest-Bearing	$	6,676.9		$	9,177.5		$	7,623.1
Savings and Money Market		12,865.3			15,044.0			12,882.7
Savings Certificates and Other Time		3,505.1			4,001.2			4,030.0
Non U.S. Offices – Noninterest-Bearing		3,482.0			2,305.8			2,516.2
– Interest-Bearing		31,916.5			27,752.8			28,272.1

Total Deposits		58,445.8			58,281.3			55,324.1
Federal Funds Purchased		4,805.1			6,649.8			6,703.6
Securities Sold Under Agreements to Repurchase		705.4			1,037.5			717.1
Other Borrowings		2,174.1			2,078.3			914.3
Senior Notes		1,405.2			1,551.8			1,557.0
Long-Term Debt		2,765.3			2,837.8			2,907.6
Floating Rate Capital Debt		276.8			276.8			276.7
Other Liabilities		3,377.0			3,116.1			3,277.8

Total Liabilities		73,954.7			75,829.4			71,678.2

Stockholders’ Equity
Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares; Outstanding 242,193,970 shares at September 2010, 241,679,942 shares at December 2009, and 241,505,420 shares at September 2009		408.6			408.6			408.6
Additional Paid-In Capital		911.7			888.3			893.9
Retained Earnings		5,883.8			5,576.0			5,443.3
Accumulated Other Comprehensive Loss		(266.1	)		(361.6	)		(313.1	)
Treasury Stock - (at cost, 2,977,554 shares at September 2010, 3,491,582 shares at December 2009, and 3,666,104 shares at September 2009)		(169.3	)		(199.2	)		(209.4	)

Total Stockholders’ Equity		6,768.7			6,312.1			6,223.3

Total Liabilities and Stockholders’ Equity	$	80,723.4		$	82,141.5		$	77,901.5


CONSOLIDATED STATEMENT OF INCOME		NORTHERN TRUST CORPORATION
(UNAUDITED)


	Three Months Ended September 30						Nine Months Ended September 30
($ In Millions Except Per Share Information)	2010			2009			2010			2009
Noninterest Income
Trust, Investment and Other Servicing Fees	$	518.7		$	523.1		$	1,577.3		$	1,535.2
Foreign Exchange Trading Income		88.9			92.9			284.0			358.3
Security Commissions and Trading Income		14.9			12.9			43.5			46.5
Treasury Management Fees		19.3			19.4			59.3			61.6
Other Operating Income		27.7			35.1			104.1			100.4
Changes in Other-Than-Temporary-Impairment (OTTI) Losses		7.3			(36.8	)		6.6			(117.0	)
Changes in OTTI Losses Recognized in Other Comprehensive Income		(21.3	)		31.5			(20.7	)		93.6
Other Security Gains (Losses), net		.5			1.3			.8			2.3

Total Investment Security Gains (Losses), net		(13.5	)		(4.0	)		(13.3	)		(21.1	)

Total Noninterest Income		656.0			679.4			2,054.9			2,080.9

Net Interest Income
Interest Income		330.2			333.2			962.4			1,081.7
Interest Expense		96.7			94.9			265.7			316.1

Net Interest Income		233.5			238.3			696.7			765.6
Provision for Credit Losses		30.0			60.0			120.0			175.0

Net Interest Income after Provision for Credit Losses		203.5			178.3			576.7			590.6

Noninterest Expenses
Compensation		273.3			283.6			826.2			830.0
Employee Benefits		60.0			59.6			181.9			187.1
Outside Services		110.7			108.7			330.9			306.5
Equipment and Software Expense		72.6			65.6			209.0			188.5
Occupancy Expense		42.6			45.3			127.2			127.5
Visa Indemnification Charges		–			(17.8	)		(12.7	)		(17.8	)
Other Operating Expenses		62.9			54.2			193.7			73.6

Total Noninterest Expenses		622.1			599.2			1,856.2			1,695.4

Income before Income Taxes		237.4			258.5			775.4			976.1
Provision for Income Taxes		81.8			70.6			263.0			312.2

Net Income	$	155.6		$	187.9		$	512.4		$	663.9

Net Income Applicable to Common Stock	$	155.6		$	187.9		$	512.4		$	552.8

Per Common Share
Net Income – Basic		.64		$	.77		$	2.10		$	2.35
– Diluted		.64			.77			2.10			2.34
Cash Dividends Declared		.28			.28			.84			.84

Average Number of Common Shares Outstanding – Basic		242,124,461			241,415,698			241,966,279			233,475,552
– Diluted		242,158,427			242,631,248			242,421,661			234,526,417


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME		NORTHERN TRUST CORPORATION
(UNAUDITED)


	Three Months Ended September 30					Nine Months Ended September 30
( In Millions)	2010		2009			2010		2009
Net Income	$	155.6	$	187.9		$	512.4	$	663.9
April 1 Adjustment for Cumulative Effect of Applying FSP FAS 115-2 and 124-2		—		—			—		(9.5	)
Other Comprehensive Income (Loss) (net of tax and reclassifications)
Net Unrealized Gains (Losses) on Securities Available for Sale		14.1		40.9			34.5		167.3
Net Unrealized Gains (Losses) on Cash Flow Hedges		31.8		(1.9	)		42.2		15.9
Foreign Currency Translation Adjustments		.5		(2.1	)		3.5		(.8	)
Pension and Other Postretirement Benefit Adjustments		2.8		3.4			15.3		8.9

Other Comprehensive Income		49.2		40.3			95.5		191.3

Comprehensive Income	$	204.8	$	228.2		$	607.9	$	845.7

CONSOLIDATED STATEMENT OF CHANGES IN

NORTHERN TRUST CORPORATION

STOCKHOLDERS’ EQUITY

(UNAUDITED)


	Nine Months Ended September 30
(In Millions)	2010			2009
Preferred Stock
Balance at January 1	$	—		$	1,501.3
Redemption of Preferred Stock, Series B		—			(1,576.0	)
Discount Accretion – Preferred Stock		—			74.7

Balance at September 30		—			—

Common Stock
Balance at January 1		408.6			379.8
Common Stock Issuance		—			28.8

Balance at September 30		408.6			408.6

Additional Paid-in Capital
Balance at January 1		888.3			178.5
Common Stock Issuance		—			805.3
Repurchase of Warrant to Purchase Common Stock		—			(87.0	)
Treasury Stock Transactions – Stock Options and Awards		(19.4	)		(31.2	)
Stock Options and Awards – Amortization		41.7			24.4
Stock Options and Awards – Tax Benefits		1.1			3.9

Balance at September 30		911.7			893.9

Retained Earnings
Balance at January 1		5,576.0			5,091.2
April 1 Cumulative Effect of Applying FSP FAS 115-2 (ASC 320-10)		—			9.5
Net Income		512.4			663.9
Dividends Declared – Common Stock		(204.6	)		(200.0	)
Dividends Declared – Preferred Stock		—			(46.6	)
Discount Accretion – Preferred Stock		—			(74.7	)

Balance at September 30		5,883.8			5,443.3

Accumulated Other Comprehensive Income (Loss)
Balance at January 1		(361.6	)		(494.9	)
April 1 Cumulative Effect of Applying FSP FAS 115-2 (ASC 320-10)		—			(9.5	)
Other Comprehensive Income		95.5			191.3

Balance at September 30		(266.1	)		(313.1	)

Treasury Stock
Balance at January 1		(199.2	)		(266.5	)
Stock Options and Awards		35.7			68.9
Stock Purchased		(5.8	)		(11.8	)

Balance at September 30		(169.3	)		(209.4	)

Total Stockholders’ Equity at September 30	$	6,768.7		$	6,223.3


CONSOLIDATED STATEMENT OF CASH FLOWS		NORTHERN TRUST CORPORATION
(UNAUDITED)


	Nine Months Ended September 30
(In Millions)	2010			2009
Cash Flows from Operating Activities:
Net Income	$	512.4		$	663.9
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses		120.0			175.0
Client Support-Related Charges		—			(121.3	)
Capital Support Agreement Payments		—			(66.7	)
Depreciation on Buildings and Equipment		70.3			70.4
Amortization of Computer Software		101.2			94.7
Investment Security Losses, net		13.3			21.1
Amortization of Intangibles		11.0			12.0
(Increase) Decrease in Receivables		(115.8	)		63.7
Decrease in Interest Payable		(6.0	)		(22.4	)
Amortization and Accretion of Securities and Unearned Income		(40.9	)		(37.7	)
Excess Tax Benefits from Stock Incentive Plans		(1.1	)		(3.9	)
Qualified Pension Plan Contribution		(20.0	)		—
Net Increase in Trading Account Securities		(1.0	)		(7.7	)
Visa Indemnification Charges		(12.7	)		(17.8	)
Other Operating Activities, net		288.7			(130.8	)

Net Cash Provided by Operating Activities		919.4			692.5

Cash Flows from Investing Activities:
Net (Increase) Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell		(178.7	)		115.2
Net (Increase) Decrease in Time Deposits with Banks		(3,195.3	)		2,565.2
Net (Increase) Decrease in Federal Reserve Deposits and Other Interest-Bearing Assets		8,633.0			(520.9	)
Purchases of Securities – Held to Maturity		(382.4	)		(164.2	)
Proceeds from Maturity and Redemption of Securities-Held to Maturity		377.2			150.9
Purchases of Securities – Available for Sale		(11,429.2	)		(12,239.4	)
Proceeds from Sale, Maturity and Redemption of Securities – Available for Sale		8,774.0			10,695.3
Net (Increase) Decrease in Loans and Leases		(166.6	)		2,507.2
Purchases of Buildings and Equipment, net		(58.6	)		(106.6	)
Purchases and Development of Computer Software		(152.7	)		(137.0	)
Net (Increase) Decrease in Client Security Settlement Receivables		90.5			(77.8	)
Other Investing Activities, net		(6.8	)		232.9

Net Cash Provided by Investing Activities		2,304.4			3,020.8

Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits		164.6			(7,082.3	)
Net Increase (Decrease) in Federal Funds Purchased		(1,844.6	)		4,920.1
Net Decrease in Securities Sold under Agreements to Repurchase		(332.1	)		(812.0	)
Net Increase (Decrease) in Short-Term Other Borrowings		(503.9	)		42.0
Proceeds from Term Federal Funds Purchased		17,208.3			11,921.5
Repayments of Term Federal Funds Purchased		(16,581.3	)		(11,785.5	)
Proceeds from Senior Notes & Long-Term Debt		642.7			500.0
Repayments of Senior Notes & Long-Term Debt		(917.6	)		(371.8	)
Treasury Stock Purchased		(6.0	)		(8.6	)
Net Proceeds from Stock Options		57.1			34.6
Excess Tax Benefits from Stock Incentive Plans		1.1			3.9
Cash Dividends Paid on Common Stock		(204.6	)		(192.7	)
Proceeds from Common Stock Issuance		—			834.1
Cash Dividends Paid on Preferred Stock		—			(46.6	)
Redemption from Preferred Stock – Series B		—			(1,576.0	)
Repurchase of Warrant to Purchase Common Stock		—			(87.0	)
Other Financing Activities, net		—			146.9

Net Cash Used in Financing Activities		(2,316.3	)		(3,559.4	)

Effect of Foreign Currency Exchange Rates on Cash		90.2			83.8

Increase in Cash and Due from Banks		997.7			237.7
Cash and Due from Banks at Beginning of Year		2,491.8			2,648.2

Cash and Due from Banks at End of Period	$	3,489.5		$	2,885.9

Supplemental Disclosures of Cash Flow Information:
Interest Paid	$	271.7		$	338.5
Income Taxes Paid		136.7			301.1

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 and for the periods ended September 30, 2010 and 2009, have not been audited by the Corporation’s independent registered public accounting firm. In the opinion of management, all accounting entries and adjustments, including normal recurring accruals, necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. For a description of Northern Trust’s significant accounting policies, refer to Note 1 of the Notes to Consolidated Financial Statements in the 2009 Annual Report to Shareholders.

2. Recent Accounting Pronouncements – There are no accounting pronouncements that were issued during the quarter ended September 30, 2010 but not yet adopted that are expected to impact Northern Trust’s consolidated financial position or results of operations.

3. Fair Value Measurements – Fair Value Hierarchy. The following describes the hierarchy of valuation inputs (Levels 1, 2, and 3) used to measure fair value and the primary valuation methodologies used by Northern Trust for financial instruments measured at fair value on a recurring basis. Observable inputs reflect market data obtained from sources independent of the reporting entity; unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. The standard requires an entity measuring fair value to maximize the use of observable inputs and minimize the use of unobservable inputs and establishes a fair value hierarchy of inputs. Financial instruments are categorized within the hierarchy based on the lowest level input that is significant to their valuation.

Level 1: Quoted, active market prices for identical assets or liabilities.

Northern Trust’s Level 1 assets and liabilities include available for sale investments in U.S. treasury securities, seed investments for the development of managed fund products consisting of common stock and securities sold but not yet purchased, and U.S. treasury securities held to fund employee benefit and deferred compensation obligations.

Level 2: Observable inputs other than Level 1 prices, such as quoted active market prices for similar assets or liabilities, quoted prices for identical or similar assets in inactive markets, and model-derived valuations in which all significant inputs are observable in active markets.

Notes to Consolidated Financial Statements (continued)

Northern Trust’s Level 2 assets include available for sale and trading account investments. Their fair values are determined by external pricing vendors, or in limited cases internally, using widely accepted income-based (discounted cash flow) models that incorporate observable current market yield curves and assumptions regarding anticipated prepayments and defaults.

Level 2 assets and liabilities also include derivative contracts which are valued using widely accepted income-based models that incorporate inputs readily observable in actively quoted markets and reflect the contractual terms of the contracts. Observable inputs include foreign exchange rates and interest rates for foreign exchange contracts; credit spreads, default probabilities, and recovery rates for credit default swap contracts; interest rates for interest rate swap contracts; and interest rates and volatility inputs for interest rate option contracts. Northern Trust evaluates the impact of counterparty credit risk and its own credit risk on the valuation of its derivative instruments. Factors considered include the likelihood of default by Northern Trust and its counterparties, the remaining maturities of the instruments, net exposures after giving effect to master netting agreements, available collateral, and other credit enhancements in determining the appropriate fair value of derivative instruments. The resulting valuation adjustments have not been considered material. Level 2 other assets represent investments in mutual funds and collective trust funds held to fund employee benefit and deferred compensation obligations. These investments are valued at the funds’ net asset values on a market approach.

Level 3: Valuation techniques in which one or more significant inputs are unobservable in the marketplace.

Northern Trust’s Level 3 assets consist of auction rate securities purchased from Northern Trust clients. To estimate their fair value, Northern Trust developed an internal income-based model. The lack of activity in the auction rate security market has resulted in a lack of observable market inputs to incorporate within the model. Therefore, significant inputs to the model include Northern Trust’s own assumptions about future cash flows and appropriate discount rates, both adjusted for credit and liquidity factors. In developing these assumptions, Northern Trust incorporated the contractual terms of the securities, the types of collateral, any credit enhancements available, and relevant market data where available. Level 3 liabilities include financial guarantees relating to standby letters of credit and a net estimated liability for Visa related indemnifications. Northern Trust’s recorded liability for standby letters of credit, reflecting the obligation it has undertaken, is measured as the amount of unamortized fees on these instruments. The fair value of the net estimated liability for Visa related indemnifications is based on a market approach, but requires management to exercise significant judgment given the limited number of market transactions involving identical or comparable liabilities.

Northern Trust believes its valuation methods for its assets and liabilities carried at fair value are appropriate; however, the use of different methodologies or assumptions, particularly as applied to Level 3 assets and liabilities, could have a material effect on the computation of estimated fair values.

Notes to Consolidated Financial Statements (continued)

The following presents assets and liabilities measured at fair value on a recurring basis as of September 30, 2010 and December 31, 2009, segregated by fair value hierarchy level.

(In Millions)

Level 1

Level 2

Level 3

Netting*

Assets/Liabilities
Fair Value

September 30, 2010

Securities

Available for Sale

U.S. Government

148.8

—

148.8

Obligations of States and Political Subdivisions

—

38.1

—

38.1

Government Sponsored Agency

—

12,293.5

—

12,293.5

Corporate Debt

—

2,971.8

—

2,971.8

Non-U.S. Government

—

370.1

—

370.1

Residential Mortgage-Backed

—

271.1

—

271.1

Other Asset-Backed

—

1,667.9

—

1,667.9

Certificates of Deposit

—

1,020.7

—

1,020.7

Auction Rate

—

380.0

—

380.0

Other

–—

378.3

—

378.3

Total

148.8

19,011.5

380.0

—

19,540.3

Trading Account

—

10.9

—

10.9

Total

148.8

19,022.4

380.0

—

19,551.2

Other Assets

Derivatives

Foreign Exchange Contracts

—

5,555.8

—

5,555.8

Interest Rate Swap Contracts

—

357.2

—

357.2

Interest Rate Option Contracts

—

Credit Default Swap Contracts

—

Total

—

5,913.0

—

(4,271.8

)

1,641.2

All Other

71.7

35.4

—

107.1

Total

71.7

5,948.4

—

(4,271.8

)

1,748.3

Total Assets at Fair Value

220.5

24,970.8

380.0

(4,271.8

)

21,299.5

Other Liabilities

Derivatives

Foreign Exchange Contracts

—

5,563.2

—

5,563.2

Interest Rate Swap Contracts

—

208.1

—

208.1

Interest Rate Option Contracts

—

Credit Default Swap Contracts

—

2.7

—

2.7

Total

—

5,774.0

—

(3,748.3

)

2,025.7

All Other

—

81.0

—

81.0

Total Liabilities at Fair Value

—

5,774.0

81.0

(3,748.3

)

2,106.7

Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting agreements exist between Northern Trust and the counterparty. As of September 30, 2010, derivative assets and liabilities shown above also include reductions of $2,234.0 million and $1,710.5 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

Notes to Consolidated Financial Statements (continued)


(In Millions)	Level 1		Level 2		Level 3		Netting*			Assets/Liabilities Fair Value
December 31, 2009
Securities
Available for Sale
U.S. Government	$	74.0	$	—	$	—	$	—		$	74.0
Obligations of States and Political Subdivisions		—		47.0		—		—			47.0
Government Sponsored Agency		—		12,325.4		—		—			12,325.4
Corporate Debt		—		2,822.1		—		—			2,822.1
Non-U.S. Government		—		80.6		—		—			80.6
Residential Mortgage-Backed		—		314.0		—		—			314.0
Other Asset-Backed		—		1,181.3		—		—			1,181.3
Auction Rate		—		—		427.7		—			427.7
Other		—		190.0		—		—			190.0

Total		74.0		16,960.4		427.7		—			17,462.1

Trading Account		—		9.9		—		—			9.9

Total		74.0		16,970.3		427.7		—			17,472.0

Other Assets
Derivatives
Foreign Exchange Contracts		—		2,078.3		—		—			2,078.3
Interest Rate Swap Contracts		—		213.7		—		—			213.7
Interest Rate Option Contracts		—		.4		—		—			.4

Total		—		2,292.4		—		(1,156.0	)		1,136.4

All Other		59.9		35.1		—		—			95.0

Total		59.9		2,327.5		—		(1,156.0	)		1,231.4

Total Assets at Fair Value	$	133.9	$	19,297.8	$	427.7	$	(1,156.0	)	$	18,703.4

Other Liabilities
Derivatives
Foreign Exchange Contracts	$	—	$	2,059.5	$	—	$	—		$	2,059.5
Interest Rate Swap Contracts		—		117.3		—		—			117.3
Interest Rate Option Contracts		—		.4		—		—			.4
Credit Default Swap Contracts		—		2.2		—		—			2.2

Total		—		2,179.4		—		(1,133.1	)		1,046.3

All Other		3.9		—		94.4		—			98.3

Total Liabilities at Fair Value	$	3.9	$	2,179.4	$	94.4	$	(1,133.1	)	$	1,144.6

Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting agreements exist between Northern Trust and the counterparty. As of December 31, 2009, derivative assets and liabilities shown above also include reductions of $216.2 million and $193.3 million, respectively, as a result of cash collateral received from and deposited with derivative counterparties.

Notes to Consolidated Financial Statements (continued)

The following presents the changes in Level 3 assets for the three and nine months ended September 30, 2010 and 2009.


(In Millions)	Securities Available for Sale (1)
	2010			2009
Three Months Ended September 30
Fair Value at July 1	$	384.9		$	474.5
Total Realized and Unrealized:
Losses (Gains) Included in Earnings		(.3	)		(.6	)
Gains (Losses) Included in Other Comprehensive Income		(1.5	)		.8
Purchases, Sales, Issuances, and Settlements, net		(3.1	)		(24.1	)

Fair Value at September 30	$	380.0		$	450.6

Nine Months Ended September 30
Fair Value at January 1	$	427.7		$	453.1
Total Realized and Unrealized:
Losses (Gains) Included in Earnings		(2.9	)		(3.3	)
Gains (Losses) Included in Other Comprehensive Income		(7.4	)		36.1
Purchases, Sales, Issuances, and Settlements, net		(37.4	)		(35.3	)

Fair Value at September 30	$	380.0		$	450.6

(1)

Balance represents the fair value of auction rate securities.

Northern Trust purchased certain illiquid auction rate securities from clients in 2008 which were recorded at their purchase date fair market values and designated as available for sale securities. Subsequent to their purchase, the securities are reported at fair value and unrealized gains and losses are credited or charged, net of the tax effect, to accumulated other comprehensive income (AOCI). As of September 30, 2010, the net unrealized gain related to these securities was $10.6 million; at December 31, 2009, the net unrealized gain was $18.0 million. Amounts included in earnings represent realized gains from redemptions by issuers and are included in interest income within the consolidated statement of income.

The following presents the changes in Level 3 liabilities for the three and nine months ended September 30, 2010 and 2009.


	Other Liabilities
(In Millions)	Derivatives (1)				All Other (2)
	2010		2009		2010			2009
Three Months Ended September 30
Fair Value at July 1	$	—	$	125.6	$	81.0		$	113.0
Total Realized and Unrealized (Gains) Losses:
Included in Earnings		—		.5		(1.7	)		(19.5	)
Included in Other Comprehensive Income		—		—		—			—
Purchases, Sales, Issuances, and Settlements, net		—		—		1.7			1.8

Fair Value at September 30	$	—	$	126.1	$	81.0		$	95.3

Unrealized (Gains) Losses Included in Earnings Related to Financial Instruments Held at September 30		—		.5		—			—

(1)

Balance represents the fair value of Capital Support Agreements.

(2)

Balance represents standby letters of credit and the net estimated liability for Visa related indemnifications.

Notes to Consolidated Financial Statements (continued)


	Other Liabilities
(In Millions)	Derivatives (1)					All Other (2)
	2010		2009			2010			2009
Nine Months Ended September 30
Fair Value at January 1	$	—	$	314.1		$	94.4		$	104.2
Total Realized and Unrealized (Gains) Losses:
Included in Earnings		—		(121.3	)		(2.4	)		(23.3	)
Included in Other Comprehensive Income		—		—			—			—
Purchases, Sales, Issuances, and Settlements, net		—		(66.7	)		(11.0	)		14.4

Fair Value at September 30	$	—	$	126.1		$	81.0		$	95.3

Unrealized (Gains) Losses Included in Earnings Related to Financial Instruments Held at September 30		—		(29.4	)		—			—

(1)

Balance represents the fair value of Capital Support Agreements.

(2)

Balance represents standby letters of credit and the net estimated liability for Visa related indemnifications.

All realized and unrealized gains and losses related to Level 3 liabilities for the periods presented are included in other operating income or other operating expenses.

Carrying values of assets and liabilities that are not measured at fair value on a recurring basis may be adjusted to fair value in periods subsequent to their initial recognition, for example, to record an impairment of an asset. U.S. generally accepted accounting principles (GAAP) require entities to separately disclose these subsequent fair value measurements and to classify them under the fair value hierarchy.

The following provides information regarding those assets measured at fair value on a nonrecurring basis at September 30, 2010 and 2009, segregated by fair value hierarchy level.


(In Millions)	Level 1		Level 2		Level 3		Total Fair Value
September 30, 2010
Loans (1)	$	—	$	—	$	74.6	$	74.6
Other Real Estate Owned (2)		—		—		7.4		7.4

Total Assets at Fair Value	$	—	$	—	$	82.0	$	82.0

September 30, 2009
Loans (1)	$	—	$	—	$	74.2	$	74.2
Other Real Estate Owned (2)		—		—		.5		.5

Total Assets at Fair Value	$	—	$	—	$	74.7	$	74.7

(1)

Northern Trust provided an additional $1.7 million and $8.9 million of specific reserves to reduce the fair value of these loans during the three months ended September 30, 2010 and 2009, respectively. During the nine months ended September 30, 2010 and 2009, these loans were reduced by $16.1 million and $30.3 million, respectively.

(2)

Northern Trust charged $2.6 million and $.1 million through other operating expenses during the three months ended September 30, 2010 and 2009, respectively, to reduce the fair values of Other Real Estate Owned (OREO) properties. During the nine months ended September 30, 2010 and 2009, the fair values of OREO properties were reduced by $3.8 million and $.3 million, respectively, through charges to other operating expenses.

The fair values of loan collateral and OREO properties were estimated using a market approach that was supported by third party appraisals and were discounted to reflect management’s judgment as to the realizable value of the collateral and the real estate.

Notes to Consolidated Financial Statements (continued)

Fair Value of Financial Instruments. GAAP requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate fair value. It excludes from this requirement nonfinancial assets and liabilities, as well as a wide range of franchise, relationship, and intangible values that add value to Northern Trust. Accordingly, the required fair value disclosures provide only a partial estimate of the fair value of Northern Trust. Financial instruments recorded at fair value on Northern Trust’s consolidated balance sheet are discussed above. The following methods and assumptions were used in estimating the fair values of financial instruments that are not carried at fair value.

Held to Maturity Securities. The fair values of held to maturity securities were modeled by external pricing vendors or, in limited cases, modeled internally, using widely accepted models which are based on an income approach that incorporates current market yield curves and assumptions regarding anticipated prepayments and defaults.

Loans (excluding lease receivables). The fair values of one-to-four family residential mortgages were valued using a market approach based on quoted market prices of similar loans sold, adjusted for differences in loan characteristics. The fair values of the remainder of the loan portfolio were estimated using an income approach (discounted cash flow) in which the interest component of the discount rate used was the rate at which Northern Trust would have originated the loan had it been originated as of the date of the consolidated financial statements. The fair values of all loans were adjusted to reflect current assessments of loan collectibility.

Savings Certificates, Other Time, and Non-U.S. Offices Interest-Bearing Deposits. The fair values of these instruments were estimated using an income approach (discounted cash flow) that incorporates market interest rates.

Senior Notes, Subordinated Debt, Federal Home Loan Bank Borrowings, and Floating Rate Capital Debt. Fair values were determined using a market approach based on quoted market prices, when available. If quoted market prices were not available, fair values were based on quoted market prices for comparable instruments.

Loan Commitments. The fair values of loan commitments represent the amount of unamortized fees on these instruments.

Financial Instruments Valued at Carrying Value. Due to their short maturity, the carrying values of certain financial instruments approximated their fair values. These financial instruments include cash and due from banks; money market assets (includes federal funds sold and securities purchased under agreements to resell, time deposits with banks, and federal reserve deposits and other interest-bearing assets); client security settlement receivables; federal funds purchased; securities sold under agreements to repurchase; and other borrowings (includes Treasury Investment Program balances, term federal funds purchased, and other short-term borrowings). As required by GAAP, the fair values required to be disclosed for demand, noninterest-bearing, savings, and money market deposits must equal the amounts disclosed in the consolidated balance sheet, even though such deposits are typically priced at a premium in banking industry consolidations.

Notes to Consolidated Financial Statements (continued)

The following table summarizes the book and fair values of financial instruments.

September 30, 2010

December 31, 2009

(In Millions)

Book Value

Fair Value

Book Value

Fair Value

Assets

Cash and Due from Banks

3,489.5

2,491.8

Money Market Assets

22,869.3

28,128.2

Securities:

Available for Sale

19,540.3

17,462.1

Held to Maturity

1,176.4

1,210.4

1,161.4

1,185.7

Trading Account

10.9

9.9

Loans (excluding Leases)

Held for Investment

26,501.3

26,782.3

26,497.0

26,539.1

Held for Sale

3.1

4.2

Client Security Settlement Receivables

704.2

794.8

Liabilities

Deposits:

Demand, Noninterest-Bearing, and Savings and Money Market

23,024.2

26,527.3

Savings Certificates, Other Time and Non U. S. Offices Time

35,421.6

35,497.7

31,754.0

31,783.6

Federal Funds Purchased

4,805.1

6,649.8

Securities Sold under Agreements to Repurchase

705.4

1,037.5

Other Borrowings

2,174.1

2,078.3

Senior Notes

1,405.2

1,480.9

1,551.8

1,611.3

Long Term Debt (excluding Leases):

Subordinated Debt

1,183.9

1,219.4

1,132.5

1,150.6

Federal Home Loan Bank Borrowings

1,532.5

1,633.3

1,697.5

1,792.6

Floating Rate Capital Debt

276.8

225.3

276.8

159.4

Financial Guarantees

81.0

94.4

Loan Commitments

31.5

28.4

Notes to Consolidated Financial Statements (continued)

September 30, 2010

December 31, 2009

(In Millions)

Book
Value

Fair
Value

Book
Value

Fair
Value

Derivative Instruments

Asset/Liability Management:

Foreign Exchange Contracts

Assets

40.9

46.1

Liabilities

51.7

51.0

Interest Rate Swap Contracts

Assets

165.8

98.8

Liabilities

19.2

4.2

Credit Default Swaps

Assets

—

Liabilities

2.7

2.2

Client-Related and Trading:

Foreign Exchange Contracts

Assets

5,514.9

2,032.2

Liabilities

5,511.5

2,008.5

Interest Rate Swap Contracts

Assets

191.4

114.9

Liabilities

188.9

113.1

Interest Rate Option Contracts

Assets

—

Liabilities

—

4. Securities – The following tables provide the amortized cost and fair values of securities at September 30, 2010 and December 31, 2009.

Securities Available for Sale

September 30, 2010

Amortized

Gross Unrealized

Fair

(In Millions)

Cost

Gains

Losses

Value

U.S. Government

148.8

—

148.8

Obligations of States and Political Subdivisions

36.5

1.6

—

38.1

Government Sponsored Agency

12,243.1

58.2

7.8

12,293.5

Corporate Debt

2,961.8

11.2

1.2

2,971.8

Non-U.S. Government Debt

370.1

—

370.1

Residential Mortgage-Backed

340.1

69.1

271.1

Other Asset-Backed

1,667.8

2.3

2.2

1,667.9

Certificates of Deposit

1,020.7

—

1,020.7

Auction Rate

369.4

14.1

3.5

380.0

Other

372.3

6.0

—

378.3

Total

19,530.6

93.5

83.8

19,540.3

Securities Held to Maturity

September 30, 2010

Book

Gross Unrealized

Fair

(In Millions)

Value

Gains

Losses

Value

Obligations of States and Political Subdivisions

654.5

39.2

693.5

Government Sponsored Agency

160.6

5.9

—

166.5

Other

361.3

—

10.9

350.4

Total

1,176.4

45.1

11.1

1,210.4

Notes to Consolidated Financial Statements (continued)


Securities Available for Sale	December 31, 2009
	Amortized		Gross Unrealized				Fair
(In Millions)	Cost		Gains		Losses		Value
U.S. Government	$	74.0	$	—	$	—	$	74.0
Obligations of States and Political Subdivisions		45.6		1.4		—		47.0
Government Sponsored Agency		12,278.9		58.9		12.4		12,325.4
Corporate Debt		2,820.2		7.7		5.8		2,822.1
Non-U.S. Government Debt		80.6		—		—		80.6
Residential Mortgage-Backed		439.7		—		125.7		314.0
Other Asset-Backed		1,183.8		.5		3.0		1,181.3
Auction Rate		409.7		18.2		.2		427.7
Other		190.0		—		—		190.0

Total	$	17,522.5	$	86.7	$	147.1	$	17,462.1


Securities Held to Maturity	December 31, 2009
	Book		Gross Unrealized				Fair
(In Millions)	Value		Gains		Losses		Value
Obligations of States and Political Subdivisions	$	692.6	$	34.5	$	.6	$	726.5
Government Sponsored Agency		114.6		2.4		.2		116.8
Other		354.2		—		11.8		342.4

Total	$	1,161.4	$	36.9	$	12.6	$	1,185.7

Federal Reserve and Federal Home Loan Bank Stock. Stock in Federal Reserve and Federal Home Loan Banks, included at cost within other securities available for sale above, totaled $42.6 million and $143.3 million, respectively, as of September 30, 2010, and $42.6 million and $147.0 million, respectively, as of December 31, 2009.

The following table provides the remaining maturity of securities as of September 30, 2010.


(In Millions)	Amortized Cost		Fair Value
Available for Sale
Due in One Year or Less	$	8,194.6	$	8,181.9
Due After One Year Through Five Years		10,549.8		10,578.9
Due After Five Years Through Ten Years		422.8		420.6
Due After Ten Years		177.6		173.1
Other Securities Without Stated Maturities		185.8		185.8

Total		19,530.6		19,540.3

Held to Maturity
Due in One Year or Less		198.5		200.3
Due After One Year Through Five Years		501.9		518.5
Due After Five Years Through Ten Years		435.3		454.7
Due After Ten Years		40.7		36.9

Total	$	1,176.4	$	1,210.4

Mortgage-backed and asset-backed securities are included in the above table taking into account anticipated future prepayments.

Notes to Consolidated Financial Statements (continued)

Securities with Unrealized Losses. The following tables provide information regarding securities that have been in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of September 30, 2010 and December 31, 2009.


Securities with Unrealized Losses as of September 30, 2010	Less than 12 Months				12 Months or Longer				Total
(In Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of States and Political Subdivisions	$	.2	$	—	$	3.1	$	.2	$	3.3	$	.2
Government Sponsored Agency		1,319.7		5.7		344.2		2.1		1,663.9		7.8
Corporate Debt		847.1		.8		249.6		.4		1,096.7		1.2
Residential Mortgage-Backed		—		—		264.8		69.1		264.8		69.1
Other Asset-Backed		340.2		2.1		19.0		.1		359.2		2.2
Auction Rate		85.4		3.5		.7		—		86.1		3.5
Other		20.2		4.2		34.3		6.7		54.5		10.9

Total	$	2,612.8	$	16.3	$	915.7	$	78.6	$	3,528.5	$	94.9


Securities with Unrealized Losses as of December 31, 2009	Less than 12 Months				12 Months or Longer				Total
(In Millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of States and Political Subdivisions	$	7.7	$	.2	$	2.6	$	.4	$	10.3	$	.6
Government Sponsored Agency		810.6		3.0		523.3		9.6		1,333.9		12.6
Corporate Debt		1,220.7		5.8		—		—		1,220.7		5.8
Residential Mortgage-Backed		.5		1.5		313.5		124.2		314.0		125.7
Other Asset-Backed		222.1		.5		570.1		2.5		792.2		3.0
Auction Rate		7.0		.2		—		—		7.0		.2
Other		4.1		2.7		34.0		9.1		38.1		11.8

Total	$	2,272.7	$	13.9	$	1,443.5	$	145.8	$	3,716.2	$	159.7

As of September 30, 2010, 252 securities with a combined fair value of $3.5 billion were in an unrealized loss position, with their unrealized losses totaling $94.9 million. The majority of the unrealized losses reflect the impact of credit and liquidity spreads on the valuations of 29 residential mortgage-backed securities with unrealized losses totaling $69.1 million, all of which have been in an unrealized loss position for more than 12 months. Residential mortgage-backed securities rated below double-A at September 30, 2010 represented 74% of the total fair value of residential mortgage-backed securities, were comprised primarily of sub-prime and Alt-A securities, and had a total amortized cost and fair value of $267.5 million and $201.9 million, respectively. Securities classified as “other asset-backed” at September 30, 2010 were predominantly floating rate with average lives less than 5 years, and 100% were rated triple-A.

Unrealized losses of $7.8 million related to government sponsored agency securities are primarily attributable to widened credit spreads since their purchase. The majority of the $10.9 million of unrealized losses in securities classified as “other” at September 30, 2010 relate to securities which Northern Trust purchases for compliance with the Community Reinvestment Act (CRA). Unrealized losses on these CRA related other securities are attributable to their purchase at below market rates for the purpose of

Notes to Consolidated Financial Statements (continued)

supporting institutions and programs that benefit low to moderate income communities within Northern Trust’s market area. The remaining unrealized losses on Northern Trust’s securities portfolio as of September 30, 2010 are attributable to changes in overall market interest rates, increased credit spreads, and reduced market liquidity.

Security impairment reviews are conducted quarterly to identify and evaluate securities that have indications of possible OTTI. A determination as to whether a security’s decline in market value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Factors Northern Trust considers in determining whether impairment is other than temporary include, but are not limited to, the length of time which the security has been impaired; the severity of the impairment; the cause of the impairment and the financial condition and near-term prospects of the issuer; activity in the market of the issuer which may indicate adverse credit conditions; and Northern Trust’s ability and intent not to sell, and the likelihood that it will not be required to sell, the security for a period of time sufficient to allow for the recovery of the security’s amortized cost basis. For each security meeting the requirements of Northern Trust’s internal screening process, an extensive review is conducted to determine if OTTI has occurred.

While all securities are considered, the following describes Northern Trust’s process for identifying credit impairment within mortgage-backed securities, including residential mortgage-backed securities, the security type for which Northern Trust has previously recognized OTTI. To determine if an unrealized loss on a mortgage-backed security is other-than-temporary, economic models are used to perform cash flow analyses by developing multiple scenarios in order to create reasonable forecasts of the security’s future performance using available data including servicers’ loan charge off patterns, prepayment speeds, annualized default rates, each security’s current delinquency pipeline, the delinquency pipeline’s growth rate, the roll rate from delinquency to default, loan loss severities and historical performance of like collateral, along with Northern Trust’s outlook for the housing market and the overall economy. If the present value of future cash flows projected as a result of this analysis is less than the current amortized cost of the security, an OTTI loss is recorded equal to the difference between the two amounts.

The factors used in developing the expected loss on mortgage-backed securities vary by year of origination and type of collateral. As of September 30, 2010, the expected loss on subprime and Alt-A portfolios was developed using default roll rates ranging from 2% to 25% for underlying assets that are current and ranging from 30% to 100% for underlying assets that are 30 days or more past due as to principal and interest payments or in foreclosure. Severities of loss ranging from 45% to 85% were assumed for underlying assets that may ultimately end up in default.

Notes to Consolidated Financial Statements (continued)

Credit Losses on Debt Securities. The table below provides information regarding cumulative credit-related losses recognized in earnings on debt securities other-than-temporarily impaired.


(In Millions)	Three Months Ended September 30, 2010		Nine Months Ended September 30, 2010
Cumulative Credit-Related Losses on Securities – Beginning of Period	$	73.1	$	73.0
Plus: Losses on Newly Identified Impairments		.1		.1
Additional Losses on Previously Identified Impairments		13.9		14.0

Cumulative Credit-Related Losses on Securities – End of Period	$	87.1	$	87.1

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


(In Millions)	September 30, 2010			December 31, 2009			September 30, 2009
U.S.
Residential Real Estate	$	10,846.4		$	10,807.7		$	10,818.2
Commercial		6,098.3			6,312.1			6,807.5
Commercial Real Estate		3,217.4			3,213.2			3,126.9
Personal		5,050.6			4,965.8			4,738.8
Other		751.3			774.0			811.9
Lease Financing, net		1,038.3			1,004.4			1,015.2

Total U.S.		27,002.3			27,077.2			27,318.5
Non-U.S.		864.0			728.5			804.4

Total Loans and Leases		27,866.3			27,805.7			28,122.9
Reserve for Credit Losses Assigned to Loans and Leases		(324.7	)		(309.2	)		(307.8	)

Net Loans and Leases	$	27,541.6		$	27,496.5		$	27,815.1

Other U.S. loans and non-U.S. loans included $1.0 billion of short duration advances at September 30, 2010, December 31, 2009, and September 30, 2009, primarily related to the processing of custodied client investments.

The following table shows outstanding amounts of nonperforming and impaired loans as of September 30, 2010, December 31, 2009, and September 30, 2009.


(In Millions)	September 30, 2010		December 31, 2009		September 30, 2009
Nonperforming Loans*	$	327.3	$	278.5	$	292.3
Nonperforming Loans Classified as Impaired:
Impaired Loans with Reserves		135.3		94.5		112.7
Impaired Loans without Reserves**		138.7		133.6		135.5
Total Impaired Loans***	$	274.0	$	228.1	$	248.2
Reserves for Impaired Loans		48.1		43.8		45.7
Average Balance of Impaired Loans During the Period		257.6		193.8		198.8

Nonperforming loans as of September 30, 2010, December 31, 2009, and September 30, 2009 included $53.3 million, $50.4 million, and $44.1 million, respectively, of smaller balance (individually less than $250,000) homogeneous loans collectively evaluated for impairment and excluded from impaired loans in accordance with applicable accounting standards.

**	When an impaired loan’s discounted cash flows, collateral value, or market price equals or exceeds its carrying value (net of charge-offs), a reserve is not required.

***	Impaired loans as of September 30, 2010 and December 31, 2009 included $30.1 million and $24.3 million, respectively, of nonperforming loans which were deemed to be troubled debt restructurings.

Notes to Consolidated Financial Statements (continued)

At September 30, 2010, residential real estate loans totaling $3.1 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 $30.2 million at September 30, 2010. All other loan commitments are carried at the amount of unamortized fees with a reserve for credit loss liability recognized for estimated probable losses. At September 30, 2010, legally binding commitments to extend credit totaled $26.3 billion compared with $25.7 billion at December 31, 2009, and $25.7 billion at September 30, 2009.

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)	2010			2009			2010			2009
Balance at Beginning of Period	$	361.6		$	319.1		$	340.6		$	251.1
Charge-Offs		(31.8	)		(46.9	)		(104.8	)		(97.3	)
Recoveries		1.5			.8			5.6			3.8

Net Charge-Offs		(30.3	)		(46.1	)		(99.2	)		(93.5	)
Provision for Credit Losses		30.0			60.0			120.0			175.0
Effect of Foreign Exchange Rates		.1			—			—			.4

Balance at End of Period	$	361.4		$	333.0		$	361.4		$	333.0

Reserve for Credit Losses Assigned to:
Loans and Leases		324.7			307.8			324.7			307.8
Unfunded Commitments and Standby Letters of Credit		36.7			25.2			36.7			25.2

Total Reserve for Credit Losses	$	361.4		$	333.0		$	361.4		$	333.0

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.

7. 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 $23.8 billion on September 30, 2010, $24.1 billion on December 31, 2009, and $23.5 billion on September 30, 2009. Included in the September 30, 2010 pledged assets were securities available for sale of $791.2 million that 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.

Notes to Consolidated Financial Statements (continued)

Northern Trust is permitted to repledge or sell collateral from agreements to resell securities purchased transactions. The total fair value of accepted collateral as of September 30, 2010, December 31, 2009, and September 30, 2009 was $414.6 million, $227.9 million, and $24.2 million, respectively. There was no repledged collateral at September 30, 2010, December 31, 2009, or September 30, 2009.

8. Goodwill and Other Intangibles – The following table shows the carrying amounts of goodwill by business unit, which include the effect of foreign exchange rates on non-U.S. dollar denominated goodwill, at September 30, 2010, December 31, 2009, and September 30, 2009.


(In Millions)	September 30, 2010		December 31, 2009		September 30, 2009
Corporate and Institutional Services	$	332.8	$	334.7	$	334.5
Personal Financial Services		66.9		66.9		66.9

Total Goodwill	$	399.7	$	401.6	$	401.4

Other intangible assets are included in other assets in the consolidated balance sheet. The gross carrying amount and accumulated amortization of other intangible assets subject to amortization at September 30, 2010, December 31, 2009, and September 30, 2009, which include the effect of foreign exchange rates on non-U.S. dollar denominated intangible assets, were as follows:


(In Millions)	September 30, 2010		December 31, 2009		September 30, 2009
Gross Carrying Amount	$	156.3	$	157.0	$	156.9
Accumulated Amortization		107.2		96.3		92.2

Net Book Value	$	49.1	$	60.7	$	64.7

Other intangible assets consist primarily of the value of acquired client relationships. Amortization expense related to other intangible assets totaled $3.4 million and $4.1 million for the quarters ended September 30, 2010 and 2009, respectively, and $11.0 million and $12.0 million for the nine months ended September 30, 2010 and 2009, respectively. Amortization for the remainder of 2010 and for the years 2011, 2012, 2013, and 2014 is estimated to be $3.6 million, $10.9 million, $10.7 million, $10.4 million and $10.3 million, respectively.

Notes to Consolidated Financial Statements (continued)

9. Business Units – The following tables show the earnings contribution of Northern Trust’s business units for the three and nine month periods ended September 30, 2010 and 2009.


Three Months Ended September 30,	Corporate and Institutional Services						Personal Financial Services						Treasury and Other						Total Consolidated
($ in Millions)	2010			2009			2010			2009			2010			2009			2010			2009
Noninterest Income
Trust, Investment and Other Servicing Fees	$	293.2		$	310.2		$	225.5		$	212.9		$	—		$	—		$	518.7		$	523.1
Other		114.9			123.0			33.3			33.7			(10.9	)		(.4	)		137.3			156.3
Net Interest Income (FTE)*		67.2			88.2			151.0			133.0			24.8			27.0			243.0			248.2

Revenues*		475.3			521.4			409.8			379.6			13.9			26.6			899.0			927.6
Provision for Credit Losses		(2.8	)		24.5			32.8			34.9			—			.6			30.0			60.0
Noninterest Expenses		330.6			323.7			274.6			261.7			16.9			13.8			622.1			599.2

Income (Loss) before Income Taxes*		147.5			173.2			102.4			83.0			(3.0	)		12.2			246.9			268.4
Provision for Income Taxes*		51.9			55.6			39.0			31.4			.4			(6.5	)		91.3			80.5

Net Income (Loss)	$	95.6		$	117.6		$	63.4		$	51.6		$	(3.4	)	$	18.7		$	155.6		$	187.9

Percentage of Consolidated Net Income		61	%		63	%		41	%		27	%		(2	)%		10	%		100	%		100	%

Average Assets	$	38,701.2		$	35,320.5		$	23,495.9		$	24,645.7		$	12,509.6		$	11,241.1		$	74,706.7		$	71,207.3

*	Stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $9.5 million for 2010 and $9.9 million for 2009.


Nine Months Ended September 30,	Corporate and Institutional Services						Personal Financial Services						Treasury and Other						Total Consolidated
($ in Millions)	2010			2009			2010			2009			2010			2009			2010			2009
Noninterest Income
Trust, Investment and Other Servicing Fees	$	906.5		$	908.1		$	670.8		$	627.1		$	—		$	—		$	1,577.3		$	1,535.2
Other		384.9			452.9			100.0			102.7			(7.3	)		(9.9	)		477.6			545.7
Net Interest Income (FTE)*		207.9			343.5			439.3			395.5			78.3			57.0			725.5			796.0

Revenues*		1,499.3			1,704.5			1,210.1			1,125.3			71.0			47.1			2,780.4			2,876.9
Provision for Credit Losses		(11.3	)		44.1			131.3			130.3			—			.6			120.0			175.0
Noninterest Expenses		977.9			865.6			814.1			778.2			64.2			51.6			1,856.2			1,695.4

Income (Loss) before Income Taxes*		532.7			794.8			264.7			216.8			6.8			(5.1	)		804.2			1,006.5
Provision for Income Taxes*		187.7			277.9			100.5			82.4			3.6			(17.7	)		291.8			342.6

Net Income (Loss)	$	345.0		$	516.9		$	164.2		$	134.4		$	3.2		$	12.6		$	512.4		$	663.9

Percentage of Consolidated Net Income		67	%		78	%		32	%		20	%		1	%		2	%		100	%		100	%

Average Assets	$	37,775.9		$	38,792.6		$	23,527.4		$	24,532.8		$	13,322.8		$	10,772.0		$	74,626.1		$	74,097.4

*	Stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $28.8 million for 2010 and $30.4 million for 2009.

Further discussion of business unit results is provided within the “Business Unit Reporting” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Notes to Consolidated Financial Statements (continued)

10. Accumulated Other Comprehensive Income (Loss) – The following tables summarize the components of accumulated other comprehensive income (loss) at September 30, 2010 and 2009, and changes during the three and nine month periods then ended.


	Period Change
(In Millions)	Beginning Balance (Net of Tax)			Before Tax Amount			Tax Effect			Ending Balance (Net of Tax)

Three Months Ended September 30, 2010
Noncredit-Related Unrealized Losses on Securities OTTI	$	(35.1	)	$	18.7		$	(6.9	)	$	(23.3	)
Other Unrealized Gains (Losses) on Securities Available for Sale, net		13.8			(9.9	)		3.6			7.5
Less: Reclassification Adjustments		—			(13.5	)		4.9			(8.6	)

Net Unrealized Gains (Losses) on Securities Available for Sale		(21.3	)		22.3			(8.2	)		(7.2	)
Unrealized Gains (Losses) on Cash Flow Hedge Designations		(15.8	)		43.2			(15.9	)		11.5
Less: Reclassification Adjustments		—			(7.1	)		2.6			(4.5	)

Net Unrealized Gains (Losses) on Cash Flow Hedge Designations		(15.8	)		50.3			(18.5	)		16.0
Foreign Currency Translation Adjustments		14.3			(44.2	)		44.7			14.8
Pension and Other Postretirement Benefit Adjustments		(292.5	)		—			—			(292.5	)
Less: Reclassification Adjustments		—			(6.1	)		3.3			(2.8	)

Total Pension and Other Postretirement Benefit Adjustments		(292.5	)		6.1			(3.3	)		(289.7	)

Accumulated Other Comprehensive Income (Loss)	$	(315.3	)	$	34.5		$	14.7		$	(266.1	)


Three Months Ended September 30, 2009
Unrealized Gains (Losses) on Securities Available for Sale, net	$	(96.0	)	$	60.5		$	(22.2	)	$	(57.7	)
Less: Reclassification Adjustments		—			(4.1	)		1.5			(2.6	)

Net Unrealized Gains (Losses) on Securities Available for Sale		(96.0	)		64.6			(23.7	)		(55.1	)
Unrealized Gains (Losses) on Cash Flow Hedge Designations		(2.9	)		1.1			(.4	)		(2.2	)
Less: Reclassification Adjustments		—			4.2			(1.6	)		2.6

Net Unrealized Gains (Losses) on Cash Flow Hedge Designations		(2.9	)		(3.1	)		1.2			(4.8	)
Foreign Currency Translation Adjustments		14.1			(3.7	)		1.6			12.0
Pension and Other Postretirement
Benefit Adjustments		(268.6	)		—			—			(268.6	)
Less: Reclassification Adjustments		—			(4.9	)		1.5			(3.4	)

Total Pension and Other Postretirement Benefit Adjustments		(268.6	)		4.9			(1.5	)		(265.2	)

Accumulated Other Comprehensive Income (Loss)	$	(353.4	)	$	62.7		$	(22.4	)	$	(313.1	)

Notes to Consolidated Financial Statements (continued)


	Period Change
(In Millions)	Beginning Balance (Net of Tax)			Before Tax Amount			Tax Effect			Ending Balance (Net of Tax)

Nine Months Ended September 30, 2010
Noncredit-Related Unrealized Losses on Securities OTTI	$	(42.0	)	$	29.6		$	(10.9	)	$	(23.3	)
Other Unrealized Gains (Losses) on Securities Available for Sale, net		.3			11.9			(4.3	)		7.9
Less: Reclassification Adjustments		—			(13.1	)		4.9			(8.2	)

Net Unrealized Gains (Losses) on Securities Available for Sale		(41.7	)		54.6			(20.1	)		(7.2	)
Unrealized Gains (Losses) on Cash Flow Hedge Designations		(26.2	)		56.9			(21.0	)		9.7
Less: Reclassification Adjustments		—			(9.9	)		3.6			(6.3	)

Net Unrealized Gains (Losses) on Cash Flow Hedge Designations		(26.2	)		66.8			(24.6	)		16.0
Foreign Currency Translation Adjustments		11.3			19.5			(16.0	)		14.8
Pension and Other Postretirement Benefit Adjustments		(305.0	)		2.2			(.5	)		(303.3	)
Less: Reclassification Adjustments		—			(18.7	)		5.1			(13.6	)

Total Pension and Other Postretirement Benefit Adjustments		(305.0	)		20.9			(5.6	)		(289.7	)

Accumulated Other Comprehensive Income (Loss)	$	(361.6	)	$	161.8		$	(66.3	)	$	(266.1	)


Nine Months Ended September 30, 2009
Cummulative Effect of Applying FSP FAS 115-2	$	—		$	(15.0	)	$	5.5		$	(9.5	)
Other Unrealized Gains (Losses) on Securities Available for Sale, net		(212.9	)		243.4			(89.4	)		(58.9	)
Less: Reclassification Adjustments		—			(20.9	)		7.6			(13.3	)

Net Unrealized Gains (Losses) on Securities Available for Sale		(212.9	)		249.3			(91.5	)		(55.1	)
Unrealized Gains (Losses) on Cash Flow Hedge Designations		(20.7	)		40.5			(14.9	)		4.9
Less: Reclassification Adjustments		—			15.4			(5.7	)		9.7

Net Unrealized Gains (Losses) on Cash Flow Hedge Designations		(20.7	)		25.1			(9.2	)		(4.8	)
Foreign Currency Translation Adjustments		12.8			(40.3	)		39.5			12.0
Pension and Other Postretirement Benefit Adjustments		(274.1	)		—			—			(274.1	)
Less: Reclassification Adjustments		—			(14.7	)		5.8			(8.9	)

Total Pension and Other Postretirement Benefit Adjustments		(274.1	)		14.7			(5.8	)		(265.2	)

Accumulated Other Comprehensive Income (Loss)	$	(494.9	)	$	248.8		$	(67.0	)	$	(313.1	)

Notes to Consolidated Financial Statements (continued)

11. Net Income Per Common Share Computations – The computations of net income per common share are presented in the following table.


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Millions Except Share Information)	2010		2009		2010		2009

Basic Net Income Per Common Share
Average Number of Common Shares Outstanding		242,124,461		241,415,698		241,966,279		233,475,552
Net Income	$	155.6	$	187.9	$	512.4	$	663.9
Less: Dividends on Preferred Stock		—		—		—		111.1

Net Income Applicable to Common Stock		155.6		187.9		512.4		552.8
Less: Earnings Allocated to Participating Securities		1.3		1.2		4.2		4.0

Earnings Allocated to Common Shares Outstanding	$	154.3	$	186.7	$	508.2	$	548.8
Basic Net Income Per Common Share		.64		.77		2.10		2.35


Diluted Net Income Per Common Share
Average Number of Common Shares Outstanding		242,124,461		241,415,698		241,966,279		233,475,552
Plus Stock Option Dilution		33,966		1,215,550		455,382		1,050,865

Average Common and Potential Common Shares		242,158,427		242,631,248		242,421,661		234,526,417

Earnings Allocated to Common and Potential Common Shares	$	154.3	$	186.7	$	508.2	$	548.8
Diluted Net Income Per Common Share		.64		.77		2.10		2.34

Note: Common stock equivalents totaling 6,860,298 and 7,958,582 for the three and nine months ended September 30, 2010, respectively, and 5,809,957 and 5,879,291 for the three and nine months ended September 30, 2009, respectively, were not included in the computation of diluted net income per common share because their inclusion would have been antidilutive.

12. Net Interest Income – The components of net interest income were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Millions)	2010		2009		2010		2009
Interest Income
Loans and Leases	$	231.9	$	234.5	$	687.0	$	717.6
Securities – Taxable		47.7		48.1		142.5		157.7
– Non-Taxable		7.3		8.1		22.1		25.6
Time Deposits with Banks		40.2		40.7		100.8		173.2
Federal Reserve Deposits and Other		3.1		1.8		10.0		7.6

Total Interest Income		330.2		333.2		962.4		1,081.7

Interest Expense
Deposits		53.7		45.4		135.1		163.1
Federal Funds Purchased		1.0		1.5		3.9		3.9
Securities Sold Under Agreements to Repurchase		.2		.3		.7		1.0