<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 JUNE 30, 2000, 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 August 11, 2000 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 Statements of Income and Consolidated Statements of
Comprehensive Income for the quarters and six months ended June 30, 2000
and 1999.
Consolidated Statements of Condition as of June 30, 2000, December 31,
1999 and June 30, 1999.
Consolidated Statements of Changes in Stockholder's Equity and
Consolidated Statements of Cash Flows for the six months ended June 30,
2000 and 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Financial Review).
The above financial statements and financial review, included in the
Corporation's 2000 Second 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) No Current Report on Form 8-K was filed during the quarter ended
June 30, 2000, for which this report is filed.
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 11th day of August 2000.
/s/
------------------------------------------------
Pierre O. Greffe
Chief Financial Officer
/s/
------------------------------------------------
Paul R. Skubic
Chief Accounting Officer
<PAGE> 3
FINANCIAL HIGHLIGHTS Harris Bankcorp, Inc. and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
------------------------------ ------------------------------
2000 1999 Change 2000 1999 Change
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS AND DIVIDENDS (IN THOUSANDS)
Net interest income................................... $144,301 $133,387 8% $289,454 $262,863 10%
Net interest income (fully taxable equivalent)........ 153,417 141,241 9 307,299 278,432 10
Provision for loan losses............................. 6,969 6,362 10 13,057 13,607 (4)
Noninterest income.................................... 104,636 118,344 (12) 256,312 235,727 9
Noninterest expenses.................................. 167,573 177,891 (6) 337,950 350,277 (4)
Net income............................................ 53,976 50,580 7 135,711 99,946 36
Dividends -- common stock............................. 33,000 18,000 83 53,570 33,000 62
Dividends -- preferred stock.......................... 4,148 4,148 -- 8,297 8,297 --
Cash earnings(1)...................................... 57,882 54,537 6 113,887 107,789 6
-------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Return on average common stockholder's equity......... 14.37% 13.38% 99bp 18.80% 13.19% 561bp
Return on average assets.............................. 0.84 0.87 (3) 1.07 0.87 20
Cash return on average common stockholder's
equity(2)........................................... 18.63 17.89 74 24.25 17.64 661
Cash return on average assets(3)...................... 0.91 0.95 (4) 1.15 0.95 20
Returns excluding gain on sale of corporate trust
business:
Return on average common stockholder's equity....... 14.37 13.38 99 14.42 13.19 123
Return on average assets............................ 0.84 0.87 (3) 0.84 0.87 (3)
Cash return on average common stockholder's
equity(2)......................................... 18.63 17.89 74 18.92 17.64 128
Cash return on average assets(3).................... 0.91 0.95 (4) 0.91 0.95 (4)
Tier 1 risk-based capital ratio....................... 8.83 8.85 (2)
Total risk-based capital ratio........................ 11.21 11.60 (39)
Tier 1 leverage ratio................................. 7.14 7.14 --
Allowance for possible loan losses to total loans
(period-end)........................................ 1.08 1.14 (6)
-------------------------------------------------------------------------------------------------------------------------------
DAILY AVERAGE BALANCES (IN MILLIONS)
Money market assets................................... $ 500 $ 361 39% $ 471 $ 351 34%
Securities available-for-sale......................... 8,417 7,426 13 8,339 7,203 16
Loans, net of unearned income......................... 13,731 12,447 10 13,542 12,293 10
Total interest-earning assets......................... 22,709 20,312 12 22,408 19,925 12
Total assets.......................................... 25,758 23,388 10 25,421 23,060 10
Deposits.............................................. 16,773 15,114 11 16,095 15,120 6
Short-term borrowings................................. 6,356 5,633 13 6,724 5,282 27
Common stockholder's equity........................... 1,395 1,392 -- 1,363 1,402 (3)
-------------------------------------------------------------------------------------------------------------------------------
BALANCES AT QUARTER-END (IN MILLIONS)
Securities available-for-sale......................... $ 8,366 $ 7,361 14%
Loans, net of unearned income......................... 13,958 12,628 11
Allowance for possible loan losses.................... 151 144 5
Total assets.......................................... 26,203 23,553 11
Deposits.............................................. 15,754 15,674 1
Common stockholder's equity........................... 1,458 1,349 8
Total stockholder's equity............................ 1,683 1,574 7
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Cash earnings is defined as net income excluding the impact of amortization
of goodwill and other valuation intangibles. Cash earnings for the six
months ended June 30, 2000 excludes the after-tax gain on the sale of the
corporate trust business. Including the corporate trust gain, cash earnings
would have been $143.6 million.
(2) Cash return on average common stockholder's equity ("Cash ROE") is
calculated as annualized net income applicable to common stock plus
after-tax amortization expense of goodwill and other valuation intangibles,
divided by average common stockholder's equity less average intangible
assets.
(3) Cash return on average assets ("Cash ROA") is calculated as net income plus
after-tax amortization expense of goodwill and other valuation intangibles,
divided by average assets less average intangible assets.
1
<PAGE> 4
REPORT FROM MANAGEMENT
--------------------------------------------------------------------------------
Harris Bankcorp had net income of $54.0 million for the second
quarter and $135.7 million for the six months ended June 30, 2000,
representing increases of 7 percent and 36 percent respectively, over
the same periods in 1999. Year-to-year comparative results were
affected by the gain on the sale of the corporate trust business in
first quarter 2000 and by higher gains from securities sales last
year. Excluding both of these factors, "core earnings" grew 11
percent in the current quarter and 14 percent for the first six
months compared to the same periods a year earlier.
Cash ROE was 18.63 percent in the current quarter compared to
17.89 percent one year earlier and, excluding the gain on the sale of
the corporate trust business, 18.92 percent for first half 2000
compared to 17.64 percent for the first half of 1999.
Record earnings were attributed to continued strong earnings
growth in community banking, private client and mid-market
businesses; sustained cost control; and top-tier asset quality.
For the current quarter, net interest income on a fully taxable
equivalent basis was $153.4 million, up 9 percent from second quarter
last year. Average earning assets rose 12 percent to $22.71 billion
from $20.31 billion in second quarter 1999, attributable to an
increase of $1.28 billion in average loans and $991 million in the
investment securities portfolio. Commercial lending was the primary
contributor to loan growth of 10 percent. Net interest margin
declined from 2.79 percent in the year-ago quarter to 2.71 percent
currently, reflecting the impact of the rising interest rate
environment during the past year.
Second quarter noninterest income of $104.6 million decreased 12
percent from the same quarter last year. Trust and investment
management fees declined $6.8 million or 18 percent, as a result of
this year's first quarter sale of the corporate trust business.
Excluding corporate trust revenue, total trust and investment
management fees rose 14 percent in the current quarter. Merchant and
charge card fees declined $1.4 million, while bond trading profits
increased $1.7 million. Other noninterest income, including
syndication fees, mortgage loan sales and other fees, declined $7.3
million. Net gains from investment securities sales declined to $3.0
million currently from $6.1 million in second quarter 1999.
Second quarter 2000 noninterest expenses of $167.6 million
decreased $10.3 million or 6 percent from second quarter a year ago,
primarily reflecting the sale of the corporate trust business in
2000. Income tax expense increased $3.5 million as a result of higher
pretax income.
The second quarter 2000 provision for loan losses of $7.0 million
was up $0.6 million from $6.4 million in the second quarter of 1999.
Net loan charge-offs during the current quarter were $4.9 million
compared to $6.3 million in the same period last year.
Nonperforming assets at June 30, 2000 were $39 million or 0.28
percent of total loans, compared to $38 million or 0.27 percent at
March 31, 2000, and $38 million or 0.30 percent a year ago. At June
30, 2000, the allowance for possible loan losses was $151 million,
equal to 1.08 percent of loans outstanding, compared to $144 million
or 1.14 percent at the end of second quarter 1999. As a result, the
ratio of the allowance for possible loan losses to nonperforming
assets was 385 percent at June 30, 2000 compared to 382 percent at
June 30, 1999.
At June 30, 2000, regulatory Tier 1 capital of Harris Bankcorp
amounted to $1.84 billion, up from $1.66 billion one year earlier.
The regulatory leverage capital ratio was 7.14 percent for the second
quarter of 2000 compared to 7.14 percent in the same quarter of 1999.
Harris Bankcorp's capital ratio exceeds the prescribed regulatory
minimum for bank holding companies. Harris Bankcorp's June 30, 2000
Tier 1 and total risk-based capital ratios were 8.83 percent and
11.21 percent compared to respective ratios of 8.85 percent and 11.60
percent at June 30, 1999.
2
<PAGE> 5
--------------------------------------------------------------------------------
For the first half of the year, net interest income on a fully
taxable equivalent basis increased 10 percent or $28.9 million,
reflecting earning asset growth of 12 percent. Net interest margin
declined to 2.76 percent currently from 2.82 percent in the six
months ended June 30, 1999. Average loans increased $1.25 billion or
10 percent.
Year-to-date noninterest income increased $20.6 million or 9
percent over the first half of 1999. Excluding the $50.2 million gain
on the sale of the corporate trust business, noninterest revenue
declined 13 percent. Most of this decrease was caused by the $11.0
million decline in net gains on securities sales and reduced
operating revenue from the corporate trust business sold in first
quarter 2000. Excluding corporate trust revenue, growth in trust and
investment management income was 10 percent over the first half of
1999.
The provision for loan losses decreased by $0.5 million to $13.1
million in the first six months of 2000 while net charge-offs
declined by $1.2 million to $9.4 million. Noninterest expense
declined $12.3 million or 4 percent year-to-year, while income tax
expense rose $24.3 million, reflecting higher pretax income.
On July 1, 2000, Harris Bankcorp, Inc. legally combined with its
affiliated bank holding company, Harris Bankmont, Inc. Accordingly,
future presentations of results for Harris Bankcorp will include the
combined entities.
/s/ ALAN G. MCNALLY
Alan G. McNally July 28, 2000
Chairman of the Board and
Chief Executive Officer
3
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Harris Bankcorp, Inc. and
Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
---------------------- ------------------------
(in thousands except share data) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees....................................... $284,738 $222,680 $551,697 $440,496
Money market assets:
Deposits at banks......................................... 1,893 582 2,466 957
Federal funds sold and securities purchased under
agreement to resell..................................... 4,031 2,614 7,251 5,103
Trading account............................................. 903 926 1,585 1,866
Securities available-for-sale:
U.S. Treasury and Federal agency.......................... 120,189 97,940 234,785 190,665
State and municipal....................................... 4,191 4,225 8,256 8,450
Other..................................................... 2,550 1,954 5,015 3,817
-------- -------- -------- --------
Total interest income..................................... 418,495 330,921 811,055 651,354
-------- -------- -------- --------
INTEREST EXPENSE
Deposits.................................................... 163,829 118,982 298,799 240,752
Short-term borrowings....................................... 88,706 49,830 172,281 93,554
Senior notes................................................ 8,693 16,385 24,780 29,489
Minority interest -- dividends on preferred stock of
subsidiary................................................ 4,609 4,609 9,219 9,219
Long-term notes............................................. 8,357 7,728 16,522 15,477
-------- -------- -------- --------
Total interest expense.................................... 274,194 197,534 521,601 388,491
-------- -------- -------- --------
NET INTEREST INCOME......................................... 144,301 133,387 289,454 262,863
Provision for loan losses................................... 6,969 6,362 13,057 13,607
-------- -------- -------- --------
Net Interest Income after Provision for Loan Losses......... 137,332 127,025 276,397 249,256
-------- -------- -------- --------
NONINTEREST INCOME
Trust and investment management fees........................ 30,687 37,464 68,800 75,314
Money market and bond trading............................... 2,802 1,095 3,216 2,972
Foreign exchange............................................ 2,100 1,800 3,900 4,314
Merchant and charge card fees............................... 6,706 8,115 12,055 14,166
Service fees and charges.................................... 27,704 28,457 55,572 56,068
Securities gains............................................ 2,988 6,089 2,989 13,991
Gain on sale of corporate trust business.................... -- -- 50,193 --
Bank-owned insurance investments............................ 11,238 10,699 22,012 20,525
Foreign fees................................................ 7,508 4,427 12,508 10,017
Other....................................................... 12,903 20,198 25,067 38,360
-------- -------- -------- --------
Total noninterest income.................................. 104,636 118,344 256,312 235,727
-------- -------- -------- --------
NONINTEREST EXPENSES
Salaries and other compensation............................. 85,742 87,385 171,965 173,440
Pension, profit sharing and other employee benefits......... 16,993 18,477 34,377 36,395
Net occupancy............................................... 13,522 12,869 26,478 22,200
Equipment................................................... 13,100 15,343 27,717 29,918
Marketing................................................... 7,066 6,774 12,928 13,003
Communication and delivery.................................. 6,011 6,073 11,122 12,829
Expert services............................................. 5,253 8,980 11,145 16,446
Contract programming........................................ 4,500 2,153 7,987 5,458
Other....................................................... 9,227 13,596 21,810 28,222
-------- -------- -------- --------
161,414 171,650 325,529 337,911
Goodwill and other valuation intangibles.................... 6,159 6,241 12,421 12,366
-------- -------- -------- --------
Total noninterest expenses................................ 167,573 177,891 337,950 350,277
-------- -------- -------- --------
Income before income taxes.................................. 74,395 67,478 194,759 134,706
Applicable income taxes..................................... 20,419 16,898 59,048 34,760
-------- -------- -------- --------
NET INCOME................................................ 53,976 50,580 135,711 99,946
Dividends on preferred stock................................ 4,148 4,148 8,297 8,297
-------- -------- -------- --------
Net Income Applicable to Common Stock....................... $ 49,828 $ 46,432 $127,414 $ 91,649
======== ======== ======== ========
EARNINGS PER COMMON SHARE (based on 6,667,490 average shares
outstanding)
Net Income Applicable to Common Stock....................... $ 7.47 $ 6.96 $ 19.11 $ 13.75
======== ======== ======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
4
<PAGE> 7
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Harris Bankcorp,
Inc. and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
---------------------- ------------------------
(in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME.................................................. $ 53,976 $ 50,580 $135,711 $ 99,946
Other comprehensive income:
Unrealized gains/(losses) on available-for-sale
securities:
Unrealized holding gains/(losses) arising during period,
net of tax expense/(benefit) for the quarter of
$13,631 in 2000 and ($58,419) in 1999 and net of tax
expense/(benefit) for the year-to-date period of
$11,862 in 2000 and ($85,149) in 1999................. 20,639 (88,643) 17,962 (128,948)
Less reclassification adjustment for realized gains
included in income statement, net of tax expense for
the quarter of $1,162 in 2000 and $2,369 in 1999 and
net of tax expense for the year-to-date period of
$1,163 in 2000 and $5,443 in 1999..................... (1,826) (3,720) (1,826) (8,548)
-------- -------- -------- --------
Other comprehensive income (loss)........................... 18,813 (92,363) 16,136 (137,496)
-------- -------- -------- --------
Comprehensive income (loss)................................. $ 72,789 $(41,783) $151,847 $(37,550)
======== ======== ======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
5
<PAGE> 8
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) Harris Bankcorp, Inc. and
Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30 December 31 June 30
(in thousands except share data) 2000 1999 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and demand balances due from banks..................... $ 1,235,495 $ 1,485,408 $ 1,290,227
Money market assets:
Interest-bearing deposits at banks........................ 148,381 239,980 159,217
Federal funds sold and securities purchased under
agreement to resell..................................... 348,084 305,890 169,011
Trading account assets...................................... 82,985 68,910 86,712
Securities available-for-sale............................... 8,365,762 7,793,699 7,361,213
Loans, net of unearned income............................... 13,957,655 13,114,029 12,628,345
Allowance for possible loan losses.......................... (150,893) (147,235) (143,575)
----------- ----------- -----------
Net loans................................................. 13,806,762 12,966,794 12,484,770
Premises and equipment...................................... 356,183 392,811 389,476
Customers' liability on acceptances......................... 32,749 43,599 45,488
Bank-owned insurance investments............................ 883,079 772,579 744,670
Goodwill and other valuation intangibles.................... 232,771 249,899 259,132
Other assets................................................ 710,755 543,309 563,418
----------- ----------- -----------
TOTAL ASSETS.......................................... $26,203,006 $24,882,878 $23,553,334
=========== =========== ===========
LIABILITIES
Deposits in domestic offices -- noninterest bearing......... $ 3,325,020 $ 3,729,096 $ 3,312,394
-- interest-bearing............. 10,610,143 10,215,332 10,434,724
Deposits in foreign offices -- noninterest bearing.......... 27,090 35,537 25,877
-- interest-bearing............... 1,792,137 1,314,991 1,901,274
----------- ----------- -----------
Total deposits........................................ 15,754,390 15,294,956 15,674,269
Federal funds purchased and securities sold under agreement
to repurchase............................................. 5,545,740 4,536,831 3,403,680
Commercial paper outstanding................................ 295,847 245,050 294,208
Other short-term borrowings................................. 865,278 684,127 255,761
Senior notes................................................ 1,089,500 1,500,000 1,385,500
Acceptances outstanding..................................... 32,749 43,599 45,533
Accrued interest, taxes and other expenses.................. 182,600 213,574 166,274
Other liabilities........................................... 49,359 59,311 50,076
Minority interest -- preferred stock of subsidiary.......... 250,000 250,000 250,000
Long-term notes............................................. 454,783 454,673 454,503
----------- ----------- -----------
TOTAL LIABILITIES..................................... 24,520,246 23,282,121 21,979,804
----------- ----------- -----------
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..................................................... 508,513 496,490 495,157
Retained earnings........................................... 1,035,286 961,442 899,332
Accumulated other comprehensive loss........................ (139,379) (155,515) (99,299)
----------- ----------- -----------
TOTAL STOCKHOLDER'S EQUITY............................ 1,682,760 1,580,757 1,573,530
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............ $26,203,006 $24,862,878 $23,553,334
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
6
<PAGE> 9
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (UNAUDITED) Harris
Bankcorp, Inc. and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands) 2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1........................................ $1,580,757 $1,651,032
Net income................................................ 135,711 99,946
Contributions to capital.................................. 12,023 1,345
Dividends -- Series A preferred stock..................... (6,525) (6,525)
Dividends -- Series B preferred stock..................... (1,772) (1,772)
Dividends -- common stock................................. (52,000) (33,000)
Noncash distribution...................................... (1,570) --
Other comprehensive income (loss)......................... 16,136 (137,496)
---------- ----------
BALANCE AT JUNE 30.......................................... $1,682,760 $1,573,530
========== ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Harris Bankcorp, Inc. and
Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30
--------------------------
(in thousands) 2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 135,711 $ 99,946
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................. 13,057 13,607
Depreciation and amortization, including intangibles...... 38,988 37,050
Deferred tax expense...................................... 1,778 2,836
Gain on sales of securities............................... (2,989) (13,991)
Gain on sale of corporate trust business.................. (50,193) --
Trading account net (purchases) sales..................... (14,075) 33,956
Net increase in interest receivable....................... (9,166) (3,943)
Net (decrease) increase in interest payable............... (33,821) 4,725
Net decrease in loans held for resale..................... 49,458 134,538
Other, net................................................ (33,413) (30,778)
---------- ----------
Net cash provided by operating activities............... 95,335 277,946
---------- ----------
INVESTING ACTIVITIES:
Net decrease (increase) in interest-bearing deposits at
banks................................................... 91,599 (60,280)
Net increase in Federal funds sold and securities
purchased under agreement to resell..................... (42,194) (13,302)
Proceeds from sales of securities available-for-sale...... 123,676 664,355
Proceeds from maturities of securities
available-for-sale...................................... 4,155,347 5,992,553
Purchases of securities available-for-sale................ (4,821,262) (7,268,564)
Net increase in loans..................................... (902,483) (545,122)
Purchases of premises and equipment....................... (19,842) (44,386)
Net increase in bank-owned insurance investments.......... (110,500) (19,367)
Other, net................................................ (137,787) (24,266)
---------- ----------
Net cash used by investing activities................... (1,663,446) (1,318,379)
---------- ----------
FINANCING ACTIVITIES:
Net increase in deposits.................................. 459,434 351,427
Net increase (decrease) in Federal funds purchased and
securities sold under agreement to repurchase........... 1,008,909 (37,153)
Net increase in commercial paper outstanding.............. 50,797 32,303
Net increase in short-term borrowings..................... 181,151 87,610
Proceeds from issuance of senior notes.................... 1,050,000 3,246,000
Repayment of senior notes................................. (1,460,500) (2,800,500)
Net cash proceeds from the sale of corporate trust
business................................................ 88,704 --
Cash dividends paid on preferred stock.................... (8,297) (8,297)
Cash dividends paid on common stock....................... (52,000) (33,000)
---------- ----------
Net cash provided by financing activities............... 1,318,198 838,390
---------- ----------
Net decrease in cash and demand balances due from
banks.................................................. (249,913) (202,043)
Cash and demand balances due from banks at January 1.... 1,485,408 1,492,270
---------- ----------
Cash and demand balances due from banks at June 30...... $1,235,495 $1,290,227
========== ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
7
<PAGE> 10
NOTES TO THE 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 year's 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, 1999.
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
PROCEEDINGSThe Corporation and certain of its subsidiaries 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 Statements 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 six months ended June 30 totaled $555.4
million and $383.8 million in 2000 and 1999, respectively. Cash
income tax payments over the same periods totaled $48.4 million and
$49.4 million, respectively.
--------------------------------------------------------------------------------
4. RECENT
ACCOUNTING
DEVELOPMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires all derivatives
to be recognized as either assets or liabilities in the statement of
financial position and to be measured at fair value. As issued, the
Statement was effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No.
133." The Statement was effective upon issuance and it amends SFAS
No. 133 to be effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 which for the Corporation would be the
quarter ending March 31, 2001. On June 15, 2000, the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133." The
Statement addresses a limited number of issues causing implementation
difficulties for numerous entities that are required to implement
SFAS No. 133. SFAS No. 133, as amended by SFAS No. 137 and SFAS No.
138, continues to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Corporation is in the
process of assessing the impact of adopting the Statements on its
financial position and results of operations.
--------------------------------------------------------------------------------
5. CORPORATE
TRUST SALE In March 2000, the Corporation sold its corporate trust business. In
separate and unrelated transactions, the indenture trust business was
sold to a subsidiary of The Bank of New York Company, Inc., and the
shareholder services business to Computershare Limited. The combined
sales resulted in a pretax gain to the Corporation of $50.2 million
in first quarter 2000, not including revenue contingent upon the
outcome of certain events, expected in second half 2000. The
Corporation does not believe that the sale of these businesses will
have a material impact on the results of operations for future
periods.
--------------------------------------------------------------------------------
6. SUBSEQUENT
EVENT On July 1, 2000, Bankmont Financial Corp. ("Bankmont") contributed
100 percent of the common stock of its wholly-owned subsidiary,
Harris Bankmont, Inc. to the Corporation. Immediately thereafter,
Harris Bankmont,
8
<PAGE> 11
--------------------------------------------------------------------------------
Inc. was liquidated and dissolved into the Corporation under the
corporation law of Delaware. Harris Bankcorp, Inc. was the surviving
corporation. The assets of Harris Bankmont, Inc. consisted primarily
of the stock of thirteen community banks located in the Chicago area.
This combination will be accounted for at historical cost, similar to
a pooling-of-interests. All historical information will be presented
on a combined basis, starting in the third quarter of 2000.
--------------------------------------------------------------------------------
7. SEGMENT
REPORTING The Corporation's segments are identified by the customers served,
the products and services they offer and the channels by which the
products and services are delivered. The Corporation's reportable
segments are Personal and Commercial Client Group, Investment Banking
Group and Private Client Group. Personal and Commercial Client Group
comprises community banking, which serves individuals through a
Chicagoland retail bank network; small business/lower middle-market
banking, mbanx(sm), the Corporation's virtual banking unit; cash
management services and bankcard merchant services. This segment also
reflects income from bank-owned insurance investments and inter-group
eliminations and residual revenues and expenses, representing the
difference between actual amounts incurred and the amounts allocated
to operating segments. The gain on the sale of the corporate trust
business and the results of the corporate trust business prior to its
sale in the first quarter of 2000 are also reflected in this segment.
The Investment Banking Group is comprised of the Corporation's
corporate banking distribution to middle-market companies across the
Midwest and nationally in selected specialties, and the Corporation's
Treasury unit, which serves as the Corporation's funding unit. The
Private Client Group serves the needs of affluent individuals both
within Chicagoland and nationally through the integrated delivery of
a comprehensive offering of wealth management services, including
investment management, personal trust, customized lending and
financial planning. Businesses within this group include private
banking, mutual fund management, retirement plan services and Harris
Investment Management (the Corporation's institutional investment
manager).
Segment results are presented on a fully taxable equivalent
("FTE") basis and income tax expense is allocated to the segments by
an application of the Corporation's statutory tax rate to the pretax
FTE basis profit or loss of each segment. Segment data includes
intersegment revenues, as well as corporate overhead costs allocated
to each segment based upon estimated usage of centrally provided
services. The Corporation evaluates the performance of its segments
and allocates resources to them based on FTE income before income
taxes.
9
<PAGE> 12
--------------------------------------------------------------------------------
Selected segment information is included in the following table:
<TABLE>
<CAPTION>
Personal and
Commercial Investment Private
Client Banking Client Consolidated
Quarter Ended June 30 Group Group Group Total
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
(in millions)
Net interest income (FTE basis)........................ $ 75.5 $ 63.5 $ 14.4 $ 153.4
Noninterest income..................................... 49.8 20.2 34.6 104.6
Provision for loan losses.............................. 1.3 5.6 0.1 7.0
Noninterest expense.................................... 103.1 25.7 38.8 167.6
------- ------- ------ -------
Income before income taxes............................. 20.9 52.4 10.1 83.4
Income taxes........................................... 4.5 20.8 4.1 29.4
------- ------- ------ -------
Net income............................................. $ 16.4 $ 31.6 $ 6.0 $ 54.0
======= ======= ====== =======
(in millions)
Average Assets......................................... $ 9,444 $14,941 $1,373 $25,758
======= ======= ====== =======
Average Loans.......................................... $ 4,329 $ 8,180 $1,222 $13,731
======= ======= ====== =======
Average Deposits....................................... $11,055 $ 4,452 $1,266 $16,773
======= ======= ====== =======
1999
(in millions)
Net interest income (FTE basis)........................ $ 58.2 $ 71.3 $ 11.7 $ 141.2
Noninterest income..................................... 64.2 20.8 33.3 118.3
Provision for loan losses.............................. 1.2 5.1 0.1 6.4
Noninterest expense.................................... 112.2 26.0 39.7 177.9
------- ------- ------ -------
Income before income taxes............................. 9.0 61.0 5.2 75.2
Income taxes........................................... (1.7) 24.2 2.1 24.6
------- ------- ------ -------
Net income............................................. $ 10.7 $ 36.8 $ 3.1 $ 50.6
======= ======= ====== =======
(in millions)
Average Assets......................................... $ 9,046 $13,131 $1,211 $23,388
======= ======= ====== =======
Average Loans.......................................... $ 4,018 $ 7,377 $1,052 $12,447
======= ======= ====== =======
Average Deposits....................................... $10,286 $ 3,527 $1,301 $15,114
======= ======= ====== =======
</TABLE>
10
<PAGE> 13
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Personal and
Commercial Investment Private
Client Banking Client Consolidated
Six Months Ended June 30 Group Group Group Total
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
(in millions)
Net interest income (FTE basis)........................ $ 144.5 $ 134.8 $ 28.0 $ 307.3
Noninterest income..................................... 154.2 32.5 69.6 256.3
Provision for loan losses.............................. 3.3 9.6 0.2 13.1
Noninterest expense.................................... 207.6 50.3 80.1 338.0
------- ------- ------ -------
Income before income taxes............................. 87.8 107.4 17.3 212.5
Income taxes........................................... 27.1 42.7 7.0 76.8
------- ------- ------ -------
Net income............................................. $ 60.7 $ 64.7 $ 10.3 $ 135.7
======= ======= ====== =======
(in millions)
Average Assets......................................... $ 9,347 $14,719 $1,355 $25,421
======= ======= ====== =======
Average Loans.......................................... $ 4,291 $ 8,037 $1,214 $13,542
======= ======= ====== =======
Average Deposits....................................... $10,858 $ 3,982 $1,255 $16,095
======= ======= ====== =======
1999
(in millions)
Net interest income (FTE basis)........................ $ 112.1 $ 143.0 $ 23.3 $ 278.4
Noninterest income..................................... 124.0 44.5 67.2 235.7
Provision for loan losses.............................. 3.3 10.2 0.1 13.6
Noninterest expense.................................... 220.6 50.8 78.9 350.3
------- ------- ------ -------
Income before income taxes............................. 12.2 126.5 11.5 150.2
Income taxes........................................... (4.6) 50.3 4.6 50.3
------- ------- ------ -------
Net income............................................. $ 16.8 $ 76.2 $ 6.9 $ 99.9
======= ======= ====== =======
(in millions)
Average Assets......................................... $ 9,097 $12,772 $1,191 $23,060
======= ======= ====== =======
Average Loans.......................................... $ 4,057 $ 7,206 $1,030 $12,293
======= ======= ====== =======
Average Deposits....................................... $10,283 $ 3,552 $1,285 $15,120
======= ======= ====== =======
</TABLE>
11
<PAGE> 14
FINANCIAL REVIEW Harris Bankcorp, Inc. and Subsidiaries
--------------------------------------------------------------------------------
SECOND QUARTER 2000
COMPARED WITH
SECOND QUARTER 1999
--------------------------------------------------------------------------------
SUMMARY The Corporation had second quarter 2000 net income of $54.0 million.
Comparative results were affected by higher gains from securities
sales in second quarter 1999. Excluding this effect, "core earnings"
rose 11 percent. For the current quarter, cash ROE was 18.63 percent
compared to 17.89 percent in the second quarter of 1999. Cash ROA was
0.91 percent compared to 0.95 percent a year ago.
Second quarter net interest income on a fully taxable equivalent
basis was $153.4 million, up $12.2 million or 9 percent from $141.2
million in 1999's second quarter. Average earning assets rose 12
percent to $22.71 billion from $20.31 billion in 1999, primarily
attributable to an increase of $1.28 billion in average loans and
$991 million in the investment securities portfolio. Commercial
lending was the most significant contributor to the loan growth. Net
interest margin declined to 2.71 percent from 2.79 percent in the
same quarter last year, primarily reflecting the impact of the rising
interest rate environment during the last year.
The second quarter provision for loan losses of $7.0 million was
up $0.6 million from $6.4 million in the second quarter of 1999. Net
charge-offs were $4.9 million in the current quarter, down $1.4
million from the same period last year.
Noninterest income decreased $13.7 million or 12 percent to
$104.6 million for second quarter 2000 from the same quarter last
year. Trust and investment management fees declined $6.8 million or
18 percent, as a result of this year's first quarter sale of the
corporate trust business. Excluding corporate trust revenue, total
trust and investment management fees rose 14 percent in the current
quarter. Merchant and charge card fees declined $1.4 million, while
bond trading profits increased $1.7 million. Net gains from
investment securities sales declined to $3.0 million from $6.1
million in second quarter 1999.
Second quarter 2000 noninterest expenses of $167.6 million
declined $10.3 million or 6 percent from second quarter last year
primarily reflecting the sale of the corporate trust business in
2000. Income tax expense increased $3.5 million, reflecting higher
pretax income.
Additional commentary on the matters included in the above
summary is provided in the following sections of this Report.
12
<PAGE> 15
--------------------------------------------------------------------------------
OPERATING
SEGMENT
REVIEW PERSONAL AND COMMERCIAL CLIENT GROUP
Net income for Personal and Commercial Client Group in the second
quarter of 2000 was $16.4 million, up $5.7 million from the second
quarter of 1999. Total revenue was $125.3 million, an increase of
$2.9 million from $122.4 million in 1999, primarily due to better
margins and volume growth in community banking and higher deposit
levels and improved revenues in cash management. Noninterest expense
decreased $9.1 million or 8 percent to $103.1 million from $112.2
million in 1999 second quarter. The decrease was primarily due to the
sale of the corporate trust business in first quarter 2000. Income
taxes increased by $6.2 million in the current quarter, reflecting
higher pretax income.
INVESTMENT BANKING GROUP
Net income for Investment Banking Group was $31.6 million in the
second quarter of 2000, reflecting a decrease of $5.2 million or 14
percent from $36.8 million a year ago. Total revenue of $83.7 million
decreased by $8.4 million or 9 percent from the second quarter of
1999 due mostly to a $7.8 million or 11 percent decline in net
interest income. The decline in net interest income was primarily due
to an increase in interest rates since the second quarter of 1999
which has increased the funding cost on the investment portfolio.
Noninterest expense decreased $0.3 million to $25.7 million in the
current quarter. Income taxes decreased by $3.4 million during the
current quarter, reflecting lower pretax income.
PRIVATE CLIENT GROUP
Net income for Private Client Group was $6.0 million in second
quarter 2000, reflecting an increase of $2.9 million or 94 percent
from $3.1 million the year ago quarter. Total revenue of $49.0
million increased by $4.0 million or 9 percent from $45.0 million in
1999. Net interest income increased $2.7 million or 23 percent,
attributable to the $170 million increase in loan volume. Noninterest
income increased $1.3 million or 4 percent to $34.6 million. Growth
was primarily due to increased trust and investment management
revenues which were up 10 percent over the year ago quarter.
Noninterest expense decreased $0.9 million or 2 percent to $38.8
million in the current quarter. Income taxes increased by $2.0
million during the year, reflecting higher pretax income.
13
<PAGE> 16
STATISTICAL SUMMARY Harris Bankcorp, Inc. and Subsidiaries
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
--------------------------------------- --------------------------------------
Daily Average Balances (in millions) 2000 1999 2000 1999
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........ $ 256 2.97% $ 144 1.62% $ 243 2.04% $ 139 1.39%
Federal funds sold and securities
purchased under agreement to resell..... 244 6.65 217 4.84 228 6.41 212 4.85
------- ------- ------- -------
Total money market assets.......... 500 4.76 361 3.55 471 4.15 351 3.48
Trading account assets...................... 61 8.00 78 6.47 56 7.53 78 6.54
Securities available-for-sale:(1)(2)
U.S. Treasury and Federal agency.......... 7,883 6.44 6,949 5.92 7,816 6.35 6,745 5.97
State and municipal....................... 339 7.15 332 7.46 335 7.12 317 7.87
Other..................................... 195 6.72 145 7.35 188 6.89 141 7.34
------- ------- ------- -------
Total securities
available-for-sale............... 8,417 6.48 7,426 6.02 8,339 6.39 7,203 6.08
Loans, net of unearned income............... 13,731 8.34 12,447 7.18 13,542 8.19 12,293 7.22
------- ------- ------- -------
TOTAL INTEREST-EARNING ASSETS...... 22,709 7.57 20,312 6.69 22,408 7.43 19,925 6.75
------- ------- ------- -------
Cash and demand balances due from banks..... 1,279 1,292 1,292 1,319
Other assets................................ 1,770 1,784 1,721 1,816
------- ------- ------- -------
Total assets....................... $25,758 $23,388 $25,421 $23,060
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Interest checking deposits and money market
accounts.................................. $ 4,047 3.76 $ 4,039 3.15 $ 4,025 3.67 $ 3,973 3.21
Savings deposits and certificates........... 4,495 4.86 4,388 4.33 4,456 4.73 4,432 4.42
Other time deposits......................... 1,909 6.36 1,376 4.94 1,758 6.16 1,714 5.00
Foreign office time deposits................ 2,622 6.36 1,907 4.84 2,192 6.10 1,601 4.75
------- ------- ------- -------
TOTAL INTEREST-BEARING DEPOSITS.... 13,073 5.04 11,710 4.08 12,431 4.83 11,720 4.14
Short-term borrowings....................... 6,356 6.16 5,633 4.71 6,724 5.89 5,282 4.70
Minority interest-- preferred stock of
subsidiary................................ 250 7.38 250 7.38 250 7.38 250 7.38
Long-term notes............................. 455 7.35 454 6.80 455 7.27 454 6.81
------- ------- ------- -------
TOTAL INTEREST-BEARING
LIABILITIES...................... 20,134 5.47 18,047 4.39 19,860 5.28 17,706 4.42
Noninterest-bearing deposits................ 3,699 3,404 3,664 3,400
Other liabilities........................... 305 320 309 327
Stockholder's equity........................ 1,620 1,617 1,588 1,627
------- ------- ------- -------
Total liabilities and stockholder's
equity........................... 25,758 $23,388 $25,421 $23,060
======= ======= ======= =======
NET INTEREST MARGIN (RELATED TO AVERAGE
INTEREST-EARNING ASSETS).................. 2.71% 2.79% 2.76% 2.82%
==== ==== ==== ====
</TABLE>
1. FULLY TAXABLE EQUIVALENT ADJUSTMENT
Tax-exempt income has been restated to a comparable taxable level. The Federal
and state statutory tax rates used for this purpose were 35 percent and 4.8
percent, respectively, in 2000 and 1999.
2. AVERAGE RATE ON SECURITIES AVAILABLE-FOR-SALE
Yields on securities classified as available-for-sale are based on amortized
cost.
14
<PAGE> 17
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
NET INTEREST ----------------------- -------------------------
INCOME (in thousands) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income................................. $418,495 $330,921 $811,055 $651,354
Fully taxable equivalent adjustment............. 9,116 7,854 17,845 15,569
-------- -------- -------- --------
Interest income (fully taxable equivalent
basis).......................................... 427,611 338,775 828,900 666,923
Interest expense................................ 274,194 197,534 521,601 388,491
-------- -------- -------- --------
Net interest income (fully taxable equivalent
basis).......................................... $153,417 $141,241 $307,299 $278,432
======== ======== ======== ========
Increase (decrease) due to change in:
Volume ........................................ $ 16,315 $ 15,302 $ 34,841 $ 30,808
Rate .......................................... (4,140) (5,607) (5,974) (22,339)
-------- -------- -------- --------
Total increase in net interest income........... $ 12,175 $ 9,695 $ 28,867 $ 8,469
======== ======== ======== ========
</TABLE>
Second quarter net interest income on an FTE basis was $153.4
million, up 9 percent from $141.2 million in second quarter 1999.
Average earning assets increased 12 percent or $2.40 billion to
$22.71 billion from $20.31 billion in 1999. Average loans rose $1.28
billion, or 10 percent. Commercial lending was the most significant
contributor to the loan growth with an increase of $756 million.
Average securities were up 13 percent, or $991 million, primarily
reflecting increased holdings of Federal agency securities. Total
money market assets increased $139 million or 39 percent over second
quarter 1999 levels.
Funding for this asset growth came primarily from foreign time
deposits, other time deposits and short-term borrowings, which
increased by an average of $715 million, $533 million and $1.49
billion, respectively, offset by declines in money market liabilities
and senior notes.
Net interest margin, the other principal determinant of net
interest income, declined from 2.79 percent in 1999 to 2.71 percent
in the current quarter. The decrease in the Corporation's net
interest margin reflects the impact of the rising interest rate
environment during the past year and the use of wholesale liabilities
to fund most of the earning asset growth.
--------------------------------------------------------------------------------
AVERAGE EARNING ASSETS
NET INTEREST MARGIN
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
------------------------------------ ------------------------------------
2000 1999 2000 1999
Daily Average Balances (in millions) ---------------- ---------------- ---------------- ----------------
Average Rates Earned and Paid Balances Rates Balances Rates Balances Rates Balances Rates
(fully taxable equivalent basis) ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets.......... $22,709 7.57% $20,312 6.69% $22,408 7.43% $19,925 6.75%
======= ======= ======= =======
Interest-bearing liabilities..... $20,134 5.47 $18,047 4.39 $19,860 5.28 $17,706 4.42
Noninterest-bearing sources of
funds.......................... 2,575 2,265 2,548 2,219
------- ------- ------- -------
Total supporting liabilities... $22,709 4.86 $20,312 3.90 $22,408 4.67 $19,925 3.93
======= ======= ======= =======
Net interest margin (related to
average interest-earning assets).. 2.71% 2.79% 2.76% 2.82%
==== ==== ==== ====
</TABLE>
15
<PAGE> 18
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Increase Six Months Increase
Ended June 30 (Decrease) Ended June 30 (Decrease)
NONINTEREST -------------------- --------------- -------------------- ---------------
INCOME (in thousands) 2000 1999 Amount % 2000 1999 Amount %
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Trust and investment
management fees........... $ 30,687 $ 37,464 $ (6,777) (18) $ 68,800 $ 75,314 $ (6,514) (9)
Money market and bond
trading................... 2,802 1,095 1,707 156 3,216 2,972 244 8
Foreign exchange............ 2,100 1,800 300 17 3,900 4,314 (414) (10)
Merchant and charge card
fees...................... 6,706 8,115 (1,409) (17) 12,055 14,166 (2,111) (15)
Service fees and charges.... 27,704 28,457 (753) (3) 55,572 56,068 (496) (1)
Securities gains............ 2,988 6,089 (3,101) (51) 2,989 13,991 (11,002) (79)
Gain on sale of corporate
trust business............ -- -- -- -- 50,193 -- 50,193 --
Bank-owned insurance
investments............... 11,238 10,699 539 5 22,012 20,525 1,487 7
Foreign fees................ 7,508 4,427 3,081 70 12,508 10,017 2,491 25
Other....................... 12,903 20,198 (7,295) (36) 25,067 38,360 (13,293) (35)
-------- -------- -------- -------- -------- --------
Total noninterest income.... $104,636 $118,344 $(13,708) (12) $256,312 $235,727 $ 20,585 9
======== ======== ======== === ======== ======== ======== ===
</TABLE>
Noninterest income for the second quarter of 2000 was $104.6 million,
a decrease of $13.7 million or 12 percent from the second quarter of
1999. Trust and investment management fees declined $6.8 million or
18 percent, as a result of this year's first quarter sale of the
corporate trust business. Excluding corporate trust revenue, total
trust and investment management fees rose 14 percent in the current
quarter. Merchant and charge card fees declined $1.4 million, while
bond trading profits increased $1.7 million. Other non-interest
income, including syndication fees, mortgage loans sales and other
fees, declined $3.7 million. Net gains from investment securities
sales declined to $3.0 million from $6.1 million in second quarter
1999.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Increase Six Months Increase
NONINTEREST Ended June 30 (Decrease) Ended June 30 (Decrease)
EXPENSES AND -------------------- --------------- -------------------- ---------------
INCOME TAXES (in thousands) 2000 1999 Amount % 2000 1999 Amount %
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and other
compensation.............. $ 85,742 $ 87,385 $ (1,643) (2) $171,965 $173,440 $ (1,475) (1)
Pension, profit sharing and
other employee benefits... 16,993 18,477 (1,484) (8) 34,377 36,395 (2,018) (6)
Net occupancy............... 13,522 12,869 653 5 26,478 22,200 4,278 19
Equipment................... 13,100 15,343 (2,243) (15) 27,717 29,918 (2,201) (7)
Marketing................... 7,066 6,774 292 4 12,928 13,003 (75) (1)
Communication and
delivery.................. 6,011 6,073 (62) (1) 11,122 12,829 (1,707) (13)
Expert services............. 5,253 8,980 (3,727) (42) 11,145 16,446 (5,301) (32)
Contract programming........ 4,500 2,153 2,347 109 7,987 5,458 2,529 46
Other....................... 9,227 13,596 (4,369) (32) 21,810 28,222 (6,412) (23)
-------- -------- -------- -------- -------- --------
161,414 171,650 (10,236) (6) 325,529 337,911 (12,382) (4)
Amortization of goodwill and
other valuation
intangibles............... 6,159 6,241 (82) (1) 12,421 12,366 55 --
-------- -------- -------- -------- -------- --------
Total noninterest
expenses.................. $167,573 $177,891 $(10,318) (6) $337,950 $350,277 $(12,327) (4)
======== ======== ======== ======== ======== ========
Provision for income
taxes..................... $ 20,419 $ 16,898 $ 3,521 21 $ 59,048 $ 34,760 $ 24,288 70
======== ======== ======== === ======== ======== ======== ===
</TABLE>
Noninterest expenses for the second quarter totaled $167.6 million, a
decrease of $10.3 million or 6 percent from the second quarter of
1999 primarily reflecting the sale of the corporate trust business in
the first quarter 2000.
16
<PAGE> 19
--------------------------------------------------------------------------------
Employment-related expenses totaled $102.7 million, a decrease of
$3.1 million or 3 percent from the year-ago quarter. Equipment
expenses decreased $2.2 million from second quarter 1999. Expert
services decreased $3.7 million to $5.3 million in the current
quarter primarily as a result of expenses for Y2K compliance incurred
in 1999.
Income tax expense totaled $20.4 million, an increase of $3.5
million or 21 percent from the $16.9 million recorded in second
quarter 1999, reflecting higher pretax income.
--------------------------------------------------------------------------------
CAPITAL
POSITION The Corporation's total equity capital at June 30, 2000 was $1.68
billion, compared with $1.58 billion and $1.57 billion at December
31, 1999 and June 30, 1999, respectively. Excluding adjustments for
unrealized gains and losses from securities available-for-sale, total
equity increased $149.3 million from June 30, 1999. During the
preceding twelve months, the Corporation declared common and
preferred dividends of $84.7 million and $16.6 million, respectively.
In February 1998, Harris Preferred Capital Corporation, a
subsidiary of Harris Trust and Savings Bank ("HTSB"), issued $250
million of noncumulative preferred stock in a public offering. The
preferred stock qualifies as Tier 1 capital at both HTSB and the
Corporation for U.S. banking regulatory purposes.
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
percent and total regulatory capital to risk-weighted assets of 8
percent.
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 percent 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 8.83 percent and
11.21 percent, respectively, at June 30, 2000. HTSB's Tier 1 and
total risk-based capital ratios were 8.50 percent and 10.41 percent,
respectively, at June 30, 2000.
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 percent for most holding companies. The Corporation's and HTSB's
Tier 1 leverage ratios were 7.14 percent and 7.06 percent,
respectively, for the second quarter of 2000.
The Federal Deposit Insurance Corporation Improvement Act of 1991
contains several provisions that establish five capital categories
for all FDIC-insured institutions ranging from "well capitalized" to
"critically undercapitalized." Based on those regulations effective
at June 30, 2000, 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, servicing assets 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 June 30, 2000, the Corporation's
intangible assets totaled $233 million, including approximately $216
million of intangibles excluded under capital guidelines. The
Corporation's and HTSB's tangible Tier 1 leverage ratios (which
exclude all intangibles) were 7.08 percent and 6.99 percent,
respectively, for the second quarter of 2000.
17
<PAGE> 20
--------------------------------------------------------------------------------
The following is a summary of the Corporation's capital ratios:
<TABLE>
<CAPTION>
June 30 December 31 June 30
(in thousands) 2000 1999 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets (end of period).............................. $26,203,006 $24,862,878 $23,553,334
=========== =========== ===========
Average assets (quarter).................................. $25,758,446 $24,574,252 $23,387,682
=========== =========== ===========
Risk-based on-balance sheet assets........................ $16,118,689 $15,118,070 $14,450,331
=========== =========== ===========
Risk-based off-balance sheet assets....................... $ 4,939,151 $ 4,718,669 $ 4,601,392
=========== =========== ===========
Total risk-based assets, net of deductions (based on
regulatory accounting principles)....................... $20,837,346 $19,598,872 $18,801,774
=========== =========== ===========
Tier 1 capital............................................ $ 1,840,401 $ 1,739,753 $ 1,664,077
=========== =========== ===========
Supplementary capital..................................... $ 495,893 $ 522,170 $ 518,476
=========== =========== ===========
Total capital, net of deductions (based on regulatory
accounting principles).................................. $ 2,335,596 $ 2,261,292 $ 2,181,941
=========== =========== ===========
Tier 1 leverage ratio..................................... 7.14% 7.07% 7.14%
Risk-based capital ratios
Tier 1.................................................. 8.83% 8.88% 8.85%
Total................................................... 11.21% 11.54% 11.60%
</TABLE>
18
<PAGE> 21
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NONPERFORMING June 30 March 31 June 30
ASSETS (in thousands) 2000 2000 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans............................................ $35,219 $34,194 $34,501
Restructured loans.......................................... 2,964 2,969 1,948
------- ------- -------
Total nonperforming loans................................... 38,183 37,163 36,449
Other assets received in satisfaction of debt............... 995 565 1,181
------- ------- -------
Total nonperforming assets.................................. $39,178 $37,728 $37,630
======= ======= =======
Nonperforming loans to total loans (end of period).......... .27% .27% .29%
Nonperforming assets to total loans (end of period)......... .28% .27% .30%
======= ======= =======
90-day past due loans still accruing interest............... $12,009 $ 9,680 $28,279
======= ======= =======
</TABLE>
Nonperforming assets consist of loans placed on nonaccrual status
when collection of principal or 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 June 30, 2000 totaled $39 million, or
0.28 percent of total loans, up slightly from $38 million or 0.27
percent of total loans at March 31, 2000 and from $38 million or 0.30
percent of total loans a year ago.
Interest shortfall for the quarter ended June 30, 2000 was $1.7
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 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
(in thousands) Related Allowance No Related Allowance Loans
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
June 30, 2000
Balance............................................ $ 9,599 $28,584 $38,183
Related allowance.................................. 4,244 -- 4,244
------- ------- -------
Balance, net of allowance.......................... $ 5,355 $28,584 $33,939
======= ======= =======
December 31, 1999
Balance............................................ $ 9,173 $17,360 $26,533
Related allowance.................................. 5,022 -- 5,022
------- ------- -------
Balance, net of allowance.......................... $ 4,151 $17,360 $21,511
======= ======= =======
June 30, 1999
Balance............................................ $26,953 $ 9,496 $36,449
Related allowance.................................. 3,229 -- 3,229
------- ------- -------
Balance, net of allowance.......................... $23,724 $ 9,496 $33,220
======= ======= =======
</TABLE>
19
<PAGE> 22
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
---------------------- ------------------------
(in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average impaired loans............................ $42,221 $42,816 $41,504 $37,509
======= ======= ======= =======
Total interest income on impaired loans on a cash
basis........................................... $ 126 $ 49 $ 336 $ 102
======= ======= ======= =======
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALLOWANCE
FOR POSSIBLE
Quarter Ended June 30 Six Months Ended June 30
---------------------- ------------------------
LOAN LOSSES (in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period........................ $148,793 $143,474 $147,235 $140,608
-------- -------- -------- --------
Charge-offs......................................... (7,072) (8,656) (12,495) (14,257)
Recoveries.......................................... 2,203 2,395 3,096 3,617
-------- -------- -------- --------
Net charge-offs..................................... (4,869) (6,261) (9,399) (10,640)
Provision charged to operations..................... 6,969 6,362 13,057 13,607
-------- -------- -------- --------
Balance at June 30.................................. $150,893 $143,575 $150,893 $143,575
======== ======== ======== ========
Net charge-offs as a percentage of provision charged
to operations..................................... 70% 98% 72% 78%
Allowance for possible loan losses to nonperforming
loans (period-end)................................ 395% 394%
Allowance for possible loan losses to nonperforming
assets (period-end)............................... 385% 382%
Allowance for possible loan losses to total loans
outstanding (period-end).......................... 1.08% 1.14%
</TABLE>
The Corporation's provision for loan losses for the current quarter
was $7.0 million, up 10 percent from $6.4 million in last year's
second quarter. Net charge-offs decreased from $6.3 million to $4.9
million for the current quarter, bringing net charge-offs on a
year-to-date basis to $9.4 million compared to $10.6 million in the
same 1999 period. The decrease in the 2000 second quarter net
charge-offs primarily reflects a decrease in commercial and
installment loans write-offs. For the second quarter of 2000, net
charge-offs related to commercial and installment loans were $4.4
million and $0.6 million respectively, compared to $5.0 million and
$1.1 million for the second quarter of 1999.
At June 30, 2000, the allowance for possible loan losses was $151
million, equal to 1.08 percent of total loans outstanding, compared
to $144 million or 1.14 percent of total loans one year ago. The
allowance as a percentage of nonperforming loans increased slightly
from 394 percent at June 30, 1999, to 395 percent at June 30, 2000.
--------------------------------------------------------------------------------
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, securities available-for-sale and trading account
assets. Liquid assets represented approximately 39 percent of the
Corporation's total assets and amounted to $10.18 billion
20
<PAGE> 23
--------------------------------------------------------------------------------
at June 30, 2000. 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, had a $150 million revolving
credit agreement with five nonaffiliated banks and Bank of Montreal
("BMO") that terminated on December 18, 1999. At that time, the
Corporation entered into a new $150 million revolving credit
agreement with five nonaffiliated banks and BMO that terminates on
December 8, 2000. There were no borrowings under either credit
facility in year-to-date 2000 or 1999.
Total core deposits were $12.32 billion or 52 percent of total
non-equity funding at June 30, 2000 compared to $12.06 billion or 57
percent of total non-equity funding at June 30, 1999. The
Corporation's average volume of core deposits, consisting of demand
deposits, interest checking deposits, savings deposits and
certificates, and money market accounts rose 3 percent
quarter-to-quarter, reflecting increases in domestic demand deposits,
NOW accounts, and savings deposits and certificates. Total wholesale
deposits and short-term borrowings increased from $8.96 billion or 43
percent of total non-equity funding at June 30, 1999 to $11.23
billion or 48 percent of total non-equity funding at June 30, 2000.
Total deposits averaged $16.77 billion in the second quarter of 2000,
an increase of $1.66 billion compared to the same quarter last year.
Average money market assets in the second quarter of 2000
increased $139 million or 39 percent from the same quarter last year.
These assets represented 2 percent of average earning assets in 2000,
remaining unchanged from a year ago. Average money market liabilities
increased 34 percent to $5.82 billion this quarter from $4.33 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 June 30, 2000,
$1.09 billion of senior notes were outstanding compared to $1.39
billion at June 30, 1999.
--------------------------------------------------------------------------------
FORWARD-
LOOKING
INFORMATIONThis Report contains certain forward-looking statements and
information that are based on the beliefs of, and information
currently available to, the Corporation's management, as well as
estimates and assumptions made by the Corporation's management.
Forward-looking statements, which describe future plans, strategies
and expectations of the Corporation, are generally identifiable by
use of words such as "anticipate," "believe," "estimate," "expect,"
"future," "intend," "plan," "project," "target," and similar
expressions. The Corporation's ability to predict results or the
actual effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on the operations
and future prospects of the Corporation include, but are not limited
to, changes in: interest rates, general economic conditions,
legislative or regulatory environment, monetary and fiscal policies
of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality or composition of the loan or
securities portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Corporation's
market areas, unforeseen business risks and accounting principles,
policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements. The Corporation
assumes no obligation to update any such forward-looking statements.
21
<PAGE> 24
--------------------------------------------------------------------------------
MARKET RISK
MANAGEMENT As described in the Corporation's Form 10-K for the year ended
December 31, 1999, the Corporation's market risk is composed
primarily of interest rate risk. There have been no material changes
in market risk or the manner in which the Corporation manages market
risk since December 31, 1999.
--------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 2000
COMPARED
WITH 1999 The Corporation's earnings for the six months ended June 30, 2000
were $135.7 million. This represented a $35.8 million or 36 percent
increase from 1999 earnings of $99.9 million. First quarter earnings
included a pretax gain of $50.2 million resulting from the sale of
the indenture trust and shareholder services businesses. In addition
to the gain from the corporate trust sale, comparative results were
affected by net gains from securities sales of $14.0 million in 1999
compared to $3.0 million in 2000. Excluding the effects of both
transactions, "core earnings" rose 14 percent. Cash ROE, excluding
the corporate trust gain, was 18.92 percent compared to 17.64 percent
a year ago. Cash ROA, excluding the corporate trust gain, was 0.91
percent compared to 0.95 percent.
Net interest income on a fully taxable equivalent basis was
$307.3 million in the current period, an increase of $28.9 million or
10 percent from $278.4 million in the 1999 year-to-date period.
Average earning assets rose to $22.41 billion from $19.93 billion a
year ago attributable to an increase of 10 percent or $1.25 billion
in average loans and $1.14 billion in investment securities.
Commercial lending was the major contributor to loan growth. Net
interest margin declined to 2.76 percent from 2.82 percent in 1999
primarily reflecting the impact of the rising interest rate
environment in 2000.
The year-to-date 2000 provision for loan losses of $13.1 million
was down slightly from $13.6 million a year ago. Net charge-offs
decreased $1.2 million to $9.4 million in the current year.
Noninterest income increased $20.6 million or 9 percent to $256.3
million in 2000 compared to a year ago. Excluding the $50.2 million
gain on the sale of the corporate trust business, noninterest revenue
declined 13 percent. Most of this decrease was caused by the $11.0
million decline in net gains from securities sales and reduced
operating revenue from the corporate trust business sold in first
quarter 2000. Excluding corporate trust revenue, growth in trust and
investment management income was 10 percent over the first half of
1999. Merchant and charge card fees declined $2.1 million. Other
noninterest income, including syndication fees, mortgage loan sales
and other fees declined $12.4 million compared to the year-ago
period.
Noninterest expenses of $338.0 million decreased $12.3 million or
4 percent from a year ago. Income tax expense increased by $24.3
million, reflecting higher pretax income, including the gain on the
sale of the corporate trust business.
Annualized return on average common stockholder's equity was
14.42 percent for the current year-to-date period compared to 13.19
percent in the same period a year ago.
22
<PAGE> 25
--------------------------------------------------------------------------------
OPERATING
SEGMENT
REVIEW PERSONAL AND COMMERCIAL CLIENT GROUP
Net income for Personal and Commercial Client Group in the six month
period of 2000 was $60.7 million, up $43.9 million from the year-ago
period. First quarter 2000 earnings included a pretax gain of $50.2
million resulting from the sale of the corporate trust business.
Total revenue was $298.7 million, an increase of $62.6 million from
$236.1 million in 1999. Excluding the gain on the sale of the
corporate trust business, total revenue was $248.5 million
representing growth of $12.4 million or 5 percent from a year ago,
primarily due to better margins and volume growth in community
banking and higher deposit levels and improved revenues in cash
management. Noninterest expense of $207.6 million decreased $13.0
million from 1999 primarily reflecting the sale of the corporate
trust business in first quarter 2000. Income taxes increased by $31.7
million in the current year, reflecting higher pretax income,
including the gain on the sale of the corporate trust business.
INVESTMENT BANKING GROUP
Net income for Investment Banking Group was $64.7 million in 2000,
reflecting a decrease of $11.5 million or 15 percent from $76.2
million a year ago. Total revenue of $167.3 million decreased by
$20.2 million or 11 percent from 1999. Net interest income declined
$8.2 million primarily due to an increase in interest rates in the
current year, which increased the funding cost on the investment
portfolio. Noninterest income declined $12.0 million or 27 percent.
Most of the decline resulted from the reduction in net gains from
securities sales and a decrease in bond trading profits due to the
difficult trading environment in the current year. Noninterest
expense decreased $0.5 million to $50.3 million in the current year.
Income taxes decreased by $7.6 million during the year, reflecting
lower pretax income.
PRIVATE CLIENT GROUP
Net income for Private Client Group was $10.3 million in 2000,
reflecting an increase of $3.4 million or 49 percent from $6.9
million a year ago. Total revenue of $97.6 million increased by $7.1
million or 8 percent from $90.5 million in 1999. Net interest income
increased $4.7 million or 20 percent, attributable to the $184
million increase in loan volume. Noninterest income increased $2.4
million or 4 percent to $69.6 million. Growth was primarily due to
increased trust and investment management revenues. Noninterest
expense increased $1.2 million or 2 percent to $80.1 million in the
current year, primarily due to expansion strategies and initiatives.
Income taxes increased by $2.4 million during the year, reflecting
higher pretax income.
23
<PAGE> 26
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
Martin R. Castro
Attorney at Law
Haven E. Cockerham
Senior Vice President
Human Resources
R.R. Donnelley & Sons Company
F. Anthony Comper
President and
Chief Executive Officer
Bank of Montreal
Susan T. Congalton
Managing Director
Lupine L.L.C.
Wilbur H. Gantz
Chairman of the Board 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 Charles H. 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
HARRIS TRUST COMPANY OF CALIFORNIA
Los Angeles, California
HARRIS LIFE INSURANCE COMPANY
Scottsdale, Arizona
HARRIS INVESTMENT MANAGEMENT, INC.
Chicago, Illinois
HARRISCORP CAPITAL CORPORATION
Chicago, Illinois
HARRISCORP FINANCE, INC.
Chicago, Illinois
HARRIS BANK INTERNATIONAL CORPORATION
New York, New York
HARRISCORP LEASING, INC.
Chicago, Illinois
BANK OF MONTREAL GLOBAL, INC.
Chicago, Illinois
MIDWESTERN HOLDINGS, INC.
Chicago, Illinois
HARRIS TRADE SERVICES LIMITED
Hong Kong
HARRIS PREFERRED CAPITAL CORPORATION
Chicago, Illinois
HARRIS PROCESSING CORPORATION
Chicago, Illinois
HARRIS CAPITAL HOLDINGS, INC.
Dover, Delaware
<PAGE> 27
EXHIBIT A--HARRIS BANKCORP, INC.
2000 SECOND QUARTER REPORT
JUNE 30, 2000
