<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
<TABLE>
<S> <C>
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-18179
</TABLE>
HARRIS BANKCORP, INC.
111 West Monroe Street
Chicago, Illinois 60603
(312) 461-2121
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 May 13, 1998 the Corporation had 6,667,490 shares of $8 par value common
stock outstanding.
================================================================================
<PAGE> 2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Statement of Condition as of March 31, 1998, December 31,
1997 and March 31, 1997.
Consolidated Statement of Income for the quarters and three months ended
March 31, 1998 and 1997.
Consolidated Statement of Changes in Stockholder's Equity and
Consolidated Statement of Cash Flows for the three months ended March
31, 1998 and 1997.
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 1998 First 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 March 6, 1998 was filed on
behalf of Harris Bankcorp, Inc., reporting on Item 5 -- Other
Events.
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 13th day of May 1998.
/s/
- ------------------------------------------------
Pierre O. Greffe
Chief Financial Officer
/s/
- ------------------------------------------------
Paul R. Skubic
Chief Accounting Officer
<PAGE> 3
EXHIBIT A -- HARRIS BANKCORP, INC.
1998 FIRST QUARTER REPORT
MARCH 31, 1998
<PAGE> 4
FINANCIAL HIGHLIGHTS Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31
-----------------------------
1998 1997 Change
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS AND DIVIDENDS ($ IN THOUSANDS)
Net interest income......................................... $131,128 $141,232 (7)%
Net interest income (fully taxable equivalent).............. 138,417 147,354 (6)
Provision for loan losses................................... 5,517 13,882 (60)
Noninterest income.......................................... 109,778 87,853 25
Noninterest expenses........................................ 169,596 156,976 8
Net income.................................................. 45,399 39,333 15
Cash dividends -- common stock.............................. 62,000 10,600 485
Cash dividends -- preferred stock........................... 4,148 4,148 0
Cash earnings (1)........................................... 49,351 43,890 12
- -------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on average common stockholder's equity............... 11.98% 11.13% 85bp
Return on average assets.................................... 0.92 0.86 6
Cash basis return on average common stockholder's equity
(2)....................................................... 15.06 14.81 25
Cash basis return on average assets (3)..................... 1.02 0.98 4
Tier 1 risk-based capital ratio............................. 9.17 7.92 125
Total risk-based capital ratio.............................. 11.94 11.07 87
Tier 1 leverage ratio....................................... 7.95 6.87 108
Allowance for possible loan losses to total loans
(period-end).............................................. 1.16 1.28 (12)
- -------------------------------------------------------------------------------------------
DAILY AVERAGE BALANCES ($ IN MILLIONS)
Loans, net of unearned income............................... $ 10,991 $ 10,662 3%
Portfolio securities........................................ 5,502 4,511 22
Money market assets......................................... 667 816 (18)
Total interest-earning assets............................... 17,416 16,098 8
Total assets................................................ 20,001 18,506 8
Deposits.................................................... 13,587 12,694 7
Short-term borrowings....................................... 3,977 3,591 11
Common stockholder's equity................................. 1,397 1,282 9
- -------------------------------------------------------------------------------------------
BALANCES AT QUARTER-END ($ IN MILLIONS)
Loans, net of unearned income............................... $ 11,503 $ 11,136 3%
Allowance for possible loan losses.......................... 133 142 (6)
Portfolio securities........................................ 5,721 4,849 18
Total assets................................................ 20,125 19,884 1
Deposits.................................................... 13,379 13,618 (2)
Common stockholder's equity................................. 1,385 1,274 9
Total stockholder's equity.................................. 1,610 1,499 7
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Cash earnings are defined as earnings before amortization of goodwill and
other valuation intangibles.
(2) Cash basis return on average common stockholder's equity is calculated as
net income applicable to common stock plus after-tax amortization expenses
of goodwill and other valuation intangibles divided by average common
stockholder's equity less tax affected average intangible assets.
(3) Cash basis return on average assets is calculated as net income plus
after-tax amortization expenses of goodwill and other valuation intangibles
divided by average assets less average intangible assets.
1
<PAGE> 5
REPORT FROM MANAGEMENT
- --------------------------------------------------------------------------------
Harris Bankcorp had record earnings for the quarter ended March 31,
1998. Net income was $45.4 million for the first quarter of 1998, an
increase of 15 percent from the same quarter a year earlier when net
income was $39.3 million. For the current quarter, annualized return
on average common stockholder's equity ("ROE") was 11.98 percent
compared to 11.13 percent in first quarter 1997, while the annualized
return on average assets was 0.92 percent currently and 0.86 percent
in first quarter a year ago. Cash ROE was 15.06 percent in the
current quarter and 14.81 percent one year earlier. Increased
earnings resulted from continued strong business momentum; revenue
growth in corporate, private and community banking; and effective
control of operating costs.
This quarter was affected by the January, 1998 sale of Harris
Trust and Savings Bank's ("HTSB") credit card portfolio resulting in
a pretax gain of $12.0 million. At the date of sale, outstanding
credit card loans amounted to approximately $700 million, resulting
in a reduction in net interest income. In addition, Harris Bankcorp
recognized a one-time pretax charge of $8.7 million for certain
process improvements and system conversions, including write-offs of
discontinued systems.
Net interest income on a fully taxable equivalent basis was
$138.4 million, down $8.9 million or 6% from first quarter last year.
Net interest margin declined from 3.70 percent in the first quarter
last year to 3.22 percent currently, primarily reflecting the impact
of the sale of credit card loans early in the current quarter.
Average earning assets rose 8 percent to $17.4 billion from $16.1
billion in first quarter 1997, attributable to an increase of $329
million in average loans and $928 million in the investment
securities portfolio. Excluding the credit card portfolio, average
loans rose $1.3 billion or 13 percent. Commercial, installment and
residential real estate lending were all strong contributors to this
growth.
First quarter noninterest income of $109.8 million increased 25
percent from the same quarter last year. The $12.0 million gain on
the sale of the credit card portfolio was partially offset by
writedowns in the value of certain accounts in the portfolio prior to
sale, in addition to lower credit card fees, together amounting to
$8.5 million. Service charge fees rose by $3.3 million and other
income, which includes syndication fees, mortgage loan sales, and
other fees, increased $5.0 million (excluding credit card
transactions) during the current quarter. Trust and investment
management fees rose $2.1 million. Net gains from debt portfolio
securities sales increased from $1.3 million in first quarter 1997 to
$8.0 million during the current quarter.
First quarter 1998 noninterest expenses of $169.6 million rose
$12.6 million or 8 percent from first quarter a year ago. Excluding
the $8.7 million one-time cost for restructuring charges, total
expenses increased 2 percent in first quarter 1998 compared to the
year-earlier quarter. Income tax expense rose by 8 percent,
reflecting higher pretax income.
The first quarter 1998 provision for loan losses of $5.5 million
was down from $13.9 million in the first quarter of 1997 due to the
sale of the credit card portfolio. Net loans charge-offs during the
current quarter were $3.3 million compared to $13.8 million in the
same period last year, with the difference attributable to lower
write-offs in the charge card portfolio.
Nonperforming assets at March 31, 1998 were $29 million or 0.3
percent of total loans, compared to $20 million or 0.2 percent at
December 31, 1997, and $34 million or 0.3 percent a year ago. At
March 31, 1998, the allowance for possible loan losses was $133
million, equal to 1.2 percent of loans outstanding, compared to $142
million or 1.3 percent at the end of first quarter 1997. As a result,
the ratio of the allowance for possible loan losses to nonperforming
assets increased from 413 percent at March 31, 1997 to 454 percent at
March 31, 1998.
At March 31, 1998, equity capital of Harris Bankcorp amounted to
$1.61 billion, up from $1.50 billion one year earlier. The regulatory
leverage capital ratio was 7.95 percent for the first quarter of 1998
compared
2
<PAGE> 6
- --------------------------------------------------------------------------------
to 6.87 percent in the same quarter of 1997. Harris Bankcorp's
capital ratio exceeds the prescribed regulatory minimum for bank
holding companies. Harris Bankcorp's March 31, 1998 Tier 1 and total
risk-based capital ratios were 9.17 percent and 11.94 percent
compared to respective ratios of 7.92 percent and 11.07 percent at
March 31, 1997.
Effective February 11, 1998, Harris Preferred Capital Corporation
("HPCC"), a subsidiary of HTSB, issued $250 million of
7 3/8WS>percent noncumulative, exchangeable Series A preferred stock.
The preferred stock, which is listed and traded on the New York Stock
Exchange, is nonvoting except in certain circumstances as outlined in
HPCC's Form S-11 Registration Statement. Dividends on the preferred
stock are noncumulative and are payable at the rate of
7 3/8WS>percent per annum of the $25 per share liquidation
preference. The Series A preferred shares will qualify as Tier 1
capital at both HTSB and Bankcorp for U.S. banking regulatory
purposes under relevant regulatory capital guidelines.
The Corporation announced in the current quarter that two new
branches are under construction in Oak Lawn and Mc Henry and are
expected to open in the second quarter of 1998. The new branches are
a part of an expansion program the Corporation began in 1994. These
two new branches will expand the Corporation's network to 140
locations.
ALAN G. MCNALLY
Alan G. McNally
Chairman of the Board and
Chief Executive Officer
3
<PAGE> 7
CONSOLIDATED STATEMENT OF INCOME Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31
-------------------------
(in thousands except share data) 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees....................................... $222,796 $221,436
Money market assets:
Deposits at banks......................................... 6,364 8,130
Federal funds sold and securities purchased under
agreement to resell..................................... 2,005 2,769
Trading account............................................. 735 992
Securities available-for-sale:
U.S. Treasury and Federal agency.......................... 75,831 62,453
State and municipal....................................... 4,241 4,343
Other..................................................... 383 371
-------- --------
Total interest income..................................... 312,355 300,494
-------- --------
INTEREST EXPENSE
Deposits.................................................... 119,246 106,754
Short term borrowings....................................... 42,877 37,099
Senior notes................................................ 9,597 8,946
Minority interest -- dividends on preferred stock of
subsidiary................................................ 2,561 --
Long-term notes............................................. 6,946 6,463
-------- --------
Total interest expense.................................... 181,227 159,262
-------- --------
NET INTEREST INCOME......................................... 131,128 141,232
Provision for loan losses................................... 5,517 13,882
-------- --------
Net Interest Income after Provision for Loan Losses......... 125,611 127,350
-------- --------
NONINTEREST INCOME
Trust and investment management fees........................ 33,690 31,594
Trading account............................................. 1,516 928
Foreign exchange............................................ 1,650 888
Charge card fees............................................ 7,218 11,603
Service fees and charges.................................... 26,743 23,396
Portfolio securities gains.................................. 8,031 1,338
Gain on sale of charge card portfolio....................... 12,000 --
Other....................................................... 18,930 18,106
-------- --------
Total noninterest income.................................. 109,778 87,853
-------- --------
NONINTEREST EXPENSES
Salaries and other compensation............................. 77,759 74,365
Pension, profit sharing and other employee benefits......... 14,785 15,737
Net occupancy............................................... 12,398 14,495
Equipment................................................... 12,764 10,554
Marketing................................................... 5,686 5,989
Communication and delivery.................................. 6,006 5,374
Deposit insurance........................................... 759 652
Expert services............................................. 6,852 5,228
Restructuring charges....................................... 8,684 --
Other....................................................... 17,697 17,620
-------- --------
163,390 150,014
Goodwill and other valuation intangibles.................... 6,206 6,962
-------- --------
Total noninterest expenses................................ 169,596 156,976
-------- --------
Income before income taxes.................................. 65,793 58,227
Applicable income taxes..................................... 20,394 18,894
-------- --------
NET INCOME................................................ 45,399 39,333
Dividends on preferred stock................................ 4,148 4,148
-------- --------
Net Income Applicable to Common Stock....................... $ 41,251 $ 35,185
======== ========
BASIC EARNINGS PER COMMON SHARE (based on 6,667,490 average
shares outstanding)
Net Income Applicable to Common Stock....................... $ 6.19 $ 5.28
</TABLE>
4
<PAGE> 8
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Harris Bankcorp, Inc. and
Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31
-------------------------
(in thousands) 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME.................................................. $ 45,399 $ 39,333
Other comprehensive income:
Unrealized gains on available-for-sale securities:
Unrealized holding gains/(losses) arising during period,
net of tax expense/(benefit) of $1,805 in 1998 and
($26,214) in 1997....................................... 2,795 (39,841)
Less reclassification adjustment for realized gains
included in income statement, net of tax expense of
$3,192 in 1998 and $532 in 1997......................... (4,839) (806)
-------- --------
Other comprehensive income (loss)........................... (2,044) (40,647)
-------- --------
Comprehensive income (loss)................................. $ 43,355 $ (1,314)
======== ========
</TABLE>
5
<PAGE> 9
CONSOLIDATED STATEMENT OF CONDITION Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31 December 31 March 31
(in thousands) 1998 1997 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and demand balances due from banks..................... $ 1,090,811 $ 1,304,374 $ 1,657,846
Money market assets:
Interest-bearing deposits at banks........................ 290,929 598,070 620,917
Federal funds sold and securities purchased under
agreement to resell..................................... 82,769 80,782 443,649
Trading account assets...................................... 45,783 53,209 44,234
Portfolio securities available-for-sale..................... 5,720,835 5,229,390 4,848,503
Loans, net of unearned income of $3,646 in 1998, $4,390 and
$6,271 in 1997............................................ 11,502,797 10,868,250 11,135,883
Allowance for possible loan losses.......................... (133,128) (130,876) (142,263)
Net loans................................................. 11,369,669 10,737,374 10,993,620
Premises and equipment...................................... 315,452 314,642 283,137
Customers' liability on acceptances......................... 46,688 46,480 66,859
Assets held for sale........................................ -- 725,760 --
Goodwill and other valuation intangibles.................... 278,832 292,981 308,405
Other assets................................................ 883,624 750,399 617,166
----------- ----------- -----------
TOTAL ASSETS.......................................... $20,125,392 $20,133,461 $19,884,336
=========== =========== ===========
LIABILITIES
Deposits in domestic offices -- non interest-bearing........ $ 3,125,485 $ 4,192,454 $ 3,862,473
-- interest-bearing.............. 8,962,350 8,489,732 7,774,870
Deposits in foreign offices -- noninterest-bearing.......... 18,701 18,431 54,391
-- interest-bearing............... 1,272,535 1,731,446 1,926,264
----------- ----------- -----------
Total deposits........................................ 13,379,071 14,432,063 13,617,998
Federal funds purchased and securities sold under agreement
to repurchase............................................. 3,445,461 2,451,873 2,815,140
Commercial paper outstanding................................ 305,956 351,427 264,391
Other short-term borrowings................................. 4,764 503,320 44,065
Senior notes................................................ 468,000 100,000 950,000
Acceptances outstanding..................................... 46,688 46,480 66,859
Accrued interest, taxes and other expenses.................. 158,775 154,373 165,846
Other liabilities........................................... 77,296 82,132 81,590
Minority interest - preferred stock of subsidiary........... 250,000 -- --
Long-term notes............................................. 379,324 379,278 379,149
----------- ----------- -----------
TOTAL LIABILITIES..................................... 18,515,335 18,500,946 18,385,038
----------- ----------- -----------
STOCKHOLDER'S EQUITY
Series A Non-voting, Callable, Perpetual Preferred stock (no
par value): authorized 1,000,000 shares; issued and
outstanding 180 shares ($1,000,000 stated value); 7.25%
dividend rate............................................. 180,000 180,000 180,000
Series B Non-voting, Callable, Perpetual Preferred stock (no
par value): authorized 45 shares; issued and outstanding
45 shares ($1,000,000 stated value); 7.875% dividend
rate...................................................... 45,000 45,000 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..................................................... 486,880 486,545 484,513
Retained earnings........................................... 835,403 856,152 785,211
Accumulated other comprehensive income (loss) -- unrealized
gains on securities available-for-sale, net of deferred
taxes of $6,176 in 1998, $7,563 and ($32,110) in 1997..... 9,434 11,478 (48,766)
----------- ----------- -----------
TOTAL STOCKHOLDER'S EQUITY............................ 1,610,057 1,632,515 1,499,298
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............ $20,125,392 $20,133,461 $19,884,336
=========== =========== ===========
</TABLE>
6
<PAGE> 10
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY Harris Bankcorp, Inc.
and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31
--------------------------
(in thousands) 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1........................................ $1,632,515 $1,515,166
Net income................................................ 45,399 39,333
Contributions to capital.................................. 335 194
Dividends -- Series A preferred stock..................... (3,262) (3,262)
Dividends -- Series B preferred stock..................... (886) (886)
Dividends -- common stock................................. (62,000) (10,600)
Other comprehensive income (loss), net of tax............. (2,044) (40,647)
---------- ----------
BALANCE AT MARCH 31......................................... $1,610,057 $1,499,298
========== ==========
</TABLE>
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CONSOLIDATED STATEMENT OF CASH FLOWS Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31
----------------------------
(in thousands) 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 45,399 $ 39,333
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for loan losses................................. 5,517 13,882
Depreciation and amortization, including intangibles...... 17,483 17,013
Deferred tax expense (benefit)............................ 5,478 (193)
Gain on sales of portfolio securities..................... (8,031) (1,338)
Gain on sale of credit card portfolio..................... (12,000) -
Trading account net sales................................. 7,426 66,121
Net decrease (increase) in interest receivable............ 18,823 (551)
Net increase in interest payable.......................... 11,813 2,284
Net (increase) decrease in loans held for resale.......... (64,587) 19,924
Other, net................................................ (19,152) (4,538)
----------- -----------
Net cash provided by operating activities............... 8,169 151,937
----------- -----------
INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits at banks........ 307,141 37,340
Net increase in Federal funds sold and securities
purchased under agreement to resell..................... (1,987) (148,857)
Proceeds from sales of securities available-for-sale...... 980,181 155,352
Proceeds from maturities of securities
available-for-sale...................................... 4,145,859 2,551,257
Purchases of securities available-for-sale................ (5,612,885) (3,635,984)
Net increase in loans..................................... (540,628) (424,984)
Proceeds from sales of premises and equipment............. 16,225 3,815
Purchases of premises and equipment....................... (30,666) (21,912)
Other, net................................................ (156,141) 80,699
----------- -----------
Net cash used by investing activities................... (892,901) (1,403,274)
----------- -----------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits....................... (1,052,992) 627,697
Net increase in Federal funds purchased and securities
sold under agreement to repurchase...................... 993,588 832,093
Net decrease in commercial paper outstanding.............. (45,471) (70,262)
Net decrease in short-term borrowings..................... (498,556) (303,625)
Proceeds from issuance of senior notes.................... 2,448,000 1,230,000
Repayment of senior notes................................. (2,080,000) (630,000)
Proceeds from the sale of the credit card portfolio....... 722,748 --
Proceeds from issuance of preferred stock of subsidiary... 250,000 --
Cash dividends paid on preferred stock.................... (4,148) (4,148)
Cash dividends paid on common stock....................... (62,000) (10,600)
----------- -----------
Net cash provided by financing activities............... 671,169 1,671,155
----------- -----------
Net (decrease) increase in cash and demand balances due
from banks............................................. (213,563) 419,818
Cash and demand balances due from banks at January 1.... 1,304,374 1,238,028
----------- -----------
Cash and demand balances due from banks at March 31..... $ 1,090,811 $ 1,657,846
=========== ===========
</TABLE>
7
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
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, 1997.
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
PROCEEDINGSCertain 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
amounts capitalized) for the quarter ended March 31, totaled $169.4
million and $157.0 million in 1998 and 1997, respectively. Cash
income tax payments over the same periods totaled $3.9 million and
$2.7 million, respectively.
8
<PAGE> 12
CONSOLIDATED STATISTICAL SUMMARY Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended March 31
---------------------------------------
Daily Average Balances (in millions) 1998 1997
<S> <C> <C> <C> <C>
----------------- -----------------
<CAPTION>
Average Rates Earned and Paid (fully taxable equivalent
basis) Balances Rates Balances Rates
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Money market assets:
Interest-bearing deposits at banks........................ $ 540 4.78% $ 610 5.40%
Federal funds sold and securities purchased under
agreement to resell..................................... 127 6.40 206 5.47
-------- --------
Total money market assets.......................... 667 5.09 816 5.42
Trading account assets...................................... 59 6.51 70 6.86
Portfolio securities available-for-sale:
U.S. Treasury and Federal agency.......................... 5,147 6.35 4,223 6.33
State and municipal....................................... 296 8.54 296 8.74
Other..................................................... 35 4.56 31 5.23
-------- --------
Total portfolio securities available-for-sale...... 5,478 6.46 4,550 6.49
Loans, net of unearned income............................... 10,991 7.92 10,662 8.41
Assets held for sale........................................ 220 15.33 -- --
-------- --------
TOTAL INTEREST-EARNING ASSETS...................... 17,415 7.43 16,098 7.71
-------- --------
Cash and demand balances due from banks..................... 1,240 1,221
Other assets................................................ 1,346 1,187
-------- --------
Total assets....................................... $ 20,001 $ 18,506
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Interest checking deposits and money market accounts........ $ 3,166 3.53 $ 2,816 3.20
Savings deposits and certificates........................... 4,734 5.03 4,699 4.88
Other time deposits......................................... 1,164 5.62 414 5.35
Foreign office time deposits................................ 1,249 5.49 1,729 5.30
-------- --------
TOTAL INTEREST-BEARING DEPOSITS.................... 10,313 4.69 9,658 4.48
Short-term borrowings....................................... 3,977 5.35 3,591 5.16
Minority interest -- preferred stock of subsidiary.......... 136 7.38 -- --
Long-term notes............................................. 379 7.33 379 7.18
-------- --------
TOTAL INTEREST-BEARING LIABILITIES................. 14,805 4.96 13,628 4.73
Noninterest-bearing deposits................................ 3,274 3,036
Other liabilities........................................... 300 335
Stockholder's equity........................................ 1,622 1,507
-------- --------
Total liabilities and stockholder's equity......... $ 20,001 $ 18,506
======== ========
NET INTEREST MARGIN (RELATED TO AVERAGE INTEREST-EARNING
ASSETS)................................................... 3.22% 3.70%
===== =====
</TABLE>
1. FULLY TAXABLE EQUIVALENT ADJUSTMENT
Tax-exempt interest income has been restated to a comparable taxable level.
2. AVERAGE RATE ON PORTFOLIO SECURITIES AVAILABLE-FOR-SALE
Yields on securities classified as available-for-sale are based on amortized
cost.
9
<PAGE> 13
FINANCIAL REVIEW Harris Bankcorp, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
FIRST QUARTER 1998
COMPARED WITH
FIRST QUARTER 1997
- --------------------------------------------------------------------------------
SUMMARY The Corporation had first quarter 1998 earnings of $45.4 million, an
increase of $6.1 million or 15 percent from first quarter 1997. For
the current quarter, annualized return on average common
stockholder's equity was 11.98 percent compared to 11.13 percent in
the first quarter of 1997. Annualized return on average assets was
0.92 percent compared to 0.86 percent a year ago. This quarter was
affected by the January, 1998 sale of Harris Trust and Savings Bank's
credit card portfolio resulting in a pretax gain of $12.0 million. In
addition, the Corporation recognized a one-time pretax charge of $8.7
million for certain process improvements and system conversions,
including write-offs of discontinued systems.
First quarter net interest income on a fully taxable equivalent
basis was $138.4 million, down $9.0 million or 6 percent from $147.4
million in 1997's first quarter. At the time of the January credit
card sale, outstanding credit card loans amounted to approximately
$700 million, resulting in a reduction in net interest income
compared to first quarter 1997. Average earning assets rose 8 percent
to $17.42 billion from $16.10 billion in 1997, primarily attributable
to an increase of $329 million in average loans and $928 million in
the investment securities portfolio. Excluding the credit card
portfolio, average loans rose $1.3 billion or 13 percent. Commercial,
installment and residential real estate lending were all strong
contributors to this growth. Net interest margin declined to 3.22
percent from 3.70 percent in the same quarter last year primarily
reflecting the impact of the sale of the credit card loans earlier in
the current quarter.
The first quarter provision for credit losses of $5.5 million was
down $8.4 million from $13.9 million in the first quarter of 1997
because of the change in the risk profile of the portfolio. Net
charge-offs decreased from $13.8 million to $3.3 million, primarily
reflecting the reduction in charge card loans and the related
writeoffs.
Noninterest income increased $21.9 million or 25 percent to
$109.8 million for first quarter 1998 from the same quarter last
year. The $12.0 million gain on the sale of the credit card portfolio
was partially offset by writedowns in the value of certain accounts
in the portfolio prior to sale in addition to lower credit card fees,
together amounting to $8.5 million. In the current quarter, service
charge fees rose by $3.3 million and trust and investment management
fees improved by $2.1 million compared to first quarter 1997. Foreign
exchange income increased $0.8 million and trading income increased
$0.6 million. Net gains from debt portfolio securities sales
increased from $1.4 million in the first quarter 1997 to $8.0 million
during the current quarter. Other income which includes syndication
fees, gains on mortgage loan sales and other fees increased $5.0
million (excluding the credit card transaction).
First quarter 1998 noninterest expenses of $169.6 million rose
$12.6 million from first quarter last year. Excluding the $8.7
million one-time cost for restructuring charges, total expenses
increased 3 percent in the first quarter 1998 compared to the
year-earlier quarter.
Additional commentary on the matters included in the above
summary is provided in the following sections of this Report.
10
<PAGE> 14
- --------------------------------------------------------------------------------
NET INTEREST
INCOME
<TABLE>
<CAPTION>
Quarter Ended March 31
-----------------------
(in thousands) 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C>
Interest income............................................. $312,354 $300,494
Fully taxable equivalent adjustment......................... 7,291 6,122
-------- --------
Interest income (fully taxable equivalent basis)........ 319,645 306,616
Interest expense............................................ 181,228 159,262
-------- --------
Net interest income (fully taxable
equivalent basis)..................................... $138,417 $147,354
======== ========
Increase (decrease) due to change in:
Volume.................................................. $ 11,291 $ 18,321
Rate.................................................... (20,228) 334
-------- --------
Total increase (decrease) in net interest income... $ (8,937) $ 18,655
======== ========
</TABLE>
First quarter net interest income on a fully taxable equivalent basis
was $138.4 million, down 6% from $147.4 million in first quarter
1997. At the date of the credit card sale, outstanding credit card
loans amounted to approximately $700 million, resulting in a
reduction in net interest income. Average earning assets increased 8%
or $1.32 billion to $17.42 billion from $16.10 billion in 1997. Net
interest margin, the other principal determinant of net interest
income, declined from 3.70% to 3.22% in the current quarter.
Average loans rose $329 million, or 3%. Excluding the credit card
portfolio, average loans rose $1.3 billion or 13%. Commercial,
installment and residential real estate loans increased $679 million,
$114 million and $464 million, respectively. Average portfolio
securities were up 20%, or $928 million, primarily reflecting
increased holdings of Federal agency securities. Total money market
assets declined $149 million or 18% over first quarter 1997 levels.
Funding for asset growth came primarily from money market
accounts, other time deposits and short-term borrowings, which
increased by an average of $963 million, $750 million and $386
million, respectively, offset by decreases in interest checking,
savings deposits and certificates and foreign time deposits.
The Corporation's declining net interest margin principally
reflects the impact of the sale of the credit card portfolio earlier
in the current quarter. In addition, most of the incremental funding
for asset growth came in the form of interest-bearing deposits and
other borrowings.
- --------------------------------------------------------------------------------
AVERAGE EARNING ASSETS--NET INTEREST MARGIN
<TABLE>
<CAPTION>
Quarter Ended March 31
-----------------------------------------
Daily Average Balances (in millions) 1998 1997
Average Rates Earned and Paid ------------------- -------------------
(fully taxable equivalent basis) Balances Rates Balances Rates
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-earning assets..................................... $ 17,416 7.43% $ 16,097 7.71%
======== ========
Interest-bearing liabilities................................ $ 14,806 4.96 $ 13,628 4.73
Noninterest-bearing sources of funds........................ 2,610 -- 2,469 --
-------- --------
Total supporting liabilities............................ $ 17,416 4.21 $ 16,097 4.01
======== ========
Net interest margin (related to average interest-earning
assets)................................................... 3.22% 3.70%
======== ========
</TABLE>
11
<PAGE> 15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
Ended March 31 Increase (Decrease)
Noninterest ------------------- --------------------
Income (dollars in thousands) 1998 1997 Amount %
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust and investment management fees................... $ 33,690 $31,594 $ 2,096 7
Trading account........................................ 1,516 928 588 63
Foreign exchange....................................... 1,650 888 762 86
Charge card............................................ 7,218 11,603 (4,385) (38)
Service fees and charges............................... 26,743 23,396 3,347 14
Securities gains....................................... 8,031 1,338 6,693 500
Gain on sale of credit card portfolio.................. 12,000 -- 12,000 --
Other.................................................. 18,930 18,106 824 5
-------- ------- -------
Total noninterest income............................... $109,778 $87,853 $21,925 25
======== ======= ======= ===
</TABLE>
Noninterest income for the first quarter was $109.8 million, an
increase of $21.9 million or 25% from the first quarter of 1997. In
the current quarter, the Corporation realized a gain of $12.0 million
on the sale of the credit card portfolio which was partially offset
by writedowns in the value of certain accounts in the card portfolio
prior to sale in addition to lower credit card fees, together
amounting to $8.5 million. Service fees and charges were $26.7
million, an increase of $3.3 million or 14% from first quarter 1997.
Trust and investment management revenue was $33.7 million, an
increase of $2.1 million or 7% from the previous year. Excluding the
effect of the writedown in the value of certain credit card accounts,
other income including syndication fees, gains from mortgage sales,
foreign fees, income from bank-owned life insurance and other
miscellaneous items, increased $5.0 million or 27% over the previous
year. Foreign exchange revenue was $1.7 million, up 86% from the
first quarter of 1997. Net gains reported from the sale of debt
securities totaled $8.0 million, up $6.7 million from first quarter
1997.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NONINTEREST Quarter
EXPENSES Ended March 31 Increase (Decrease)
and Income -------------------- --------------------
Taxes (dollars in thousands) 1998 1997 Amount %
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and other compensation...................... $ 77,759 $ 74,365 $ 3,394 5
Pension, profit sharing and other employee
benefits........................................... 14,785 15,737 (952) (6)
Net occupancy........................................ 12,398 14,495 (2,097) (14)
Equipment............................................ 12,764 10,554 2,210 21
Marketing............................................ 5,686 5,989 (303) (5)
Communication and delivery........................... 6,006 5,374 632 12
Deposit insurance.................................... 759 652 107 16
Expert services...................................... 6,852 5,228 1,624 31
Restructuring charge................................. 8,684 -- 8,684 --
Other................................................ 17,697 17,620 77 --
-------- -------- -------
163,390 150,014 13,376 9
Goodwill and other valuation intangibles............. 6,206 6,962 (756) (11)
-------- -------- -------
Total noninterest expenses........................... $169,596 $156,976 $12,620 8
======== ======== ======= ===
</TABLE>
12
<PAGE> 16
- --------------------------------------------------------------------------------
Noninterest expenses for the first quarter totaled $169.6 million, an
increase of $12.6 million or 8% from the first quarter of 1997. In
the current quarter, the Corporation recognized a one-time pretax
charge of $8.7 million for certain process improvements and system
conversions, including write-offs of discontinued systems. Excluding
the effect of the restructuring charges, total expenses increased 3%
in first quarter 1998 compared to the year-earlier quarter.
Employment-related expenses totaled $92.5 million, an increase of
$2.4 million or 3%. Net occupancy expenses totaled $12.4 million,
down $2.1 million from the prior year's first quarter. Equipment
expenses increased $2.2 million or 21% over first quarter 1997.
Expert services increased $1.6 million to $6.9 million in first
quarter 1998. Excluding the effect of the restructuring charges,
other noninterest expenses were virtually unchanged from the
year-earlier quarter.
Income tax expense totaled $20.4 million, an increase of $1.5
million or 8% from the $18.9 million recorded in first quarter 1997,
reflecting an increase in pretax income.
- --------------------------------------------------------------------------------
CAPITAL
POSITION Capital Position The Corporation's total equity capital at March 31,
1998 was $1.61 billion, compared with $1.63 billion and $1.50 billion
at December 31, 1997 and March 31, 1997, respectively. During the
preceding twelve months, the Corporation declared common and
preferred dividends of $93.4 million and $16.6 million, respectively.
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 loan losses. The Corporation's Tier 1 and
total risk-based capital ratios were 9.17% and 11.94%, respectively,
at March 31, 1998. HTSB's Tier 1 and total risk-based capital ratios
were 8.70% and 11.72%, respectively, at March 31, 1998.
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 and HTSB's
Tier 1 leverage ratios were 7.95% and 7.98%, respectively, for the
first quarter of 1998.
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 March 31, 1998, 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. Identifiable
intangibles acquired before February 19, 1992 continue to be included
with Tier 1 capital. 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 March 31, 1998, the
Corporation's intangible assets totaled $279 million, including
approximately $272 million of intangibles excluded under capital
guidelines. The Corporation's and HTSB's tangible Tier 1 leverage
ratios (which exclude all intangibles) were 7.91% and 7.94%,
respectively, for the first quarter of 1998.
13
<PAGE> 17
- --------------------------------------------------------------------------------
The following is a summary of the Corporation's capital ratios:
<TABLE>
<CAPTION>
March 31 December 31 March 31
(dollars in thousands) 1998 1997 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets (end of period).............................. $20,125,392 $20,133,461 $19,884,336
=========== =========== ===========
Average assets (quarter).................................. $20,000,660 $19,978,660 $18,505,557
=========== =========== ===========
Risk-based on-balance sheet assets........................ $13,026,949 $13,051,738 $12,492,076
=========== =========== ===========
Risk-based off-balance sheet assets....................... $ 4,320,318 $ 4,112,859 $ 3,675,803
=========== =========== ===========
Total risk-based assets, net of deductions (based on
regulatory accounting principles)....................... $17,071,320 $16,883,446 $15,876,608
=========== =========== ===========
Tier 1 capital............................................ $ 1,565,893 $ 1,339,949 $ 1,256,812
=========== =========== ===========
Supplementary capital..................................... $ 472,722 $ 470,443 $ 501,582
=========== =========== ===========
Total capital, net of deductions (based on regulatory
accounting principles).................................. $ 2,037,970 $ 1,809,767 $ 1,757,774
=========== =========== ===========
Tier 1 leverage ratio..................................... 7.95% 6.81% 6.87%
Risk-based capital ratios
Tier 1.................................................. 9.17% 7.94% 7.92%
Total................................................... 11.94% 10.72% 11.07%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NONPERFORMING March 31 December 31 March 31
Assets (dollars in thousands) 1998 1997 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans............................................ $ 26,557 $17,790 $ 31,370
Restructured loans.......................................... 1,229 598 1,508
-------- ----------- --------
Total nonperforming loans................................... 27,786 18,388 32,878
Other assets received in satisfaction of debt............... 1,564 1,300 1,598
-------- ----------- --------
Total nonperforming assets.................................. $ 29,350 $19,688 $ 34,476
======== =========== ========
Nonperforming loans to total loans (end of period).......... .24% .17% .30%
Nonperforming assets to total loans (end of period)......... .26% .18% .31%
======== =========== ========
90-day past due loans still accruing interest............... $ 17,631 $27,083 $ 35,424
======== =========== ========
</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 March 31, 1998 totaled $29 million, or
0.26 percent of total loans, up from $20 million or 0.18 percent of
total loans at December 31, 1997 and down from $34 million or 0.31
percent of total loans a year ago.
Interest shortfall for the quarter ended March 31, 1998 was $0.6
million compared to $1.0 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
14
<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>
March 31, 1998
Balance............................................ $10,447 $16,110 $26,557
Related allowance.................................. 4,632 -- 4,632
------- ------- -------
Balance, net of allowance.......................... $ 5,815 $16,110 $21,925
======= ======= =======
December 31, 1997
Balance............................................ $ 2,360 $15,430 $17,790
Related allowance.................................. 1,850 -- 1,850
------- ------- -------
Balance, net of allowance.......................... $ 510 $15,430 $15,940
======= ======= =======
March 31, 1997
Balance............................................ $13,176 $18,194 $31,370
Related allowance.................................. 4,887 -- 4,887
------- ------- -------
Balance, net of allowance.......................... $ 8,289 $18,194 $26,483
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended March 31
-----------------------
(dollars in thousands) 1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C>
Average impaired loans...................................... $24,337 $32,003
======= =======
Total interest income on impaired loans..................... $ 26 $ 48
======= =======
Interest income on impaired loans recorded on a cash
basis..................................................... $ 26 $ 48
======= =======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALLOWANCE
FOR POSSIBLE
Quarter Ended March 31
-------------------------
Loan Losses (dollars in thousands) 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of period................................ $130,876 $142,211
-------- --------
Charge-offs................................................. (4,991) (17,616)
Recoveries.................................................. 1,726 3,786
-------- --------
Net charge-offs............................................. (3,265) (13,830)
Provision charged to operations............................. 5,517 13,882
-------- --------
Balance at March 31......................................... $133,128 $142,263
======== ========
Net charge-offs as a percentage of provision charged to
operations................................................ 59% 100%
Allowance for possible loan losses to nonperforming loans
(period-end).............................................. 479 433
Allowance for possible loan losses to nonperforming assets
(period-end).............................................. 454 413
Allowance for possible loan losses to total loans
outstanding (period-end).................................. 1.16 1.28
</TABLE>
The Corporation's provision for loan losses for the current
quarter was $5.5 million, down 60.3 percent from $13.9 million in
last year's first quarter. Net charge-offs also decreased from $13.8
million to $3.3 million for the current quarter. The decrease in 1998
first quarter net charge-offs primarily reflects the sale of the
charge card portfolio in the current quarter and the related
reduction in charge card writeoffs, offset somewhat by an increase in
commercial and installment loan net charge-offs. For the first
quarter of 1998, net
15
<PAGE> 19
- --------------------------------------------------------------------------------
charge-offs related to commercial and installment loans were $1.7 million and
$1.6 million, respectively, compared to $0.6 million and $0.9 million,
respectively, for the first quarter of 1997.
At March 31, 1998, the allowance for possible loan losses was
$133 million, equal to 1.16 percent of total loans outstanding,
compared to $142 million or 1.28 percent of total loans one year ago.
The allowance as a percentage of nonperforming loans increased from
433 percent at March 31, 1997, to 479 percent at March 31, 1998.
- --------------------------------------------------------------------------------
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 36 percent of
the Corporation's total assets and amounted to $7.23 billion at March
31, 1998. 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 Bank of Montreal
that terminates on December 18, 1999. There were no borrowings under
this credit facility in year-to-date 1998 or 1997.
Total core deposits decreased from $11.45 billion or 65 percent
of total non-equity funding at March 31, 1997 to $11.12 billion or 63
percent of total non-equity funding at March 31, 1998. The
Corporation's average volume of core deposits, consisting of demand
deposits, interest checking deposits, savings deposits and
certificates, and money market accounts rose 7 percent
quarter-to-quarter, reflecting increases in domestic demand deposits,
money market accounts and savings deposits and certificates. Total
wholesale deposits and short-term borrowings increased from $6.24
billion or 35 percent of total non-equity funding at March 31, 1997
to $6.48 billion or 37 percent of total non-equity funding at March
31, 1998. Total deposits averaged $13.59 billion in the first quarter
of 1998, an increase of $893 million compared to the same quarter
last year.
Average money market assets in the first quarter of 1998
decreased $149 million or 18 percent from the same quarter last year.
These assets represented 4 percent of average earning assets in 1998
compared to 5 percent a year ago. Average money market liabilities
increased 11 percent to $3.28 billion this quarter from $2.95 billion
in the same quarter last year.
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 $1.50 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 March 31, 1998,
$468 million of short-term notes were outstanding compared to $950
million at March 31, 1997.
16
<PAGE> 20
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
- ------------------------------
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
Pastora San Juan Cafferty
Professor
University of Chicago
School of Social Service
Administration
F. Anthony Comper
President and
Chief Operating Officer
Bank of Montreal
Susan T. Congalton
Managing Director
Lupine Partners
Wilbur H. Gantz
President and
Chief Executive Officer
PathoGenesis Corporation
James J. Glasser
Chairman Emeritus
GATX Corporation
Dr. Leo M. Henikoff
President and
Chief Executive Officer
Rush-Presbyterian-St. Luke's
Medical Center
Richard M. Jaffee
Chairman
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.
- ------------------------------
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 TRUST/BANK OF MONTREAL
(FORMERLY HARRIS TRUST COMPANY OF FLORIDA)
West Palm Beach, Florida
- ------------------------------
HARRIS BANKCORP, INC.
NON-BANK SUBSIDIARIES
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
HARRIS TRADE SERVICES LIMITED
Hong Kong
HARRIS PREFERRED CAPITAL CORPORATION
Chicago, Illinois
<PAGE> 21
HARRIS
LOGO
First Quarter Report 1998
HARRIS BANKCORP, INC.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,090,811
<INT-BEARING-DEPOSITS> 290,929
<FED-FUNDS-SOLD> 82,769
<TRADING-ASSETS> 45,783
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 5,720,835
<LOANS> 11,502,797
<ALLOWANCE> 133,128
<TOTAL-ASSETS> 20,125,392
<DEPOSITS> 13,379,071
<SHORT-TERM> 4,224,181
<LIABILITIES-OTHER> 236,071
<LONG-TERM> 629,324
0
225,000
<COMMON> 53,340
<OTHER-SE> 1,331,717
<TOTAL-LIABILITIES-AND-EQUITY> 20,125,392
<INTEREST-LOAN> 222,796
<INTEREST-INVEST> 80,455
<INTEREST-OTHER> 9,104
<INTEREST-TOTAL> 312,355
<INTEREST-DEPOSIT> 119,246
<INTEREST-EXPENSE> 181,227
<INTEREST-INCOME-NET> 131,128
<LOAN-LOSSES> 5,517
<SECURITIES-GAINS> 8,031
<EXPENSE-OTHER> 169,596
<INCOME-PRETAX> 65,793
<INCOME-PRE-EXTRAORDINARY> 45,399
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,399
<EPS-PRIMARY> 6.19
<EPS-DILUTED> 6.19
<YIELD-ACTUAL> 3.22
<LOANS-NON> 26,557
<LOANS-PAST> 17,631
<LOANS-TROUBLED> 1,229
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 130,876
<CHARGE-OFFS> 4,991
<RECOVERIES> 1,726
<ALLOWANCE-CLOSE> 133,128
<ALLOWANCE-DOMESTIC> 133,128
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
