<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
HARRIS BANKCORP, INC.
111 West Monroe Street
Chicago, Illinois 60603
(312) 461-2121
Commission File Number 0-18179
Incorporated in the State of Delaware
IRS Employer Identification No. 36-2722782
Harris Bankcorp, Inc. (the "Corporation") 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 and has been subject to such filing requirements for the
past 90 days.
At November 14, 1996 the Corporation had 6,667,490 shares of $8 par value common
stock outstanding.
<PAGE> 2
FINANCIAL HIGHLIGHTS Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended September 30 Nine Months Ended September 30
---------------------------- ------------------------------
1996 1995 Change 1996 1995 Change
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AND DIVIDENDS (IN THOUSANDS)
Net interest income...................................... $139,253 $121,040 15% $391,027 $358,285 9%
Net interest income (fully taxable equivalent)........... 146,833 124,900 18 410,077 372,544 10
Provision for credit losses.............................. 15,011 10,974 37 42,223 31,414 34
Noninterest income....................................... 80,504 79,978 1 241,106 252,020 (4)
Noninterest expenses..................................... 167,350 137,167 22 437,391 418,448 5
Net income............................................... 26,530 35,802 (26) 104,540 108,711 (4)
Dividends-common stock................................... 11,700 14,400 (19) 40,200 42,400 (5)
Dividends-preferred stock................................ 4,188 -- -- 10,857 -- --
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SELECTED RATIOS
Return on average common stockholder's equity............ 7.24% 12.93% (569)bp 11.96% 13.61% (165)bp
Return on average common stockholder's equity excluding
SAIF charge(1)......................................... 10.48 12.93 (245) 13.24 13.61 (37)
Return on average assets................................. 0.60 0.89 (29) 0.83 0.96 (13)
Return on average assets excluding SAIF charge(1)........ 0.83 0.89 (6) 0.91 0.96 (5)
Tier 1 risk-based capital ratio.......................... 8.09 8.45 (36)
Total risk-based capital ratio........................... 11.48 11.73 (25)
Tier 1 leverage ratio.................................... 6.93 6.93 0
Allowance for possible credit losses to total loans
(period-end)........................................... 1.39 1.42 (3)
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DAILY AVERAGE BALANCES (IN MILLIONS)
Loans, net of unearned income............................ $ 10,132 $ 8,928 13% $ 9,769 $ 8,589 14%
Portfolio securities..................................... 4,377 3,859 13 4,225 3,533 20
Money market assets...................................... 863 768 12 741 913 (19)
Total interest-earning assets............................ 15,432 13,622 13 14,806 13,094 13
Total assets............................................. 17,562 15,919 10 16,849 15,242 11
Deposits................................................. 12,052 10,079 20 11,190 9,958 12
Short-term borrowings.................................... 3,342 3,794 (12) 3,680 3,325 11
Common stockholder's equity.............................. 1,228 1,099 12 1,046 1,071 (2)
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BALANCES AT SEPTEMBER 30 (IN MILLIONS)
Loans, net of unearned income............................ $ 10,343 $ 9,131 13%
Allowance for possible credit losses..................... 143 129 11
Portfolio securities..................................... 4,337 4,002 8
Total assets............................................. 19,019 16,245 17
Deposits................................................. 13,329 9,837 35
Common stockholder's equity.............................. 1,246 1,118 11
Total stockholder's equity............................... 1,471 1,118 32
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</TABLE>
(1) In September 1996, legislation was enacted to re-capitalize the Savings
Association Insurance Fund ("SAIF"). The one-time special assessment of
$16.7 million was recorded by Harris Bankcorp, Inc. during third quarter
1996; the impact on net income amounted to $10.0 million after-tax.
1
<PAGE> 3
REPORT FROM MANAGEMENT
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Including a one-time $10.0 million after-tax charge resulting from
recent legislation to re-capitalize the Savings Association Insurance
Fund ("SAIF"), Harris Bankcorp, Inc. ("the Corporation" or "Harris
Bankcorp") recorded earnings of $26.5 million for third quarter 1996,
and $104.5 million for the first nine months of 1996. This one-time
SAIF charge, which was expected and assumed by Harris Bankcorp,
resulted from Harris Trust and Savings Bank's ("HTSB") June 1996
purchase of Household Bank, f.s.b's ("Household") Chicagoland retail
banking business.
For the first nine months of 1996, earnings comparability was
affected by two significant items. In addition to the impact of the
1996 Household transaction, during the first nine months of 1995 the
Corporation realized $20.6 million in net gains from portfolio
securities transactions compared to a $4.3 million net gain for the
first nine months of 1996. Most of the 1995 gains were recognized
during the second quarter when conditions in the U.S. bond market led
to significant price rallies and profit opportunities not typically
available.
Excluding the effect of these portfolio securities gains and the
impact of the Household transaction (which includes the $10.0 million
after-tax SAIF charge), earnings for the current nine-month period
increased 19% from the comparable 1995 period. This increase in
earnings was attributed to strong business growth across corporate,
private and retail banking, and to sustained cost control. For the
current quarter, earnings rose 9% from third quarter 1995 after
excluding the impact of the Household transaction.
Excluding the one-time SAIF charge, annualized return on average
common stockholder's equity ("ROE") was 13.24% for the current
nine-month period compared to 13.61% a year earlier, and 10.48% for
the current quarter compared to 12.93% a year ago. On the same basis,
annualized return on average assets ("ROA") was 0.91% for the current
nine-month period compared to 0.96% a year earlier, and 0.83% for the
current quarter compared to 0.89% a year ago.
Third quarter net interest income on a fully taxable equivalent
basis was $146.8 million, up $21.9 million or 18% from $124.9 million
in 1995's third quarter. Average earning assets rose 13% to $15.4
billion from $13.6 billion in 1995, attributable to an increase of
13% or $1.2 billion in average loans. Commercial, installment and
retail mortgage lending were the strongest contributors to this
growth. Net interest margin rose to 3.79% from 3.65% in the same
quarter last year. This reflects a more favorable funding mix
resulting from lower interest costs associated with deposits assumed
from Household, compared to interest costs on wholesale funds
displaced. Excluding the contribution of the Household transaction,
net interest income would have increased $9.8 million or 8%
quarter-to-quarter.
Noninterest income of $80.5 million was essentially unchanged in
third quarter 1996 from the same quarter last year. During first
quarter 1996, HTSB sold its securities custody and related trustee
services business for large institutions. Primarily as a result of
this sale, trust fees declined in third quarter 1996 by $8.9 million.
In the current quarter, service charge fees rose by $7.3 million and
charge card fees improved by $2.2 million compared to third quarter
1995. Without the contribution from the Household transaction, the
Corporation's noninterest income would have declined by $2.5 million
or 3% from the prior year's quarter.
Third quarter 1996 noninterest expenses of $167.4 million rose
$30.2 million from third quarter last year. Third quarter 1995 did
not include operating expenses associated with Household or the
related amortization of goodwill and other intangible assets. In
addition, the expense for the one-time SAIF assessment levied on
deposits assumed from Household, amounting to $16.7 million pre-tax,
was recognized in third quarter 1996. Excluding all Household-related
charges, total expenses decreased $5.9 million or 4% in third quarter
1996 compared to the year-earlier quarter.
Income taxes declined by $6.2 million during the current quarter
primarily reflecting lower pretax income.
The third quarter 1996 provision for credit losses of $15.0
million was up $4.0 million from $11.0 million in the third quarter
of 1995. Net loan charge-offs during the current quarter were $11.0
million compared to $9.1 million in the same period last year.
Nonperforming assets at September 30, 1996 totaled $36 million,
or 0.4% of total loans, compared to $42 million or 0.4% at June 30,
1996, and $60 million or 0.7% a year ago. At September 30, 1996, the
allowance for possible credit losses was $143 million compared to
$129 million at the end of third quarter
2
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1995, both equal to 1.4% of loans outstanding at those dates. As a
result, the ratio of the allowance for possible credit losses to
nonperforming assets increased from 216% at September 30, 1995 to
401% at September 30, 1996.
At September 30, 1996, equity capital of Harris Bankcorp amounted
to $1.47 billion, up from $1.12 billion at September 30, 1995. The
regulatory leverage capital ratio was 6.93% for third quarter 1996
and 1995. Harris Bankcorp's capital ratio exceeds the prescribed
regulatory minimum for bank holding companies. Harris Bankcorp's
September 30, 1996 Tier 1 and total risk-based capital ratios were
8.09% and 11.48%, respectively, compared to respective ratios of
8.45% and 11.73% at September 30, 1995. In conjunction with the
acquisition of Household Bank's Chicagoland retail banking business,
Harris Bankcorp increased its capital base by $340 million, in part
through the issuance of $45 million of preferred stock and an
additional $15 million of long-term subordinated debt to the
Corporation's parent company, Bankmont Financial Corp. ("BFC"). The
balance of the capital, $280 million, was provided via an infusion of
equity by BFC. At September 30, 1996, Harris Bankcorp's equity
capital includes $225 million of preferred stock.
For the first nine months of 1996, net interest income on a fully
taxable equivalent basis of $410.1 million was up 10% from the
comparable 1995 period. Net interest margin fell from 3.80% to 3.70%
in the period ending September 30, 1996, while average earning assets
rose 13% from $13.1 billion to $14.8 billion, and average loans
increased 14% or $1.2 billion. Noninterest income decreased 4% to
$241.1 million for the first nine months of 1996, primarily because
of the reduction in net gains from portfolio securities transactions
and a $24.7 million or 22% decline in trust fees. While personal and
corporate trust fees grew strongly for the nine-month period ended
September 30, 1996, total trust fees and related noninterest expenses
decreased as a result of Harris Bank's sale of its securities custody
and related trustee services business for large institutions in
January 1996.
Total noninterest expenses were $437.4 million in the current
nine-month period. Excluding the effect of charges related to the
acquisition and ongoing operations of the Household retail banking
business acquired at the end of second quarter 1996 (including the
one-time special SAIF assessment), expenses declined by 4%, compared
to the nine months ended September 30, 1995.
The Corporation has recently announced plans for a new location
on Chicago's south side in Brighton Park. This brings to 144 the
number of Harris-affiliated locations (including facilities of
banking institutions owned by Harris Bankmont, Inc.) opened or
planned throughout Chicagoland.
Harris Bank (which includes both Harris Bankcorp and Harris
Bankmont, Inc.), together with its Canadian parent company, Bank of
Montreal, is expanding its retail banking services across the Midwest
through mbanx, North American full-service direct banking. Beginning
next month, customers and prospective customers in Illinois,
Wisconsin, Indiana, Michigan, Missouri, Iowa, Minnesota and Ohio can
call for information and apply over the phone for services such as
home equity loans, checking accounts, money market accounts, CD's,
credit cards, mortgages, mutual funds and discount brokerage. mbanx
customers can use their phone or personal computers to check
balances, review transaction history and to transfer funds between
accounts -- whether at home, at work or on the road. mbanx will be
expanding its PC-banking capabilities to allow customers to pay
bills, communicate with the bank via e-mail and download transaction
information to personal financial management software. With its
Chicagoland community banking network and mbanx, Harris Bank is
delivering outstanding service and innovation to meet the rising
expectations of today's and tomorrow's banking customers --
throughout the Midwest and in Chicagoland -- whether in person, on
the phone, at the ATM or the PC.
Alan G. McNally
Alan G. McNally
Chairman of the Board and
Chief Executive
Officer October 30, 1996
3
<PAGE> 5
CONSOLIDATED STATEMENT OF INCOME Harris Bankcorp, Inc. and Subsidiaries
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<TABLE>
<CAPTION>
Nine Months Ended
Quarter Ended September 30 September 30
-------------------------- --------------------------
(in thousands except per share data) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
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INTEREST INCOME
Loans, including fees....................................... $215,691 $196,943 $616,145 $569,902
Money market assets:
Deposits at banks......................................... 9,118 9,681 20,444 29,654
Federal funds sold and securities purchased under
agreement to resell..................................... 2,451 3,517 9,316 14,437
Trading account............................................. 881 970 2,987 2,670
Securities available for sale:
U.S. Treasury and Federal agency.......................... 60,257 43,024 173,269 110,037
Other..................................................... 5,046 2,794 15,774 7,691
Securities held to maturity:
U.S. Treasury and Federal agency.......................... -- 9,142 -- 27,614
State and municipal....................................... -- 5,965 -- 22,171
Other..................................................... -- 60 -- 279
-------- -------- -------- --------
Total interest income..................................... 293,444 272,096 837,935 784,455
-------- -------- -------- --------
INTEREST EXPENSE
Deposits.................................................... 104,408 91,172 289,170 266,635
Short-term borrowings....................................... 36,985 45,215 121,538 122,088
Senior notes................................................ 5,988 8,934 16,257 20,111
Long-term notes............................................. 6,810 5,735 19,943 17,336
-------- -------- -------- --------
Total interest expense.................................... 154,191 151,056 446,908 426,170
-------- -------- -------- --------
NET INTEREST INCOME......................................... 139,253 121,040 391,027 358,285
Provision for credit losses................................. 15,011 10,974 42,223 31,414
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 124,242 110,066 348,804 326,871
-------- -------- -------- --------
NONINTEREST INCOME
Trust and investment management fees........................ 29,071 37,950 88,330 113,041
Trading account............................................. 686 399 4,338 3,011
Foreign exchange............................................ 1,697 2,434 8,697 10,160
Charge card................................................. 13,115 10,909 34,191 30,621
Service fees and charges.................................... 23,582 16,246 60,017 51,437
Portfolio securities gains.................................. 738 1,672 4,288 20,572
Other....................................................... 11,615 10,368 41,245 23,178
-------- -------- -------- --------
Total noninterest income.................................. 80,504 79,978 241,106 252,020
-------- -------- -------- --------
NONINTEREST EXPENSES
Salaries and other compensation............................. 71,756 65,779 201,590 190,930
Pension, profit sharing and other employee benefits......... 13,175 13,164 42,941 47,568
Net occupancy............................................... 12,894 11,730 34,472 35,095
Equipment................................................... 10,338 10,928 30,395 31,142
Marketing................................................... 7,662 6,605 20,381 19,052
Communication and delivery.................................. 4,743 5,108 15,242 14,989
Deposit insurance........................................... 18,348 (281) 18,427 7,352
Other....................................................... 21,553 21,828 62,644 65,243
-------- -------- -------- --------
160,469 134,861 426,092 411,371
Goodwill and other valuation intangibles.................... 6,881 2,306 11,299 7,077
-------- -------- -------- --------
Total noninterest expenses................................ 167,350 137,167 437,391 418,448
-------- -------- -------- --------
Income before income taxes.................................. 37,396 52,877 152,519 160,443
Applicable income taxes..................................... 10,866 17,075 47,979 51,732
-------- -------- -------- --------
NET INCOME................................................ 26,530 35,802 104,540 108,711
Dividends on preferred stock................................ 4,188 -- 10,857 --
-------- -------- -------- --------
Net Income Applicable to Common Stock....................... $ 22,342 $ 35,802 $ 93,683 $108,711
======== ======== ======== ========
EARNINGS PER COMMON SHARE (BASED ON 6,667,490 AVERAGE SHARES
OUTSTANDING)
Net Income Applicable to Common Stock....................... $ 3.35 $ 5.36 $ 14.05 $ 16.30
======== ======== ======== ========
</TABLE>
4
<PAGE> 6
CONSOLIDATED STATEMENT OF CONDITION Harris Bankcorp, Inc. and Subsidiaries
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<TABLE>
<CAPTION>
September 30 December 31 September 30
(in thousands except share data) 1996 1995 1995
<S> <C> <C> <C>
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ASSETS
Cash and demand balances due from banks................................. $ 1,822,522 $ 1,522,418 $ 1,350,070
Money market assets:
Interest-bearing deposits at banks.................................... 839,933 457,702 457,508
Federal funds sold and securities purchased under agreement to
resell.............................................................. 493,057 179,692 368,519
Trading account assets.................................................. 28,225 98,638 50,647
Portfolio securities:
Held to maturity (market value of $930,361 in 1995)................... -- -- 913,919
Available for sale.................................................... 4,337,406 3,389,967 3,088,572
Loans, net of unearned income of $11,391 in 1996, $16,091 and $17,493 in
1995.................................................................. 10,343,418 9,517,797 9,131,371
Allowance for possible credit losses.................................... (143,216) (129,259) (129,345)
Premises and equipment.................................................. 264,261 225,540 222,916
Customers' liability on acceptances..................................... 100,950 95,326 190,871
Other assets............................................................ 932,193 318,380 600,125
----------- ----------- -----------
TOTAL ASSETS...................................................... $19,018,749 $15,676,201 $16,245,173
=========== =========== ===========
LIABILITIES
Deposits in domestic offices - noninterest-bearing...................... $ 3,662,264 $ 3,003,088 $ 2,770,094
- interest-bearing......................... 7,617,386 4,859,939 4,396,073
Deposits in foreign offices - noninterest-bearing....................... 32,775 41,004 22,727
- interest-bearing.......................... 2,017,003 2,324,751 2,647,945
----------- ----------- -----------
Total deposits.................................................... 13,329,428 10,228,782 9,836,839
Federal funds purchased and securities sold under agreement to
repurchase............................................................ 2,656,235 1,896,817 2,894,321
Commercial paper outstanding............................................ 225,301 292,022 250,432
Short-term borrowings................................................... 170,331 843,049 511,509
Senior notes............................................................ 439,000 478,000 689,000
Acceptances outstanding................................................. 100,950 95,326 190,871
Accrued interest, taxes and other expenses.............................. 179,721 143,580 161,274
Other liabilities....................................................... 68,191 188,897 293,853
Long-term notes......................................................... 379,067 363,952 298,915
----------- ----------- -----------
TOTAL LIABILITIES................................................. 17,548,224 14,530,425 15,127,014
----------- ----------- -----------
STOCKHOLDER'S EQUITY
Series A non-voting preferred stock (no par value); authorized 1,000,000
shares; issued and outstanding 180 shares ($1,000,000 stated value);
7.25% dividend rate................................................... 180,000 180,000 --
Series B non-voting preferred stock (no par value); authorized 45
shares; issued and outstanding 45 shares ($1,000,000 stated value);
7.875% dividend rate.................................................. 45,000 -- --
Common stock ($8 par value); authorized 10,000,000 shares; issued and
outstanding 6,667,490 shares.......................................... 53,340 53,340 53,340
Surplus................................................................. 484,191 203,897 203,897
Retained earnings....................................................... 734,951 681,468 862,928
Unrealized holding (losses) gains, net of deferred taxes of ($17,778) in
1996, $17,787 and ($1,329) in 1995.................................... (26,957) 27,071 (2,006)
----------- ----------- -----------
TOTAL STOCKHOLDER'S EQUITY........................................ 1,470,525 1,145,776 1,118,159
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........................ $19,018,749 $15,676,201 $16,245,173
=========== =========== ===========
</TABLE>
5
<PAGE> 7
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY Harris Bankcorp, Inc.
and Subsidiaries
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<TABLE>
<CAPTION>
(in thousands) 1996 1995
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<S> <C> <C>
BALANCE AT JANUARY 1............................................................................... $1,145,776 $1,021,154
Net income....................................................................................... 104,540 108,711
Issuance of Series B preferred stock............................................................. 45,000 --
Contributions to capital......................................................................... 280,294 --
Dividends -- Series A preferred stock............................................................ (9,932) --
Dividends -- Series B preferred stock............................................................ (925) --
Dividends -- common stock........................................................................ (40,200) (42,400)
Net change in unrealized holding gains/losses on available for sale securities, net of tax....... (54,028) 30,694
---------- ----------
BALANCE AT SEPTEMBER 30............................................................................ $1,470,525 $1,118,159
========== ==========
</TABLE>
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CONSOLIDATED STATEMENT OF CASH FLOWS Harris Bankcorp, Inc. and Subsidiaries
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<TABLE>
<CAPTION>
Nine Months Ended September
30
-----------------------------
(in thousands) 1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income....................................................................................... $ 104,540 $ 108,711
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses.................................................................... 42,223 31,414
Depreciation and amortization, including intangibles........................................... 39,902 34,897
Deferred tax expense (benefit)................................................................. 982 (3,327)
Gain on sales of portfolio securities.......................................................... (4,288) (20,572)
Trading account net sales (purchases).......................................................... 70,413 (14,580)
Net increase in interest receivable............................................................ (8,376) (9,966)
Net (decrease) increase in interest payable.................................................... (1,497) 13,551
Net increase in loans held for resale.......................................................... (47,515) (92,271)
Other, net..................................................................................... (80,502) 75,555
----------- -----------
Net cash provided by operating activities.................................................... 115,882 123,412
----------- -----------
INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits at banks.................................. (382,231) 299,719
Net (increase) decrease in Federal funds sold and securities purchased under agreement to
resell....................................................................................... (313,365) 35,707
Proceeds from maturities of securities held to maturity........................................ -- 575,613
Purchases of securities held to maturity....................................................... -- (381,695)
Proceeds from sales of securities available for sale........................................... 911,590 1,514,607
Proceeds from maturities of securities available for sale...................................... 4,643,530 3,878,263
Purchases of securities available for sale..................................................... (6,587,879) (5,828,855)
Net increase in loans.......................................................................... (470,256) (836,650)
Net cash received upon assumption of certain assets and liabilities of Household Bank,
f.s.b........................................................................................ 2,244,009 --
Proceeds from sales of premises and equipment.................................................. 12,719 20,171
Purchases of premises and equipment............................................................ (53,891) (50,497)
Other, net..................................................................................... 34,819 (10,209)
----------- -----------
Net cash provided (used) by investing activities............................................. 39,045 (783,826)
----------- -----------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits............................................................ 209,442 (82,893)
Net increase in Federal funds purchased and securities sold under agreement to repurchase...... 759,418 262,154
Net decrease in commercial paper outstanding................................................... (66,721) (56,305)
Net decrease in short-term borrowings.......................................................... (672,718) (158,853)
Proceeds from issuance of senior notes......................................................... 1,199,436 2,040,100
Repayment of senior notes...................................................................... (1,238,436) (1,351,100)
Proceeds from issuance of long-term notes...................................................... 15,000 --
Proceeds from issuance of Series B preferred stock............................................. 45,000 --
Contribution to capital surplus................................................................ 280,000 --
Cash dividends paid on preferred stock......................................................... (9,932) --
Cash dividends paid on common stock............................................................ (40,200) (42,400)
Other, net..................................................................................... (335,112) --
----------- -----------
Net cash provided by financing activities.................................................... 145,177 610,703
----------- -----------
NET INCREASE (DECREASE) IN CASH AND DEMAND BALANCES DUE FROM BANKS........................... 300,104 (49,711)
CASH AND DEMAND BALANCES DUE FROM BANKS AT JANUARY 1......................................... 1,522,418 1,399,781
----------- -----------
CASH AND DEMAND BALANCES DUE FROM BANKS AT SEPTEMBER 30...................................... $ 1,822,522 $ 1,350,070
=========== ===========
</TABLE>
6
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS Harris Bankcorp, Inc. and Subsidiaries
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1. BASIS OF
PRESENTATION
Harris Bankcorp, Inc. (the "Corporation") is a wholly-owned
subsidiary of Bankmont Financial Corp. (a wholly-owned subsidiary of
Bank of Montreal). The consolidated financial statements of the
Corporation include the accounts of the Corporation and its
wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated. Certain reclassifications were
made to conform prior years' financial statements to the current
year's presentation.
The consolidated financial statements have been prepared by
management from the books and records of the Corporation, without
audit by independent certified public accountants. However, these
statements reflect all adjustments and disclosures which are, in the
opinion of management, necessary for a fair presentation of the
results for the interim periods presented and should be read in
conjunction with the notes to financial statements included in the
Corporation's Form 10-K for the year ended December 31, 1995.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
Because the results of operations are so closely related to and
responsive to changes in economic conditions, the results for any
interim period are not necessarily indicative of the results that can
be expected for the entire year.
- --------------------------------------------------------------------------------
2. LEGAL
PROCEEDINGS
Certain subsidiaries of the Corporation are defendants in various
legal proceedings arising in the normal course of business. In the
opinion of management, based on the advice of legal counsel, the
ultimate resolution of these matters will not have a material adverse
effect on the Corporation's consolidated financial position.
- --------------------------------------------------------------------------------
3. CASH FLOWS
For purposes of the Corporation's Consolidated Statement of Cash
Flows, cash and cash equivalents is defined to include cash and
demand balances due from banks. Cash interest payments (net of any
amounts capitalized) for the nine months ended September 30, totaled
$522,688,000 and $429,821,000 in 1996 and 1995, respectively. Cash
income tax payments over the same periods totaled $58,879,000 and
$53,207,000, respectively.
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4. ACCOUNTING
CHANGES
During the first quarter of 1996, the Corporation adopted Statement
of Financial Accounting Standards ("SFAS") No. 122, Accounting for
Mortgage Servicing Rights. The Statement applies to transactions in
which a mortgage banking enterprise acquires mortgage servicing
rights through the purchase or origination of mortgage loans and then
sells or securitizes those loans with servicing rights retained by
the seller. As required by the Statement, the rights to service
mortgage loans for others are recognized as separate assets by
allocating the total cost of the mortgage loans to the mortgage
servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values. The capitalized mortgage
servicing rights are periodically evaluated for impairment based on
the fair value of those rights. During the first quarter of 1996, the
Corporation began to capitalize mortgage servicing rights. The risk
characteristics of the underlying loans used to stratify capitalized
mortgage servicing rights for purposes of measuring impairment are
loan type and repricing interval. The adoption of the Statement did
not have a material effect on the Corporation's financial position or
results of operations.
In January 1996, the Corporation adopted the Harris Bank Stock
Option Program under the Bank of Montreal Stock Option Plan. The plan
was established for certain designated executives and other employees
of the Corporation and affiliated companies in order to provide
incentive to attain long-term strategic goals and to attract and
retain services of key employees. On February 26, 1996, the
Corporation granted 510,200 stock options with a ten-year term which
are exercisable only during the second five years of their term,
assuming cumulative performance goals are met. The stock options are
exercisable for Bank of Montreal common stock at a price of Canadian
$31.00 per share, equal to the market price on the date of grant
(equivalent to
7
<PAGE> 9
U.S. $22.55). The estimated grant-date fair value of the options
granted on February 26, 1996 was Canadian $5.79, equivalent to U.S.
$4.26. The Corporation adopted SFAS No. 123, Accounting for
Stock-based Compensation during the first quarter of 1996. The
adoption of the Statement did not have a material effect on the
Corporation's financial position or results of operations.
- --------------------------------------------------------------------------------
5. FOREIGN
EXCHANGE
ACTIVITIES
Effective April 3, 1995, the Corporation and Bank of Montreal ("BMO")
agreed to combine their U.S. foreign exchange activities ("FX").
Under this arrangement, FX net profits are shared by the Corporation
and BMO in accordance with a specific formula set forth in the
agreement. This agreement expires in April 2002 but may be extended
at that time. Either party may terminate the arrangement at its
option. This agreement did not have a material impact on the
Corporation's year-to-date or third quarter 1996 or fiscal 1995 net
income or financial position at September 30, 1996, December 31, 1995
or September 30, 1995.
- --------------------------------------------------------------------------------
6. ACQUISITION
OF HOUSEHOLD
BRANCHES
On June 28, 1996, Harris Trust and Savings Bank ("HTSB"), the
Corporation's lead bank subsidiary, completed the acquisition of 54
branches previously owned by Household Bank, f.s.b. ("Household"), a
wholly-owned subsidiary of Household International, Inc. The 54
branches are located throughout the metropolitan Chicago area. In
addition to acquiring real and personal property, HTSB has assumed
certain deposit liabilities and purchased other assets, primarily
consumer loans. In anticipation of this transaction, on June 27, 1996
the Corporation increased its capital base by $340 million, in part
through the issuance of $45 million of Series B non-voting, callable
perpetual preferred stock and an additional $15 million of long-term
subordinated debt. Both issues were purchased by Bankmont Financial
Corp. ("BFC"). The balance of the capital, $280 million, was provided
through a direct infusion of common equity by BFC.
At the closing, HTSB assumed deposits totaling $2.9 billion. In
addition, HTSB acquired loans amounting to $340 million along with
real property and certain other miscellaneous assets. After paying a
purchase price of $277 million, HTSB received approximately $2.24
billion in cash from Household as consideration for the deposit
liabilities assumed, net of assets purchased. The contract between
HTSB and Household provided for a final settlement to occur within 10
business day of the closing, to reflect actual loan and deposit
balances as of the closing date. These final settlement adjustments
were not material to the Corporation's second or third quarter 1996
net income or financial position at September 30, 1996.
The purchase price of $277 million was recorded as an intangible
asset, along with certain fair value adjustments and deferred
acquisition costs, resulting in goodwill and other intangibles
recognized of $284 million.
In third quarter 1996, a one-time $10.0 million after-tax charge
was recorded resulting from recent legislation to re-capitalize the
Savings Association Insurance Fund ("SAIF"). This one-time SAIF
charge was expected and assumed by HTSB as a result of its
acquisition of Household branches. Excluding the impact of the SAIF
charge, the impact of the acquisition on 1996 net income is not
expected to be material. Following is a condensed statement of
condition of the Corporation, reflecting the impact of the
transaction on the Corporation's financial position at June 30, 1996.
8
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1996 Household June 30, 1996
(in millions) Without Household Impact As Reported
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and demand balances due from banks............................ $ 1,179 $ 105a,f $ 1,284
Money market and trading account assets............................ 863 863
Portfolio securities............................................... 4,386 4,386
Loans, net of unearned income...................................... 9,895 340b 10,235
Allowance for possible credit losses............................... (134) (5)b (139)
Premises and equipment............................................. 230 30c 260
Other assets....................................................... 685 294b,c,d,g 979
------------ --------- ----------
TOTAL ASSETS................................................... $17,104 $ 764 $17,868
============ ========= ==========
LIABILITIES
Total deposits..................................................... 11,023 1,643e,f 12,666
Short-term borrowings.............................................. 4,324 (1,244)f 3,080
Other liabilities.................................................. 271 25g 296
Long-term notes.................................................... 364 15a 379
------------ --------- ----------
TOTAL LIABILITIES.............................................. 15,982 439 16,421
------------ --------- ----------
STOCKHOLDER'S EQUITY
Preferred stock.................................................... 180 45a 225
Common equity...................................................... 942 280a 1,222
------------ --------- ----------
TOTAL STOCKHOLDER'S EQUITY..................................... 1,122 325 1,447
------------ --------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..................... $17,104 $ 764 $17,868
============ ========= ==========
</TABLE>
a. The Corporation received a contribution to capital surplus from BFC of $280
million and issued to BFC $45 million of preferred stock and $15 million of
subordinated debt.
b. The Corporation acquired loans amounting to $340 million and established a
related allowance for possible credit losses of $4.8 million in order to
record the loans at fair value.
c. The Corporation acquired fixed assets totaling $30 million including a $3.9
million adjustment to reflect land acquired at fair market value.
d. The Corporation recorded the $277 million purchase price as an intangible
asset.
e. The Corporation assumed deposit liabilities totaling $2.9 billion.
f. The Corporation reduced short-term borrowings (wholesale time deposits,
Federal funds purchased, etc.) with the net cash available from Household
and the related capital infusion from BFC. In addition, cash and due from
bank balances increased as a result of statutory reserve requirements on
deposits.
g. The Corporation recorded $17 million of accrued interest payable on the
assumed deposit liabilities and capitalized as part of the purchase price
approximately $6.8 million for investment banker fees, severance costs and
other charges.
9
<PAGE> 11
CONSOLIDATED STATISTICAL SUMMARY Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended September 30 Nine Months Ended September 30
------------------------------------- -------------------------------------
Daily Average Balances (in millions) 1996 1995 1996 1995
Average Rates Earned and Paid (fully taxable ---------------- ---------------- ---------------- ----------------
equivalent basis) Balances Rates Balances Rates Balances Rates Balances Rates
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Money market assets:
Interest-bearing deposits at banks........... $ 687 5.28% $ 528 6.33% $ 516 5.29% $ 589 5.96%
Federal funds sold and securities purchased
under agreement to resell.................. 176 5.53 240 5.82 225 5.54 324 5.95
------- ------- ------- -------
Total money market assets............. 863 5.34 768 6.19 741 5.36 913 5.96
Trading account assets......................... 60 7.44 67 6.62 71 7.07 59 7.17
Portfolio securities:
Held to maturity:
U.S. Treasury and Federal agency............. -- -- 602 6.03 -- -- 611 6.04
State and municipal.......................... -- -- 328 10.85 -- -- 386 11.61
Other........................................ -- -- 5 5.81 -- -- 6 6.09
------- ------- ------- -------
Total held to maturity................ -- -- 935 7.72 -- -- 1,003 8.19
Available for sale:
U.S. Treasury and Federal agency............. 4,034 6.39 2,735 6.35 3,871 6.32 2,369 6.27
Other........................................ 343 8.68 189 5.40 354 8.63 161 5.68
------- ------- ------- -------
Total available for sale.............. 4,377 6.57 2,924 6.28 4,225 6.51 2,530 6.23
Total portfolio securities............ 4,377 6.57 3,859 6.47 4,225 6.51 3,533 6.79
Loans, net of unearned income.................. 10,132 8.50 8,928 8.80 9,769 8.44 8,589 8.89
------- ------- ------- -------
TOTAL INTEREST-EARNING ASSETS......... 15,432 7.77 13,622 8.02 14,806 7.73 13,094 8.15
------- ------- ------- -------
Cash and demand balances due from banks........ 1,144 1,187 1,129 1,182
Other assets................................... 986 1,110 914 966
------- ------- ------- -------
Total assets.......................... $ 17,562 $ 15,919 $ 16,849 $ 15,242
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Interest checking deposits and money market
accounts..................................... $ 2,675 3.23 $ 1,657 2.81 $ 2,100 3.20 $ 1,650 3.05
Savings deposits and certificates.............. 4,629 4.91 2,503 5.37 3,271 4.87 2,426 5.04
Other time deposits............................ 493 4.87 736 5.84 734 5.42 639 5.97
Foreign office time deposits................... 1,471 5.28 2,334 5.91 2,228 5.38 2,414 6.03
------- ------- ------- -------
TOTAL INTEREST-BEARING DEPOSITS....... 9,268 4.48 7,230 5.00 8,333 4.64 7,129 5.00
Other short-term borrowings.................... 2,900 5.08 3,213 5.59 3,286 4.93 2,889 5.65
Short-term senior notes........................ 442 5.43 581 6.14 394 5.65 436 6.15
Long-term notes................................ 379 7.19 299 7.68 369 7.04 299 7.73
------- ------- ------- -------
TOTAL INTEREST-BEARING LIABILITIES.... 12,989 4.73 11,323 5.30 12,382 4.82 10,753 5.30
Noninterest-bearing deposits................... 2,784 2,849 2,857 2,829
Other liabilities.............................. 336 648 368 589
Stockholder's equity........................... 1,453 1,099 1,242 1,071
------- ------- ------- -------
Total liabilities and stockholder's
equity.............................. $ 17,562 $ 15,919 $ 16,849 $ 15,242
======= ======= ======= =======
NET INTEREST MARGIN (RELATED TO AVERAGE
INTEREST-EARNING ASSETS)..................... 3.79% 3.65% 3.70% 3.80%
==== ==== ==== ====
</TABLE>
1. FULLY TAXABLE EQUIVALENT ADJUSTMENT
Tax-exempt interest income has been restated to a comparable taxable level.
Beginning in 1996, the adjustment includes a state tax component.
2. AVERAGE RATE ON PORTFOLIO SECURITIES
Yields on securities classified as available for sale are based on amortized
cost.
10
<PAGE> 12
FINANCIAL REVIEW Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
THIRD QUARTER 1996
COMPARED WITH
THIRD QUARTER 1995
- --------------------------------------------------------------------------------
SUMMARY
Including a one-time $10.0 million after-tax charge resulting from
recent legislation to re-capitalize the Savings Association Insurance
Fund ("SAIF"), the Corporation recorded earnings of $26.5 million for
third quarter 1996. This one-time SAIF charge, which was expected and
assumed by the Corporation as a result of HTSB's June 1996 purchase
of Household Bank, f.s.b's ("Household") Chicagoland retail banking
business, should significantly reduce HTSB's future deposit insurance
premiums compared to what they would have been based on current
assessment rates.
Excluding the impact of the Household transaction (which includes
the $10 million after-tax SAIF charge), earnings for the current
quarter increased 9% from the prior year's third quarter. This
increase in earnings was attributed to strong business growth across
corporate, private and retail banking, and to sustained cost control.
Excluding the one-time SAIF charge, annualized return on average
common stockholder's equity ("ROE") was 10.48% for the current
quarter compared to 12.93% a year ago. On the same basis, annualized
return on average assets ("ROA") was 0.83% for the current quarter
compared to 0.89% a year ago.
Net interest income on a fully taxable equivalent ("FTE") basis
was $146.8 million, up $21.9 million or 18% from $124.9 million in
1995's third quarter, reflecting a 13% increase in average earning
assets, attributable to an increase of 13% or $1.2 billion in average
loans, primarily from growth in commercial, installment and retail
mortgage loans. Loans acquired from Household contributed $343
million to the increase. Net interest margin rose to 3.79% from 3.65%
in the same quarter last year. This reflects a more favorable funding
mix resulting from lower interest costs associated with deposits
assumed from Household, compared to interest costs on wholesale funds
displaced. Excluding the contribution of the Household transaction,
net interest income would have increased $9.8 million or 8%
quarter-to-quarter.
The third quarter provision for credit losses of $15.0 million
was up $4.0 million from $11.0 in the third quarter of 1995. Net
charge-offs increased from $9.1 million to $11.0 million.
Noninterest income of $80.5 million was essentially unchanged in
third quarter 1996 from the same quarter last year. During first
quarter 1996, HTSB sold its securities custody and related trustee
services business for large institutions. Primarily as a result of
this sale, trust fees declined in third quarter 1996 by $8.9 million.
In the current quarter, service charge fees rose by $7.3 million and
charge card fees improved by $2.2 million compared to third quarter
1995. Without the contribution from the Household transaction, the
Corporation's noninterest income would have declined by $2.5 million
or 3% from the prior year's quarter.
Third quarter 1996 noninterest expenses of $167.4 million rose
$30.2 million from third quarter last year. Third quarter 1995 did
not include operating expenses associated with Household or the
related amortization of goodwill and other intangible assets. In
addition, the expense for the one-time SAIF assessment levied on
deposits assumed from Household amounting to $16.7 million pre-tax,
was recognized in third quarter 1996. Excluding all Household-related
charges, total expenses decreased $5.9 million or 4% in third quarter
1996 compared to the year-earlier quarter, primarily reflecting lower
ongoing costs resulting from the sale of the Corporation's securities
custody and related trustee services business for large institutions.
Income taxes declined by $6.2 million during the current quarter
primarily reflecting lower pretax income.
Additional commentary on the matters included in the above
summary is provided in the following sections in this Report.
11
<PAGE> 13
- --------------------------------------------------------------------------------
NET INTEREST
INCOME
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
-------------------- -----------------------
(in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
Interest income................................... $293,444 $272,096 $837,935 $784,455
Fully taxable equivalent adjustment............... 7,580 3,860 19,050 14,259
-------- -------- -------- --------
Interest income (fully taxable equivalent
basis)...................................... 301,024 275,956 856,985 798,714
Interest expense.................................. 154,191 151,056 446,908 426,170
-------- -------- -------- --------
Net interest income (fully taxable equivalent
basis)...................................... $146,833 $124,900 $410,077 $372,544
======== ======== ======== ========
Increase (decrease) due to change in:
Volume........................................ $ 17,020 $ 13,058 $ 47,566 $ 29,941
Rate.......................................... 4,913 (10,749) (10,033) (11,024)
-------- -------- -------- --------
Total increase in net interest income......... $ 21,933 $ 2,309 $ 37,533 $ 18,917
======== ======== ======== ========
</TABLE>
Third quarter net interest income on an FTE basis was $146.8 million,
up 18% from $124.9 million in third quarter 1995. Average earning
assets increased 13% or $1.8 billion and net interest margin, the
other principal determinant of net interest income, increased from
3.65% to 3.79% in the current quarter. Excluding the contribution of
the Household transaction, net interest income would have increased
$9.8 million or 8% quarter-to-quarter and the net interest margin
would have decreased to 3.56% from 3.65%.
Average loans and total money market assets rose $1.2 billion, or
13%, and $95 million, or 12%, respectively. The loan category with
the most significant growth over the prior year was commercial loans
which increased by $776 million. In addition installment and
residential mortgage loans increased by $519 million, of which $340
million represented Household loans. Average portfolio securities
were up 13%, or $517 million, primarily reflecting increased holdings
of Federal agency securities.
Funding for this asset growth came primarily from the assumption
of $2.9 billion in deposit liabilities in connection with the June
1996 purchase of branches owned by Household. Savings deposits and
certificates increased by $2.1 billion. Other increases were money
market accounts of $659 million and interest checking of $359
million. With this increase in retail deposits, dependence on
wholesale funding declined, evidenced by reductions in foreign time
deposits of $863 million and other time deposits of $244 million.
Short-term borrowings and short-term senior notes decreased by $312
million and $140 million, respectively. During the current quarter,
the effective rate on interest-bearing liabilities dropped from 5.30%
in third quarter 1995 to 4.73% in the current quarter.
The Corporation's consolidated net interest margin increased to
3.79% from 3.65% in the same quarter last year. This increase
reflects a more favorable funding mix resulting from lower interest
costs associated with deposits assumed from Household Bank, compared
to interest costs on wholesale funds displaced. Additionally,
beginning in January 1996, the restatement of certain tax-exempt
income to a fully taxable equivalent status includes a state tax
adjustment. The effect of this adjustment was to increase net
interest margin in 1996 by approximately 7 basis points. These
increases have been offset somewhat by the maturity of
higher-yielding municipal bond holdings, the relative decrease in
noninterest-bearing funds, and spread compression within certain
categories of assets and related funding.
12
<PAGE> 14
- --------------------------------------------------------------------------------
AVERAGE EARNINGS ASSETS--NET INTEREST MARGIN
<TABLE>
<CAPTION>
Quarter Ended September 30 Nine Months Ended September 30
-------------------------------- --------------------------------
Daily Average Balances (in millions) 1996 1995 1996 1995
Average Rates Earned and Paid -------------- -------------- -------------- --------------
(fully taxable equivalent basis) Balances Rates Balances Rates Balances Rates Balances Rates
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets.............. $15,432 7.77% $13,622 8.02% $14,806 7.73% $13,094 8.15%
======= ======= ======= =======
Interest-bearing liabilities......... $12,989 4.73 $11,323 5.30 $12,382 4.82 $10,753 5.30
Noninterest-bearing sources of
funds.............................. 2,443 -- 2,299 -- 2,424 -- 2,341 --
------- ------- ------- -------
Total supporting liabilities..... $15,432 3.98 $13,622 4.37 $14,806 4.03 $13,094 4.35
======= ======= ======= =======
Net interest margin (related to average
interest-earning assets)................... 3.79% 3.65% 3.70% 3.80%
==== ====
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Increase Nine Months Increase
Ended September 30 (Decrease) Ended September 30 (Decrease)
NONINTEREST ------------------ ------------- ------------------- --------------
INCOME (dollars in thousands) 1996 1995 Amount % 1996 1995 Amount %
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Trust and investment
management fees............... $29,071 $37,950 $(8,879) (23) $ 88,330 $113,041 $(24,711) (22)
Trading account................ 686 399 287 72 4,338 3,011 1,327 44
Foreign exchange............... 1,697 2,434 (737) (30) 8,697 10,160 (1,463) (14)
Charge card.................... 13,115 10,909 2,206 20 34,191 30,621 3,570 12
Service fees and charges....... 23,582 16,246 7,336 45 60,017 51,437 8,580 17
Securities gains............... 738 1,672 (934) (56) 4,288 20,572 (16,284) (79)
Other.......................... 11,615 10,368 1,247 12 41,245 23,178 18,067 78
------- ------- ------- -------- -------- --------
Total noninterest income.... $80,504 $79,978 $ 526 1 $241,106 $252,020 $(10,914) (4)
======= ======= ======= === ======== ======== ======== ===
</TABLE>
Noninterest income for the third quarter was $80.5 million, an
increase of $0.5 million or 1% from the third quarter of 1995.
Service fees and charges were $23.6 million, an increase of $7.3
million or 45% from the previous year. Charge card fees totaled $13.1
million, up $2.2 million from 1995. Other income including foreign
fees, income from bank-owned life insurance and other miscellaneous
items, increased $1.2 million to $11.6 million in 1996.
Trust and investment management revenue was $29.1 million, a
decrease of $8.9 million or 23% from the previous year, due primarily
to the sale of the securities custody and related trustee services
business for large institutions in January, 1996. Foreign exchange
revenue was $1.7 million, down 30% from the third quarter of 1995.
Net gains reported from the sale of debt securities totaled $0.7
million, down $0.9 million or 56% from 1995. Without the contribution
from the Household transaction, the Corporation's noninterest income
would have declined by $2.5 million or 3% from the prior year's
quarter.
13
<PAGE> 15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Increase Nine Months Increase
NONINTEREST Ended September 30 (Decrease) Ended September 30 (Decrease)
EXPENSES AND ------------------- ------------- ------------------- -------------
INCOME TAXES (dollars in thousands) 1996 1995 Amount % 1996 1995 Amount %
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and other
compensation.............. $ 71,756 $ 65,779 $ 5,977 9 $201,590 $190,930 $10,660 6
Pension, profit sharing and
other employee benefits... 13,175 13,164 11 -- 42,941 47,568 (4,627) (10)
Net occupancy.............. 12,894 11,730 1,164 10 34,472 35,095 (623) (2)
Equipment.................. 10,338 10,928 (590) (5) 30,395 31,142 (747) (2)
Marketing.................. 7,662 6,605 1,057 16 20,381 19,052 1,329 7
Communication and
delivery.................. 4,743 5,108 (365) (7) 15,242 14,989 253 2
Deposit insurance.......... 18,348 (281) 18,629 + 18,427 7,352 11,075 151
Other...................... 21,553 21,828 (275) (1) 62,644 65,243 (2,599) (4)
-------- -------- ------- -------- -------- -------
160,469 134,861 25,608 19 426,092 411,371 14,721 4
Goodwill and other
valuation intangibles..... 6,881 2,306 4,575 198 11,299 7,077 4,222 60
-------- -------- ------- -------- -------- -------
Total noninterest
expenses................. $167,350 $137,167 $30,183 22 $437,391 $418,448 $18,943 5
======== ======== ======= ======== ======== =======
Provision (benefit) for
income taxes.............. $ 10,866 $ 17,075 $(6,209) (36) $ 47,979 $ 51,732 $(3,753) (7)
======== ======== ======= === ======== ======== ======= ===
</TABLE>
Noninterest expenses for the third quarter totaled $167.4 million, an
increase of $30.2 million or 22% from the third quarter of 1995.
Third quarter 1995 did not include operating expenses associated with
Household or the related amortization of goodwill and other
intangible assets. In addition, the expense for the one-time SAIF
assessment levied on deposits assumed from Household amounting to
$16.7 million pre-tax, was recognized in third quarter 1996.
Excluding all Household-related charges, total expenses decreased
$5.9 million or 4% in third quarter 1996 compared to the year-earlier
quarter. Noninterest expenses in third quarter 1996 reflect cost
savings of approximately $5.0 million as a result of the January 1996
sale of securities custody and related trustee services business for
large institutions.
Future charges for insurance assessments on SAIF-insured deposits
are expected to be substantially reduced from what they otherwise
would have been as a result of the recent legislation. Although the
rate for those deposits insured by the Bank Insurance Fund should
increase slightly, the combined rate applicable to Harris Bankcorp's
subsidiary banks is expected to decline starting January 1, 1997.
Employment-related expenses totaled $84.9 million, an increase of
$6.0 million or 8%. Excluding the effect of Household,
employment-related expenses would have increased $1.0 million or 1%.
Net occupancy expenses totaled $12.9 million, up $1.2 million from
the prior year's third quarter. Net occupancy expenses would have
decreased $0.4 million or 4%, excluding the effect of Household.
Other noninterest expenses decreased by $0.3 million or 1% while
marketing expenses reflected an increase of $1.1 million. Excluding
the impact of Household expenses, other noninterest expenses would
have decreased $4.9 million or 22%. Amortization of goodwill and
other valuation intangibles increased $4.6 million, virtually the
entire increase resulting from the Household transaction.
Income tax expense totaled $10.9 million, a decrease of $6.2
million or 36% from the $17.1 million recorded in third quarter 1995,
reflecting lower pretax income, although somewhat offset by reduced
levels of tax-exempt income.
14
<PAGE> 16
- --------------------------------------------------------------------------------
CAPITAL
POSITION
The Corporation's total equity capital at September 30, 1996 was
$1.47 billion, compared with $1.15 billion and $1.12 billion at
December 31, 1995 and September 30, 1995, respectively. During the
preceding twelve months, the Corporation declared common and
preferred dividends of $260.5 million and $10.9 million,
respectively. To support continued business growth and expansion, the
Corporation increased its capital base by $40 million, effective
December 27, 1995. At the same time, the Corporation adjusted its
capital structure to mirror the capital mix of BMO and more closely
resemble the Corporation's peer group comprising other major U.S. and
Chicago bank holding companies. The Corporation issued $180 million
of preferred stock and an additional $65 million of long-term
subordinated debt, purchased by BFC. Concurrently, common equity was
reduced by $205 million through the declaration of a special
dividend.
In anticipation of the acquisition of branches previously owned
by Household as discussed earlier in this report, on June 27, 1996
the Corporation increased its capital base by $340 million, in part
through the issuance of $45 million of Series "B" non-voting,
callable perpetual preferred stock and an additional $15 million of
long-term subordinated debt. Both issues were purchased by BFC. The
balance of the capital, $280 million, was provided through a direct
infusion of common equity by BFC.
U.S. banking regulators issued risk-based capital guidelines,
based on the international "Basle Committee" agreement, which are
applicable to all U.S. banks and bank holding companies. These
guidelines serve to: 1) establish a uniform capital framework which
is more sensitive to risk factors, including off-balance sheet
exposures; 2) promote the strengthening of capital positions; and 3)
diminish a source of competitive inequality arising from differences
in supervisory requirements among countries. The guidelines specify
minimum ratios for Tier 1 capital to risk-weighted assets of 4% and
total regulatory capital to risk-weighted assets of 8%.
Risk-based capital guidelines define total capital to consist of
Tier 1 (core) and Tier 2 (supplementary) capital. In general, Tier 1
capital is comprised of stockholder's equity, including certain types
of preferred stock, less goodwill and certain other intangibles. Core
capital must equal at least 50% of total capital. Tier 2 capital
basically includes subordinated debt (less a discount factor during
the five years prior to maturity), other types of preferred stock and
the allowance for possible credit losses. The Corporation's Tier 1
and total risk-based capital ratios were 8.09% and 11.48%,
respectively, at September 30, 1996.
Another regulatory capital measure, the Tier 1 leverage ratio, is
computed by dividing period-end Tier 1 capital by adjusted quarterly
average assets. The Federal Reserve Board established a minimum ratio
of 4% to 5% for most holding companies. The Corporation's Tier 1
leverage ratio of 6.93% for the quarter ended September 30, 1996 was
essentially unchanged from the year-ago quarter.
The Federal Deposit Insurance Corporation Improvement Act of 1991
contains provisions that establish five capital categories for all
FDIC-insured institutions ranging from "well capitalized" to
"critically undercapitalized." Based on those regulations that became
effective on or before September 30, 1996, all of the Corporation's
subsidiary banks were designated as "well capitalized," the highest
capital category.
Capital adequacy guidelines generally restrict the inclusion of
intangible assets in Tier 1 capital; however, mortgage servicing
rights and the premium on purchased credit card relationships may be
included with (i.e., not deducted from) Tier 1 capital provided that
certain percentage limitations are not violated. All other
intangibles (including core deposit premiums and goodwill), along
with amounts in excess of the above limits, are deducted from Tier 1
capital for purposes of risk-based and leverage capital ratio
calculations. At September 30, 1996, the Corporation's intangible
assets totaled $316.6 million, including approximately $297.9 million
of intangibles excluded under capital guidelines. The Corporation's
tangible Tier 1 leverage ratio (which excludes all intangibles) was
6.83% for the third quarter of 1996.
15
<PAGE> 17
- --------------------------------------------------------------------------------
The following is a summary of the Corporation's capital ratios:
<TABLE>
<CAPTION>
September 30 December 31 September 30
(dollars in thousands) 1996 1995 1995
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------
Total assets (end of period).............................. $ 19,018,749 $15,676,201 $ 16,245,173
=========== =========== ===========
Average assets (quarter).................................. $ 17,562,535 $16,325,680 $ 15,919,244
=========== =========== ===========
Risk-based on-balance sheet assets........................ $ 11,752,669 $10,336,559 $ 10,110,393
=========== =========== ===========
Risk-based off-balance sheet assets....................... $ 3,364,916 $ 3,203,701 $ 2,946,694
=========== =========== ===========
Total risk-based assets, net of deductions (based on
regulatory accounting principles)....................... $ 14,819,254 $13,540,260 $ 13,057,087
=========== =========== ===========
Tier 1 capital............................................ $ 1,199,246 $ 1,100,899 $ 1,101,722
=========== =========== ===========
Supplementary capital..................................... $ 502,464 $ 492,911 $ 427,961
=========== =========== ===========
Total capital, net of deductions (based on regulatory
accounting principles).................................. $ 1,701,051 $ 1,593,810 $ 1,529,683
=========== =========== ===========
Tier 1 leverage ratio..................................... 6.93% 6.77% 6.93%
Risk-based capital ratios
Tier 1.................................................. 8.09% 8.14% 8.45%
Total................................................... 11.48% 11.79% 11.73%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NONPERFORMING September 30 December 31 September 30
ASSETS (dollars in thousands) 1996 1995 1995
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
Nonaccrual loans................................................ $ 33,002 $50,503 $ 55,050
Restructured loans.............................................. 1,958 2,059 2,113
------- ------- --------
Total nonperforming loans....................................... 34,960 52,562 57,163
Other assets received in satisfaction of debt................... 728 2,470 2,729
------- ------- --------
Total nonperforming assets...................................... $ 35,688 $55,032 $ 59,892
======= ======= ========
Nonperforming loans to total loans (end of period).............. .34% .55% .63%
Nonperforming assets to total loans (end of period)............. .35% .58% .66%
======= ======= ========
90-day past due loans still accruing interest................... $ 41,253 $28,302 $ 22,301
======= ======= ========
</TABLE>
Nonperforming assets consist of loans placed on nonaccrual status
when collection of interest is doubtful, restructured loans on which
interest is being accrued but which have terms that have been
renegotiated to provide for a reduction of interest or principal, and
real estate or other assets which have been acquired in full or
partial settlement of defaulted loans. These assets, as a group, are
not earning at rates comparable to earning assets.
Nonperforming assets at September 30, 1996 totaled $36 million,
or .35% of total loans, down from $55 million or .58% of total loans
at December 31, 1995 and also down from $60 million or .66% of loans
a year ago.
Interest shortfall for the quarter ended September 30, 1996 was
$2.1 million compared to $0.5 million one year earlier.
Impaired loans are defined as those where it is probable that
amounts due according to contractual terms, including principal and
interest, will not be collected. Both nonaccrual and certain
restructured loans meet this definition. Impaired loans are measured
by the Corporation at the present value of expected future cash flows
or, alternatively, at the fair value of collateral. Known losses of
principal on these loans have been charged off. Interest income on
nonaccrual loans is recognized only at the time cash is received and
only if the collection of
16
<PAGE> 18
- --------------------------------------------------------------------------------
the entire principal balance is expected. Interest income on
restructured loans is accrued according to the most recently
agreed upon contractual terms.
<TABLE>
<CAPTION>
Impaired Loans Impaired Loans
For Which There Is For Which There Is Total Impaired
(dollars in thousands) Related Allowance No Related Allowance Loans
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
September 30, 1996
Balance............................................. $ 6,402 $ 26,600 $ 33,002
Related allowance................................... 4,867 -- 4,867
------- ------- -------
Balance, net of allowance........................... $ 1,535 $ 26,600 $ 28,135
======= ======= =======
December 31, 1995
Balance............................................. $ 19,820 $ 30,683 $ 50,503
Related allowance................................... 12,967 -- 12,967
------- ------- -------
Balance, net of allowance........................... $ 6,853 $ 30,683 $ 37,536
======= ======= =======
September 30, 1995
Balance............................................. $ 26,788 $ 30,375 $ 57,163
Related allowance................................... 13,638 -- 13,638
------- ------- -------
Balance, net of allowance........................... $ 13,150 $ 30,375 $ 43,525
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
----------------- --------------------
(dollars in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
Average impaired loans................................. $34,378 $62,531 $45,325 $75,296
======= ======= ======= =======
Total interest income on impaired loans................ $ 22 $ 667 $ 127 $ 1,630
======= ======= ======= =======
Interest income on impaired loans recorded on a cash
basis................................................ $ 22 $ 613 $ 127 $ 1,446
======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
ALLOWANCE September 30 September 30
FOR POSSIBLE -------------------- --------------------
CREDIT LOSSES (dollars in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
Balance, beginning of period....................... $139,220 $127,479 $129,259 $124,734
-------- -------- -------- --------
Charge-offs........................................ (15,520) (14,335) (44,742) (45,653)
Recoveries......................................... 4,505 5,227 11,675 18,850
-------- -------- -------- --------
Net charge-offs.................................... (11,015) (9,108) (33,067) (26,803)
Provision charged to operations.................... 15,011 10,974 42,224 31,414
Allowance related to acquired loans................ -- -- 4,800 --
-------- -------- -------- --------
Balance at September 30............................ $143,216 $129,345 $143,216 $129,345
======== ======== ======== ========
Net charge-offs as a percentage of provision
charged to operations............................ 73% 83% 78% 85%
Allowance for possible credit losses to
nonperforming loans (period-end)................. 410% 226%
Allowance for possible credit losses to
nonperforming assets (period-end)................ 401% 216%
Allowance for possible credit losses to total loans
outstanding (period-end)......................... 1.39% 1.42%
</TABLE>
17
<PAGE> 19
- --------------------------------------------------------------------------------
The Corporation's provision for credit losses for the current quarter
was $15.0 million, up 37% from $11.0 million in last year's third
quarter. Net charge-offs also increased from $9.1 million to $11.0
million for the current quarter, resulting in net charge-offs on a
year-to-date basis of $33.1 million compared to $26.8 million in the
same 1995 period. The increase in 1996 third quarter net charge-offs
was primarily attributable to higher charge card charge-offs compared
to the same quarter last year, offset somewhat by a decrease in real
estate loan net charge-offs from third quarter 1995 to third quarter
1996. For the third quarter of 1996, net charge-offs related to
charge card and real estate loans were $9.6 million and $(0.4)
million, respectively, compared to $7.1 million and $0.2 million,
respectively, for the third quarter of 1995.
At September 30, 1996, the allowance for possible credit losses
was $143 million, equal to 1.39% of total loans outstanding, up from
$129 million or 1.42% of total loans one year ago. The allowance as a
percentage of nonperforming loans increased from 226% at September
30, 1995, to 410% at September 30, 1996.
- --------------------------------------------------------------------------------
LIQUIDITY AND
SOURCES OF
FUNDS
Effective liquidity management allows a banking institution to
accommodate the changing net funds flow requirements of customers who
may deposit or withdraw funds, or modify their credit needs. The
Corporation manages its liquidity position through continuous
monitoring of profitability trends, asset quality, interest rate
sensitivity, maturity schedules of earning assets and supporting
liabilities, the composition of managed and other (primarily demand)
liabilities, and prospective customer demand based upon knowledge of
major customers and overall economic conditions. Appropriate
responses to changes in these conditions preserve customer confidence
in the ability of the Corporation to continually serve their credit
and deposit withdrawal requirements. Some level of liquidity is
provided by maintaining assets which mature within a short timeframe
or could be sold quickly without significant loss. The Corporation's
liquid assets include cash and demand balances due from banks, money
market assets, portfolio securities available for sale and trading
account assets. Liquid assets represented approximately 40% of the
Corporation's total assets and amounted to $7.52 billion at September
30, 1996. However, the most important source of liquidity is the
ability to raise funds, as required, in a variety of markets using
multiple instruments.
The Corporation, in connection with the issuance of commercial
paper and for other corporate purposes, has a $150 million revolving
credit agreement with five nonaffiliated banks and BMO that
terminates on December 18, 1999. There were no borrowings under this
credit facility in year-to-date 1996 or 1995.
In connection with the acquisition of branches previously owned
by Household as discussed earlier in this report, HTSB assumed
deposits totaling approximately $2.9 billion. In addition, HTSB
acquired loans amounting to $340 million along with real property and
certain other miscellaneous assets. HTSB received cash from Household
at closing of $2.24 billion. Capital of $325 million was contributed
to HTSB and HTSB issued $15 million in additional subordinated debt.
The incremental cash available from all of these sources of
approximately $2.6 billion was used by HTSB to liquidate more
expensive sources of wholesale funding.
As a result of the Household acquisition, there were significant
changes in the composition of liabilities from December 31, 1995 to
September 30, 1996. Total core deposits increased from $7.3 billion
at December 31, 1995 to $11.0 billion at September 30, 1996. Total
wholesale deposits and short-term borrowings decreased from $6.4
billion at December 31, 1995 to $5.8 billion at September 30, 1996.
Total deposits averaged $12.05 billion in the third quarter of
1996, an increase of $1.97 billion compared to the same quarter last
year. The Corporation's average volume of core deposits, consisting
of demand deposits, interest checking deposits, savings deposits and
certificates, and money market accounts rose 44%, reflecting
increases in virtually all core deposit categories. Core deposits
represented approximately 65% and 51% of average supporting
liabilities in the third quarters of 1996 and 1995, respectively.
Average deposits for the quarter and core deposits as a percentage of
average supporting liabilities were significantly impacted by the
Household transaction.
18
<PAGE> 20
- --------------------------------------------------------------------------------
Average money market assets in the third quarter of 1996
increased $95 million or 12% from the same quarter last year. These
assets represented 6% of average earning assets in 1996, which was
consistent with one year ago. Average money market liabilities
decreased 10% to $2.9 billion this quarter from $3.21 billion in the
same quarter last year. The Corporation reduced its wholesale funding
sources as a result of the assumption of retail deposit liabilities
in connection with the Household transaction in the second quarter.
HTSB offers to institutional investors, from time to time,
unsecured short-term and medium-term bank notes in an aggregate
principal amount of up to $1.5 billion outstanding at any time. The
term of each note could range from fourteen days to fifteen years.
The notes are subordinated to deposits and rank pari passu with all
other senior unsecured indebtedness of HTSB. As of September 30,
1996, $439 million of short-term notes were outstanding compared to
$689 million at September 30, 1995.
- --------------------------------------------------------------------------------
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
COMPARED
WITH 1995 Including a one-time $10.0 million after-tax charge resulting from
recent legislation to re-capitalize the Savings Association Insurance
Fund ("SAIF"), the Corporation recorded earnings of $104.5 million
for the first nine months of 1996. This one-time SAIF charge, which
was expected and assumed by the Corporation as a result of HTSB's,
June 1996 purchase of Household Bank's Chicagoland retail banking
business, should significantly reduce HTSB's future deposit insurance
premiums compared to what they would have been based on current
assessment rates.
For the first nine months of 1996, earnings comparability was
affected by two significant items. In addition to the impact of the
1996 Household transaction, during the first nine months of 1995 the
Corporation realized $20.6 million in net gains from portfolio
securities transactions compared to a $4.3 million net gain for the
first nine months of 1996. Most of the 1995 gains were recognized
during the second quarter when conditions in the U.S. bond market led
to significant price rallies and profit opportunities not typically
available.
Excluding the effect of these portfolio securities gains and the
impact of the Household transaction (which includes the $10 million
after-tax SAIF charge), earnings for the current nine-month period
increased 19% from the comparable 1995 period. This increase in
earnings was attributed to strong business growth across corporate,
private and retail banking, and to sustained cost control.
Excluding the one-time SAIF charge, annualized return on average
common stockholder's equity ("ROE") was 13.24% for the current
nine-month period compared to 13.61% a year earlier. On the same
basis, annualized return on average assets ("ROA") was 0.91% for the
current nine-month period compared to 0.96% a year earlier.
For the first nine months of 1996, net interest income on a fully
taxable equivalent basis of $410.1 million was up 10% from the
comparable 1995 period. Net interest margin fell from 3.80% to 3.70%
in the period ending September 30, 1996, while average earning assets
rose 13% from $13.1 billion to $14.8 billion, and average loans
increased 14% or $1.2 billion. Average commercial loans increased
$921 million. Average installment and retail mortgage loans combined
increased $330 million, with about one-third of the increase
attributable to the acquisition of Household loans.
Provision for credit losses increased $10.8 million to $42.2
million for the nine months ended September 30, 1996. Net loan
charge-offs totaled $33.1 million in 1996 compared to $26.8 million
in 1995.
Noninterest income decreased 4% to $241.1 million for the first
nine months of 1996, primarily because of the reduction in net gains
from portfolio securities transactions and a $24.7 million or 22%
decline in trust fees. While personal and corporate trust fees grew
strongly for the nine-month period ended September 30, 1996, total
trust fees and related noninterest expenses decreased as a result of
HTSB's sale of its securities custody and related trustee services
business for large institutions in January 1996. These decreases were
partially offset by an $18.1 million improvement in other sources of
noninterest income including gains on
19
<PAGE> 21
- --------------------------------------------------------------------------------
sales of real estate mortgages, returns on bank-owned life
insurance, syndication fees and a $4.0 million gain recognized in
January 1996 on the aforementioned trust business sale. In addition,
charge card revenues rose $3.6 million and service charges
increased $8.6 million.
Total noninterest expenses were $437.4 million in the current
nine-month period. Excluding the effect of charges related to the
acquisition and ongoing operations of the Household retail banking
business acquired at the end of second quarter 1996 (including the
one-time special SAIF assessment), expenses declined by 4%, compared
to the nine months ended September 30, 1995. Income tax expense
decreased by $3.8 million primarily because of lower pretax income.
20
<PAGE> 22
Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
HARRIS BANKCORP, INC.
111 West Monroe Street
Chicago, Illinois 60603
- ------------------------------
HARRIS BANKCORP, INC.
EXECUTIVE OFFICERS
Alan G. McNally
Chairman of the Board and
Chief Executive Officer
Edward W. Lyman, Jr.
Vice Chair of the Board
Maribeth S. Rahe
Vice Chair of the Board
- ------------------------------
HARRIS BANKCORP, INC.
BOARD OF DIRECTORS
Alan G. McNally
Chairman of the Board and
Chief Executive Officer
Edward W. Lyman, Jr.
Vice Chair of the Board
Maribeth S. Rahe
Vice Chair of the Board
F. Anthony Comper
President and
Chief Operating Officer
Bank of Montreal
Susan T. Congalton
Managing Director
Lupine Partners
Roxanne J. Decyk
Vice President, Corporate Planning
Amoco Corporation
Wilbur H. Gantz
President and
Chief Executive Officer
PathoGenesis Corporation
James J. Glasser
Chairman, President and
Chief Executive Officer
GATX Corporation
Dr. Leo M. Henikoff
President and
Chief Executive Officer
Rush-Presbyterian-St. Luke's Medical Center
Dr. Stanley O. Ikenberry
President Emeritus
University of Illinois
Richard M. Jaffee
Chairman and
Chief Executive Officer
Oil-Dri Corporation
of America
Charles H. Shaw
Chairman
The Shaw Company
Richard E. Terry
Chairman and
Chief Executive Officer
Peoples Energy Corporation
James O. Webb
President
James O. Webb & Associates, Inc.
William J. Weisz
Chairman of the Board
Motorola, Inc.
- ------------------------------
HARRIS BANKCORP, INC.
BANK SUBSIDIARIES
HARRIS TRUST AND SAVINGS BANK
Chicago, Illinois
HARRIS BANK ARGO
Summit, Illinois
HARRIS BANK BARRINGTON, N.A.
Barrington, Illinois
HARRIS BANK BATAVIA, N.A.
Batavia, Illinois
HARRIS BANK FRANKFORT
Frankfort, Illinois
HARRIS BANK GLENCOE-NORTHBROOK, N.A.
Glencoe, Illinois
HARRIS BANK HINSDALE, N.A.
Hinsdale, Illinois
HARRIS BANK LIBERTYVILLE
Libertyville, Illinois
HARRIS BANK NAPERVILLE
Naperville, Illinois
HARRIS BANK ROSELLE
Roselle, Illinois
HARRIS BANK ST. CHARLES
St. Charles, Illinois
HARRIS BANK WILMETTE, N.A.
Wilmette, Illinois
HARRIS BANK WINNETKA, N.A.
Winnetka, Illinois
HARRIS TRUST BANK OF ARIZONA
Scottsdale, Arizona
- ------------------------------
HARRIS BANKCORP, INC.
NON-BANK SUBSIDIARIES
HARRIS TRUST COMPANY OF FLORIDA
West Palm Beach, Florida
HARRIS TRUST COMPANY OF NEW YORK
New York, New York
BANK OF MONTREAL TRUST COMPANY
New York, New York
HARRIS TRUST COMPANY OF CALIFORNIA
Los Angeles, California
HARRIS LIFE INSURANCE COMPANY
Scottsdale, Arizona
HARRIS INVESTMENT
MANAGEMENT, INC.
Chicago, Illinois
HARRIS INVESTORS DIRECT, INC.
Chicago, Illinois
HARRISCORP CAPITAL CORPORATION
Chicago, Illinois
HARRISCORP FINANCE, INC.
Chicago, Illinois
HARRIS BANK INTERNATIONAL
CORPORATION
New York, New York
HARRIS TRADING ADVISORY
CORPORATION
Chicago, Illinois
BANK OF MONTREAL TRUST
COMPANY (C.I.), LTD.
St. Helier, Jersey
Channel Islands
HARRISCORP LEASING, INC.
Chicago, Illinois
BANK OF MONTREAL GLOBAL, INC.
Chicago, Illinois
MICHIGAN HOLDINGS, INC.
Chicago, Illinois
MIDWESTERN HOLDINGS, INC.
Chicago, Illinois
HARRIS BUILDING SERVICES
CORPORATION
Chicago, Illinois
<PAGE> 23
Part 1. Financial Information
Item 1. Financial Statements.
Consolidated Statement of Condition as of September 30, 1996, December
31, 1995 and September 30, 1995.
Consolidated Statement of Income for the quarters and nine months ended
September 30, 1996 and 1995.
Consolidated Statement of Changes in Stockholder's Equity and
Consolidated Statement of Cash Flows for the nine months ended September
30, 1996 and 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The above financial statements and financial review, included in the
Corporation's 1996 Third Quarter Report, are filed as Exhibit A and incorporated
herein by reference.
Part II. Other Information
Items 1, 2, 3, 4, and 5 are being omitted from this report because such items
are not applicable to the reporting period.
Item 6. Exhibits and Reports on Form 8-K.
(a) Documents filed with Report:
27. Financial Data Schedule
(b) A Current Report on Form 8-K, dated July 12, 1996, was filed on
behalf of Harris Bankcorp, Inc., reporting on Item 2 -- Acquisition
or Disposition of Assets and Item 7 -- Financial Statements, Pro
forma Financial Information and Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Harris
Bankcorp, Inc., has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 14th day of November 1996.
/s/ /s/
- ---------------------------------------- -----------------------------------
Pierre O. Greffe Paul R. Skubic
Chief Financial Officer Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,822,522
<INT-BEARING-DEPOSITS> 839,933
<FED-FUNDS-SOLD> 493,057
<TRADING-ASSETS> 28,225
<INVESTMENTS-HELD-FOR-SALE> 4,337,406
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 10,343,418
<ALLOWANCE> 143,216
<TOTAL-ASSETS> 19,018,749
<DEPOSITS> 13,329,428
<SHORT-TERM> 3,490,867
<LIABILITIES-OTHER> 247,912
<LONG-TERM> 379,067
0
225,000
<COMMON> 53,340
<OTHER-SE> 1,192,185
<TOTAL-LIABILITIES-AND-EQUITY> 19,018,749
<INTEREST-LOAN> 215,691
<INTEREST-INVEST> 65,303
<INTEREST-OTHER> 11,569
<INTEREST-TOTAL> 293,444
<INTEREST-DEPOSIT> 104,408
<INTEREST-EXPENSE> 154,191
<INTEREST-INCOME-NET> 139,253
<LOAN-LOSSES> 15,011
<SECURITIES-GAINS> 738
<EXPENSE-OTHER> 167,350
<INCOME-PRETAX> 37,396
<INCOME-PRE-EXTRAORDINARY> 26,530
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,530
<EPS-PRIMARY> 3.35
<EPS-DILUTED> 3.35
<YIELD-ACTUAL> 3.79
<LOANS-NON> 33,002
<LOANS-PAST> 41,253
<LOANS-TROUBLED> 1,958
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 139,220
<CHARGE-OFFS> 15,520
<RECOVERIES> 4,505
<ALLOWANCE-CLOSE> 143,216
<ALLOWANCE-DOMESTIC> 143,216
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
