SECOND QUARTER CONSOLIDATED RESULTS OF OPERATIONS

Overview

Net income was $314.2 million compared with net income of $215.6 million in the second quarter of last year. Net income per common share on a diluted basis for the second quarter was $.95 compared with net income per common share of $.96 in the second quarter of 2008. The current quarter's earnings per share were reduced by $.37 in connection with Northern Trust's participation in the U.S. Department of the Treasury's Capital Purchase Program. The reduction was comprised of $68.6 million, or $.29 per share, attributable to the acceleration of the remaining difference between the carrying value of the preferred shares and their liquidation preference recognized upon the repayment in full of the $1.576 billion preferred share investment made by the U.S. Department of the Treasury under the Capital Purchase Program, and $19.5 million, or $.08 per share, attributable to dividends on the preferred shares that were recorded in the current quarter through the redemption date. The prior year quarter's results included non-cash accounting charges of $87.3 million, or $.39 per common share, associated with lease transactions.

The performance in the current quarter produced an annualized return on average common equity (ROE) of 15.48% versus 17.75% reported for the comparable quarter last year and an annualized return on average assets (ROA) of 1.71%, up from 1.22% last year.

Consolidated revenues stated on a fully taxable equivalent (FTE) basis totaled $1.05 billion, down $49.0 million or 4% from last year's second quarter revenues of $1.10 billion. Trust, investment and other servicing fees decreased 7% from last year to $601.4 million. Foreign exchange trading income was strong for the quarter and totaled $134.3 million, an increase of 6% from last year's second quarter. Net interest income on an FTE basis totaled $260.1 million, an increase of 5%. Noninterest expenses totaled $502.7 million for the current quarter, down 22% or $140.6 million from last year's second quarter noninterest expenses of $643.3 million.

Noninterest Income

Noninterest income of $785.0 million for the quarter accounted for 75% of total taxable equivalent revenue. Trust, investment and other servicing fees represented 58% of total taxable equivalent revenue. The decrease in trust, investment and other servicing fees from the prior year quarter primarily reflects significantly lower market valuations, partially offset by securities lending results and new business. Foreign exchange trading income results reflect higher currency volatility. Revenues from security commissions and trading income totaled $16.8 million, down from $20.4 million in the prior year quarter, reflecting decreased revenue from core brokerage and transition management services.

Noninterest Income (continued)



The components of noninterest income are provided below.



    Noninterest Income                              Three Months Ended June 30
    (In Millions)                                  2009          2008     % Change
    Trust, Investment and Other Servicing Fees   $   601.4      $ 645.1         (7 )%
    Foreign Exchange Trading Income                  134.3        126.6          6
    Security Commissions and Trading Income           16.8         20.4        (18 )
    Treasury Management Fees                          21.8         18.4         18
    Other Operating Income                            28.2         34.8        (19 )
    Investment Security Gains (Losses), net          (17.5 )         -          NM

    Total Noninterest Income                     $   785.0      $ 845.3         (7 )

Assets under custody totaled $3.2 trillion at June 30, 2009. This represents an increase in assets under custody of 13% from March 31, 2009 and a 19% decrease from June 30, 2008. Assets under management totaled $558.9 billion, a 7% increase from $522.3 billion at March 31, 2009 and a 26% decrease from $751.4 billion at June 30, 2008. The above are in comparison to the twelve month declines in the S&P 500 index of 28% and in the EAFE index (USD) of 34%. As of the current quarter-end, managed assets were invested 38% in equities, 19% in fixed-income securities, and 43% in cash and other assets.

    Assets Under Custody            June 30,    March 31,     December 31,    June 30,
    (In Billions)                     2009         2009           2008          2008
    Corporate & Institutional       $ 2,908.3   $  2,559.3   $      2,719.2   $ 3,635.7
    Personal                            300.2        281.7            288.3       325.9

    Total Assets Under Custody      $ 3,208.5   $  2,841.0   $      3,007.5   $ 3,961.6


    Assets Under Management         June 30,    March 31,     December 31,    June 30,
    (In Billions)                     2009         2009           2008          2008
    Corporate & Institutional       $   422.1   $    392.0   $        426.4   $   608.6
    Personal                            136.8        130.3            132.4       142.8

    Total Assets Under Management   $   558.9   $    522.3   $        558.8   $   751.4

Trust, investment and other servicing fees are generally based on the market value of assets managed, custodied, and administered, the volume of transactions, securities lending volume and spreads, and fees for other services rendered. Certain market value calculations are performed on a monthly or quarterly basis in arrears. Certain investment management fee arrangements also may provide for performance fees, which are based on client portfolio returns exceeding predetermined levels. Securities lending fees are also impacted by Northern Trust's share of unrealized investment gains and losses in one investment fund used in our securities lending activities, accounted for at fair value. In addition, Corporate & Institutional Services (C&IS) client relationships are generally priced to reflect earnings from activities such as foreign exchange trading and custody-related deposits that are not included in trust, investment and other servicing fees. Based on analysis of historical trends and current asset and product mix, management estimates that a 10% rise or fall in overall equity markets would cause a corresponding increase or decrease in trust, investment and other servicing fees of approximately 4% and total revenues of approximately 2%.

Trust, investment and other servicing fees from C&IS in the quarter decreased 4% from the year-ago quarter to $390.9 million, reflecting significantly lower market valuations, partially offset by securities lending results and new business. C&IS custody and fund administration fees decreased 19% to $140.5 million, driven primarily by declines in the equity markets. Securities lending fees totaled $172.5 million compared with $149.9 million in the second quarter last year. The current quarter included a positive mark-to-market adjustment of approximately $129 million relating to prior period unrealized asset valuation losses recorded in one mark-to-market investment fund used in our securities lending activities. This compares to a positive mark-to-market adjustment of previous unrealized asset valuation losses of approximately $25 million in the prior year quarter. Excluding the impact of mark-to-market, the current quarter decrease in securities lending fees reflects significantly reduced volumes. Fees from asset management in the quarter totaled $61.1 million, down 15%, reflecting lower market valuations.

C&IS assets under custody totaled $2.9 trillion at June 30, 2009, down 20% from a year ago, and included $1.6 trillion of global custody assets, 19% lower than a year ago. C&IS assets under management totaled $422.1 billion, a 31% decrease from the prior year. C&IS assets under management for the quarter included $101.0 billion of securities lending related collateral, a 58% decrease from the prior year quarter. Excluding securities lending collateral, C&IS assets under management totaled $321.1 billion as compared with $370.5 billion in the prior year quarter, a $49.4 billion, or 13% decrease. The above are in comparison to the previously noted twelve month declines in the S&P 500 and EAFE (USD) indices. As of the current quarter-end, C&IS managed assets were invested 41% in equities, 15% in fixed-income securities, and 44% in cash and other assets.

Trust, investment and other servicing fees from Personal Financial Services (PFS) in the quarter decreased 11% and totaled $210.5 million compared with $235.9 million a year ago. The decrease in PFS fees resulted primarily from significantly lower market valuations, offset in part by strong new business. PFS assets under custody totaled $300.2 billion at June 30, 2009, an 8% decrease from $325.9 billion in the prior year quarter. PFS assets under management totaled $136.8 billion, a 4% decrease from $142.8 billion last year. These are in comparison to the twelve month declines in the S&P 500 and EAFE (USD) indices noted above. As of the current quarter-end, PFS managed assets were invested 31% in equities, 31% in fixed-income securities, and 38% in cash and other assets.

Noninterest Income (continued)



The components of other operating income are provided below.



Other Operating Income                                 Three Months Ended June 30
(In Millions)                                        2009         2008      % Change
Loan Service Fees                                  $   12.3      $   6.9           78 %
Banking Service Fees                                   13.2          9.3           42
Non-Trading Foreign Exchange Gains (Losses), net         .5           .6          (18 )
Credit Default Swaps Gains (Losses), net               (4.8 )        2.8         (271 )
Other Income                                            7.0         15.2          (54 )

Total Other Operating Income                       $   28.2      $  34.8          (19 )%

The decrease in other operating income primarily reflects the current quarter impact of adverse mark-to-market adjustments recorded on certain credit default swap contracts with outside counterparties used to mitigate credit risk associated with specific commercial credits and decreased custody-related deposit revenue, partially offset by an increase in commercial loan-related commitment fees.

Net investment security losses totaled $17.5 million for the current quarter and included an $18.0 million pre-tax charge to reflect the credit related other-than-temporary impairment of certain residential mortgage backed securities held within Northern Trust's balance sheet investment securities portfolio. The charge consisted of $4.3 million relating to three securities previously determined to be other-than-temporarily impaired and $13.7 relating to five securities determined to be other-than-temporarily impaired in the current quarter. There were no investment security gains or losses in the prior year quarter.

Net Interest Income

Net interest income for the quarter totaled $250.2 million, 6% higher than the $236.1 million reported in the second quarter of 2008. 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 activities. When net interest income is adjusted to an FTE basis, yields on taxable, nontaxable and partially taxable assets are comparable, although the adjustment to an FTE basis has no impact on net income. Net interest income for the quarter, stated on an FTE basis, totaled $260.1 million, up 5% from $248.8 million reported in the prior year second quarter. The prior year quarter included a $29.4 million reduction from a leasing related adjustment.

Average earning assets of $65.6 billion were 4% higher than a year ago, driven by growth in securities and loans. Loans and leases averaged $29.0 billion, up 8 % from the second quarter of last year. The securities portfolio averaged $17.5 billion, up 49% from last year, primarily reflecting an increase in the average balance of government sponsored agency securities. Money market assets averaged $19.1 billion for the quarter, a decrease of 21% from the prior year. The net interest margin was 1.59%, consistent with the prior year quarter. The prior year quarter net interest margin absent the leasing related adjustment would have been 1.78%. The current quarter decrease, after adjustment, in the net interest margin reflects the diminished value of noninterest-related funding sources resulting from the significant interest rate cuts over the past year.

Average U.S. loans outstanding during the quarter totaled $28.0 billion, 12% higher than the $25.0 billion in last year's second quarter. Residential real estate loans averaged $10.7 billion in the quarter, up 13% from the prior year's second quarter, and represented 37% of the average loan and lease portfolio. Commercial loans averaged $7.7 billion, up 13% from $6.8 billion last year, while personal loans averaged $4.7 billion, up 14% from last year's second quarter. Loans outside the U.S. decreased $803.4 million on average from the prior year quarter to $1.0 billion.

Northern Trust utilizes a diverse mix of funding sources. Total interest-bearing deposits averaged $41.1 billion, down 11% from the second quarter of 2008. Higher levels of U.S. office deposits were more than offset by a $9.8 billion or 27% decline in non-U.S. office deposits from last year's second quarter. Domestic retail deposit levels increased $4.2 billion due primarily to higher levels of money market deposit accounts and savings certificates. The decline in non-U.S. office deposits resulted primarily from the strengthening of the U.S. dollar and the resulting impact on the translation of foreign-denominated deposit liabilities in our international business. Other interest-related funds averaged $10.2 billion in the quarter compared with $8.4 billion in last year's second quarter. 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. The increase in this funding category resulted primarily from higher levels of senior notes, overnight federal funds purchased and long-term debt. Noninterest-related funds utilized to fund earning assets averaged $14.3 billion compared with $8.3 billion in last year's second quarter, resulting primarily from higher levels of U.S. office noninterest-bearing deposits and stockholders' equity.

Provision for Credit Losses

The provision for credit losses was $60.0 million in the second quarter compared with $10.0 million in the prior year quarter. The current quarter provision reflects the continued weakness in the broader economic environment. The reserve for credit losses at June 30, 2009 was $319.1 million compared with $303.3 million at March 31, 2009 and $183.1 million at June 30, 2008. Net charge-offs totaled $44.7 million for the quarter and $4.7 million in the prior year quarter. For a discussion of the provision and reserve for credit losses, refer to the "Asset Quality" section below.

Noninterest Expense

The components of noninterest expense are provided below.



          Noninterest Expenses                Three Months Ended June 30
          (In Millions)                      2009          2008     % Change
          Compensation                     $   288.1      $ 306.0         (6 )%
          Employee Benefits                     61.7         62.7         (2 )
          Outside Services                     102.1        106.2         (4 )
          Equipment and Software Expense        61.2         56.9          8
          Occupancy Expense                     40.4         39.7          2
          Other Operating Expenses             (50.8 )       71.8       (171 )

          Total Noninterest Expenses       $   502.7      $ 643.3        (22 )%

The current quarter decrease in compensation and employee benefit expenses reflects reductions in performance-based compensation expense, partially offset by higher staff levels and annual salary increases. Staff on a full-time equivalent basis at June 30, 2009 totaled 12,400, up 5% from a year ago.

Expenses associated with outside services for the current quarter reflects decreases in global subcustody and investment manager sub-advisory services and in consulting services, partially offset by increased expenses for technical and legal services.

The remaining expense categories totaled $50.8 million, compared to $168.4 million in the prior year second quarter. The current quarter reflects a $130.1 million expense reduction, included within other operating expenses, associated with a valuation adjustment of the liability established in connection with the previously disclosed Capital Support Agreements with certain Northern Trust investment vehicles (Funds). This compares with a valuation related expense increase of $1.2 million recorded in the second quarter of last year. During the current quarter, as a part of the restructuring and final settlement related to an investment vehicle held by eight of the nine Funds then covered by Capital Support Agreements, Northern Trust made cash payments totaling $66.7 million which further reduced the liability associated with Capital Support Agreements. As a result of the completion of this investment vehicle's restructuring and the related support payments, seven of the nine Capital Support Agreements were terminated during the quarter, reducing the aggregate maximum remaining exposure from $550.0 million to $200.2 million. The remaining two Capital Support Agreements expire on November 6, 2009. Excluding the capital support agreement valuation adjustments, the increase in the current quarter totaled $13.7 million and primarily reflects a $29.0 million increase in Federal Deposit Insurance Corporation (FDIC) insurance premiums, including a June 30, 2009 special assessment of $20.2 million. The current quarter also reflects higher software related expenses. These increases were partially offset by lower charges associated with account servicing activities and reduced business promotion expenses.

Other Operating Expenses

The components of other operating expenses are provided below.



          Other Operating Expenses            Three Months Ended June 30
          (In Millions)                       2009          2008    % Change
          Business Promotion               $     13.5      $ 21.0        (36 )%
          Other Intangibles Amortization          4.0         4.5        (11 )
          FDIC Insurance Premiums                29.5          .5         NM
          Capital Support Agreements           (130.1 )       1.2         NM
          Other Expenses                         32.3        44.6        (28 )

          Total Other Operating Expenses   $    (50.8 )    $ 71.8       (171 )%

The current quarter increase in FDIC insurance premiums includes the June 30, 2009 special assessment of $20.2 million. The FDIC has indicated that an additional special assessment of a similar or potentially greater magnitude may occur in the third or fourth quarter of 2009; however, no such assessment has been approved.

Provision for Income Taxes

The provision for income taxes was $158.3 million in the current quarter resulting in an effective tax rate of 33.5%. The prior year quarter provision for income taxes was $212.5 million, representing an effective tax rate of 49.6%, and included $57.9 million associated with leasing related adjustments. The effective tax rate for the prior year quarter, excluding the impact of the leasing adjustments, was 33.8%.

The following tables reflect the earnings contribution and average assets of Northern Trust's business units for the three and six month periods ended June 30, 2009 and 2008. Business unit financial information, presented on an internal management-reporting basis, is determined by accounting systems that are used to allocate revenue and expenses related to each segment, and which incorporate processes for allocating assets, liabilities, and equity, and the applicable interest income and expense.

                                                       Corporate and
                                                       Institutional                  Personal Financial                  Treasury and                          Total
Three Months Ended June 30,                              Services                          Services                           Other                         Consolidated
($ In Millions)                                    2009             2008             2009             2008             2009            2008             2009             2008
Noninterest Income
Trust, Investment and Other Servicing Fees      $    390.9       $    409.2       $    210.5       $    235.9       $       -         $    -         $    601.4       $    645.1
Other                                                160.2            164.9             36.5             30.9            (13.1 )          4.4             183.6            200.2
Net Interest Income (FTE) *                          108.3             98.8            130.4            117.9             21.4           32.1             260.1            248.8

Revenues (FTE) *                                     659.4            672.9            377.4            384.7              8.3           36.5           1,045.1          1,094.1
Provision for Credit Losses                            6.0             (2.8 )           54.0             12.8               -              -               60.0             10.0
Noninterest Expenses                                 214.3            355.4            263.8            258.5             24.6           29.4             502.7            643.3

Income before Income Taxes *                         439.1            320.3             59.6            113.4            (16.3 )          7.1             482.4            440.8
Provision for Income Taxes *                         158.9            175.8             22.6             43.2            (13.3 )          6.2             168.2            225.2

Net Income                                      $    280.2       $    144.5       $     37.0       $     70.2       $     (3.0 )      $   0.9        $    314.2            215.6

Percentage of Consolidated Net Income                   89 %             67 %             12 %             33 %             (1 )%          (0 )%            100 %            100 %

Average Assets                                  $ 38,139.0       $ 48,681.0       $ 24,530.6       $ 22,482.9       $ 11,127.4        $ 112.7        $ 73,797.0       $ 71,276.6

* Stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $9.9 million for 2009 and $12.7 million for 2008.

                                                     Corporate and
                                                     Institutional                  Personal Financial                  Treasury and                         Total
Six Months Ended June 30,                              Services                          Services                           Other                        Consolidated
($ In Millions)                                  2009             2008             2009             2008             2009            2008            2009             2008
Noninterest Income
Trust, Investment and Other Servicing Fees    $    597.9       $    707.6       $    414.2       $    464.3       $       -         $    -        $  1,012.1       $  1,171.9
Gain on Visa Redemption                               -                -                -                -                -           167.9               -             167.9
Other                                              329.9            311.6             69.0             59.5             (9.5 )         14.3            389.4            385.4
Net Interest Income (FTE) *                        255.3            232.9            262.5            239.3             30.0           42.7            547.8            514.9

Revenues (FTE) *                                 1,183.1          1,252.1            745.7            763.1             20.5          224.9          1,949.3          2,240.1
Provision for Credit Losses                         19.6              2.2             95.4             27.8               -              -             115.0             30.0
Visa Indemnification Charges                          -                -                -                -                -           (76.1 )             -             (76.1 )
Noninterest Expenses                               541.9            681.4            516.5            506.3             37.8           67.0          1,096.2          1,254.7

Income before Income Taxes *                       621.6            568.5            133.8            229.0            (17.3 )        234.0            738.1          1,031.5
Provision for Income Taxes *                       222.3            251.7             51.0             87.2            (11.2 )         91.8            262.1            430.7

Net Income                                    $    399.3       $    316.8       $     82.8       $    141.8       $     (6.1 )      $ 142.2       $    476.0       $    600.8

Percentage of Consolidated Net Income                 84 %             53 %             17 %             24 %             (1 )%          23 %            100 %            100 %

Average Assets                                $ 40,557.4       $ 47,429.9       $ 24,475.4       $ 21,667.5       $ 10,533.6        $ 587.1       $ 75,566.4       $ 69,684.5

* Stated on a fully taxable equivalent basis (FTE). Total consolidated includes FTE adjustments of $20.5 million for 2009 and $25.3 million for 2008.

C&IS net income for the quarter was $280.2 million, up 94% compared with net income of $144.5 million in the second quarter of 2008. Noninterest income was $551.1 million, down 4% from $574.1 million in last year's second quarter. Trust, investment and other servicing fees from C&IS in the quarter decreased 4% from the year-ago quarter to $390.9 million, reflecting significantly lower market valuations, partially offset by securities lending results and new business. C&IS custody and fund administration fees decreased 19% to $140.5 million, driven primarily by declines in the equity markets. Securities lending fees totaled $172.5 million compared with $149.9 million in the second quarter last year. The current quarter included a positive mark-to-market adjustment of approximately $129 million relating to prior period unrealized asset valuation losses recorded in one mark-to-market investment fund used in our securities lending activities. This compares to a positive mark-to-market adjustment of previous unrealized asset valuation losses of approximately $25 million in the . . .