<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number 0-5965
NORTHERN TRUST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2723087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 SOUTH LA SALLE STREET
CHICAGO, ILLINOIS 60675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 630-6000
_____________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [_]
55,870,628 Shares - $1.66 2/3 Par Value
(Shares of Common Stock Outstanding on June 30, 1995)
================================================================================
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET Northern Trust Corporation
<TABLE>
<CAPTION>
June 30 December 31 June 30
--------- ----------- ---------
($ In Millions) 1995 1994 1994
- ---------------------------------------- --------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 1,092.8 $ 1,192.5 $ 1,119.4
Money Market Assets
Federal Funds Sold and Securities
Purchased under Agreements to Resell 404.0 777.0 325.6
Time Deposits with Banks 1,654.5 1,864.7 2,214.5
Other 12.6 9.5 168.3
- ---------------------------------------- --------- --------- ---------
Total 2,071.1 2,651.2 2,708.4
- ---------------------------------------- --------- --------- ---------
Securities (Fair value $5,656.0 at June
1995, $5,069.7 at December 1994 and
$4,755.8 at June 1994) 5,624.6 5,053.1 4,725.8
Loans and Leases (Net of unearned income
of $75.6 at June 1995, $70.4 at
December 1994 and $61.9 at June 1994) 9,421.8 8,590.6 8,572.4
Reserve for Credit Losses (145.9) (144.8) (144.9)
Buildings and Equipment 278.2 274.7 273.0
Customers' Acceptance Liability 47.1 56.3 70.0
Trust Security Settlement Receivables 287.0 305.7 407.4
Other Assets 624.4 582.3 707.9
- ---------------------------------------- --------- --------- ---------
Total Assets $19,301.1 $18,561.6 $18,439.4
- ---------------------------------------- --------- --------- ---------
LIABILITIES
Deposits
Demand and Other Noninterest-Bearing $ 2,543.5 $ 2,604.7 $ 2,663.6
Savings and Money Market Deposits 3,008.2 3,176.3 3,218.0
Savings Certificates 2,028.5 1,524.5 1,198.3
Other Time 367.0 342.2 312.9
Foreign Offices--Demand 327.8 225.4 457.9
--Time 2,972.3 3,861.3 3,441.6
- ---------------------------------------- --------- --------- ---------
Total Deposits 11,247.3 11,734.4 11,292.3
Federal Funds Purchased 1,063.9 972.0 921.4
Securities Sold under Agreements to
Repurchase 1,066.3 2,216.9 1,012.1
Commercial Paper 147.3 123.8 122.2
Other Borrowings 3,415.9 1,077.9 2,261.5
Senior Medium-Term Notes 317.0 547.0 807.0
Notes Payable 241.1 244.8 323.4
Liability on Acceptances 47.1 56.3 70.0
Other Liabilities 364.9 307.8 404.7
- ---------------------------------------- --------- --------- ---------
Total Liabilities 17,910.8 17,280.9 17,214.6
- ---------------------------------------- --------- --------- ---------
</TABLE>
STOCKHOLDERS' EQUITY
Preferred Stock 170.0 170.0 170.0
Common Stock -- $1.66 2/3 Par Value 93.4 90.6 90.6
<TABLE>
<CAPTION>
JUNE 1995 December 1994 June 1994
<S> <C> <C> <C>
-----------------------------------------------------------------
Shares authorized 140,000,000 140,000,000 140,000,000
Shares issued 56,035,628 54,360,374 54,360,374
Shares outstanding 55,870,628 54,089,259 54,060,987
</TABLE>
<TABLE>
<S> <C> <C> <C>
Capital Surplus 307.2 302.2 302.7
Retained Earnings 847.0 762.7 704.7
Net Unrealized Loss on Securities (2.1) (15.8) (12.2)
Translation Adjustments -- -- --
Common Stock Issuable -- Performance Plan 16.7 17.9 20.2
Deferred Compensation -- ESOP and Other (35.3) (38.8) (44.0)
Treasury Stock -- at cost, 165,000 shares at
June 1995, 271,115 shares at
December 1994 and 299,387 shares at June
1994 (6.6) (8.1) (7.2)
- -------------------------------------------- --------- --------- ---------
Total Stockholders' Equity 1,390.3 1,280.7 1,224.8
- -------------------------------------------- --------- --------- ---------
Total Liabilities and Stockholders' Equity $19,301.1 $18,561.6 $18,439.4
- -------------------------------------------- --------- --------- ---------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME Northern Trust Corporation
SECOND QUARTER
ENDED JUNE 30 SIX MONTHS
--------------------------- ---------------------------
($ In Millions Except Per Share Information) 1995 1994 1995 1994
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income
Money Market Assets
Federal Funds Sold and Securities Purchased
under Agreements to Resell $ 3.9 $ 1.8 $ 7.4 $ 4.0
Time Deposits with Banks 20.8 26.1 47.5 48.6
Other .3 1.7 .5 2.7
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Total 25.0 29.6 55.4 55.3
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Securities 89.1 51.3 174.2 99.0
Loans and Leases 157.0 119.1 302.7 229.9
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Total Interest Income 271.1 200.0 532.3 384.2
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Interest Expense
Deposits - Savings and Money Market Deposits 27.4 20.5 54.0 39.7
- Savings Certificates 30.6 12.5 55.1 23.8
- Other Time 8.0 4.3 14.4 7.4
- Foreign Offices 47.2 30.9 97.8 54.2
Federal Funds Purchased 16.1 13.5 32.2 26.8
Securities Sold under Agreements to Repurchase 25.0 10.4 49.1 19.7
Commercial Paper 2.2 1.3 4.3 2.3
Other Borrowings 15.9 11.4 26.4 20.9
Senior Medium-Term Notes 5.8 7.5 12.7 14.0
Notes Payable 4.9 6.4 9.8 12.6
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Total Interest Expense 183.1 118.7 355.8 221.4
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Net Interest Income 88.0 81.3 176.5 162.8
Provision for Credit Losses 1.5 1.0 3.0 4.0
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Net Interest Income after Provision for Credit Losses 86.5 80.3 173.5 158.8
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Noninterest Income
Trust Fees 123.3 113.5 244.1 223.0
Security Commissions and Trading Income 5.2 6.0 11.1 12.8
Other Operating Income 39.9 59.4 74.7 92.5
Investment Security Gains (Losses) .1 (.1) .2 .1
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Total Noninterest Income 168.5 178.8 330.1 328.4
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Income before Noninterest Expenses 255.0 259.1 503.6 487.2
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Noninterest Expenses
Salaries 84.4 80.6 166.9 155.0
Pension and Other Employee Benefits 20.8 19.0 42.3 38.1
Occupancy Expense 15.3 14.6 29.5 28.3
Equipment Expense 12.0 22.7 24.6 34.0
Other Operating Expenses 45.4 50.6 91.9 94.0
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Total Noninterest Expenses 177.9 187.5 355.2 349.4
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Income before Income Taxes 77.1 71.6 148.4 137.8
Provision for Income Taxes 24.0 22.9 46.0 43.7
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
NET INCOME $ 53.1 $ 48.7 $ 102.4 $ 94.1
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Net Income Applicable to Common Stock $ 50.9 $ 46.9 $ 98.1 $ 90.7
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
NET INCOME PER COMMON SHARE - PRIMARY $ .90 $ .85 $ 1.75 $ 1.65
- FULLY DILUTED .89 .85 1.74 1.64
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
Average Number of Common Shares Outstanding - Primary 56,878,030 55,261,057 56,027,938 54,972,886
- Fully Diluted 58,178,442 56,466,708 57,340,009 56,201,234
- ----------------------------------------------------------- ----------- ----------- ----------- -----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Northern Trust Corporation
SIX MONTHS
ENDED JUNE 30
----------------------------
(In Millions) 1995 1994
- ---------------------------------------------------- -------- --------
<S> <C> <C>
PREFERRED STOCK
Balance at January 1 and June 30 $ 170.0 $ 170.0
- ---------------------------------------------------- -------- --------
COMMON STOCK
Balance at January 1 90.6 89.7
Stock Issued - Incentive Plan & Awards .1 --
Pooled Affiliate - Stock Issued 2.7 .9
- ---------------------------------------------------- -------- --------
Balance at June 30 93.4 90.6
- ---------------------------------------------------- -------- --------
CAPITAL SURPLUS
Balance at January 1 302.2 303.0
Stock Issued - Incentive Plan and Awards (1.9) .1
Pooled Affiliate - Stock Issued 6.9 (.4)
- ---------------------------------------------------- -------- --------
Balance at June 30 307.2 302.7
- ---------------------------------------------------- -------- --------
RETAINED EARNINGS
Balance at January 1 762.7 631.9
Net Income 102.4 94.1
Dividends Declared on Common Stock (28.7) (23.6)
Dividends Declared on Preferred Stock (4.5) (3.1)
Pooled Affiliate 15.1 5.4
- ---------------------------------------------------- -------- --------
Balance at June 30 847.0 704.7
- ---------------------------------------------------- -------- --------
NET UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE
Balance at January 1 (15.8) (.4)
Unrealized Gain (Loss), net 13.7 (11.8)
- ---------------------------------------------------- -------- --------
Balance at June 30 (2.1) (12.2)
- ---------------------------------------------------- -------- --------
TRANSLATION ADJUSTMENTS
Balance at January 1 -- .6
Sale of Foreign Investment -- (.6)
- ---------------------------------------------------- -------- --------
Balance at June 30 -- --
- ---------------------------------------------------- -------- --------
COMMON STOCK ISSUABLE - PERFORMANCE PLAN
Balance at January 1 17.9 11.8
Stock Issuable, net of Stock Issued (1.2) 8.4
- ---------------------------------------------------- -------- --------
Balance at June 30 16.7 20.2
- ---------------------------------------------------- -------- --------
DEFERRED COMPENSATION - ESOP AND OTHER
Balance at January 1 (38.8) (43.5)
Compensation Deferred (1.4) (5.3)
Compensation Amortized 4.9 4.8
- ---------------------------------------------------- -------- --------
Balance at June 30 (35.3) (44.0)
- ---------------------------------------------------- -------- --------
TREASURY STOCK
Balance at January 1 (8.1) (11.4)
Stock Options and Awards 11.0 6.4
Stock Purchased (9.5) (2.2)
- ---------------------------------------------------- -------- --------
Balance at June 30 (6.6) (7.2)
- ---------------------------------------------------- -------- --------
TOTAL STOCKHOLDERS' EQUITY AT JUNE 30 $1,390.3 $1,224.8
- ---------------------------------------------------- -------- --------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS Northern Trust Corporation
Six Months
Ended June 30
-----------------------------
(In Millions) 1995 1994
- ------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 102.4 $ 94.1
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 3.0 4.0
Depreciation on Buildings and Equipment 21.3 22.0
Increase in Interest Receivable (7.9) (9.8)
Increase in Interest Payable 9.7 1.5
Amortization and Accretion of Securities and Unearned Income (88.6) 23.5
Gain on Sale of Foreign Investment - (34.5)
Net (Increase) Decrease in Trading Account Securities (51.9) 20.4
Other Noncash, net 20.7 46.1
- ------------------------------------------------------------------- ------------- ------------
Net Cash Flows from Operating Activities 8.7 167.3
- ------------------------------------------------------------------- ------------- ------------
Cash Flows from Investing Activities:
Net Decrease in Federal Funds Sold and Securities Purchased under
Agreements to Resell 386.1 252.2
Net (Increase) Decrease in Time Deposits with Banks 210.2 (124.1)
Net Increase in Other Money Market Assets (3.1) (92.1)
Purchases of Securities-Held to Maturity (501.0) (221.4)
Proceeds from Maturity and Redemption of Securities-Held to Maturity 594.3 503.4
Purchases of Securities-Available for Sale (15,315.8) (3,769.3)
Proceeds from Maturity and Redemption of Securities-Available for Sale 14,889.6 2,729.8
Net Increase in Loans and Leases (737.3) (949.2)
Purchases of Buildings and Equipment (20.2) (12.8)
Sale of Foreign Investment - 58.1
Net (Increase) Decrease in Trust Security Settlement Receivables 18.7 (114.3)
Other, net 2.4 11.1
- ------------------------------------------------------------------- ------------- ------------
Net Cash Flows from Investing Activities (476.1) (1,728.6)
- ------------------------------------------------------------------- ------------- ------------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Deposits (666.5) 958.9
Net Increase (Decrease) in Federal Funds Purchased 91.9 (294.4)
Net Increase (Decrease) in Securities Sold under Agreement to Repurchase (1,150.6) 409.9
Net Increase (Decrease) in Commercial Paper 23.5 (1.9)
Net Increase in Short-Term Other Borrowings 2,346.0 63.4
Proceeds from Term Federal Funds Purchased 1,341.3 2,647.7
Repayments of Term Federal Funds Purchased (1,349.3) (2,588.2)
Proceeds from Senior Medium-Term Notes - 230.0
Repayments of Senior Medium-Term Notes (230.0) (240.0)
Repayment of Notes Payable (3.7) (3.4)
Treasury Stock Purchased-Incentive Plans (1.9) (.6)
Treasury Stock Purchased-Buy Back Program (6.6) -
Net Proceeds from Stock Options 1.7 2.4
Cash Dividends Paid on Common and Preferred Stock (32.7) (26.4)
Other, net 4.6 3.6
- ------------------------------------------------------------------- ------------- ------------
Net Cash Flows from Financing Activities 367.7 1,161.0
- ------------------------------------------------------------------- ------------- ------------
Decrease in Cash and Due from Banks (99.7) (400.3)
Cash and Due from Banks at Beginning of Year 1,192.5 1,519.7
- ------------------------------------------------------------------- -------------- -------------
Cash and Due from Banks at June 30 $ 1,092.8 $ 1,119.4
- ------------------------------------------------------------------- -------------- -------------
Schedule of Noncash Investing and Financing Activities:
Acquisition of Affiliate for Stock $ 24.7 $ 6.4
Supplemental Disclosures of Cash Flow Information:
Interest Paid on Deposits and Short- and Long-Term Borrowings $ 345.7 $ 218.9
Income Taxes Received 31.3 23.5
- ------------------------------------------------------------------- --------------- --------------
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION - The consolidated financial statements include
the accounts of Northern Trust Corporation and its subsidiaries ("Northern
Trust"), all of which are wholly owned. Significant intercompany balances and
transactions have been eliminated. The consolidated financial statements as of
June 30, 1995 and 1994 have not been audited by independent public accountants.
In the opinion of management, all adjustments necessary for a fair presentation
of the financial position and the results of operations for the interim periods
have been made. All such adjustments are of a normal recurring nature. Certain
reclassifications have been made to prior periods' consolidated financial
statements to place them on a basis comparable with the current period's
consolidated financial statements. For a description of Northern Trust's
significant accounting principles, refer to the Notes to Consolidated Financial
Statements in the 1994 Annual Report to Stockholders.
2. SECURITIES - The following table summarizes the book and fair values of
securities.
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994 June 30, 1994
--------------------------------------------------------------------
Book Fair Book Fair Book Fair
(In Millions) Value Value Value Value Value Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity
U.S. Government $ 88.1 $ 88.2 $ 137.2 $ 137.0 $ 98.8 $ 98.6
Obligations of States and
Political Subdivisions 434.7 466.2 474.5 491.3 461.3 491.6
Federal Agency 22.7 22.6 -- -- -- --
Other 29.2 29.1 29.6 29.6 29.8 29.7
- -------------------------------------------------------------------------------------------------
Subtotal 574.7 606.1 641.3 657.9 589.9 619.9
- -------------------------------------------------------------------------------------------------
Available for Sale
U.S. Government 729.3 729.3 801.3 801.3 1,401.1 1,401.1
Federal Agency 3,936.4 3,936.4 3,251.5 3,251.5 2,302.7 2,302.7
Preferred Stock 188.0 188.0 196.6 196.6 198.0 198.0
Other 140.3 140.3 158.4 158.4 177.3 177.3
- -------------------------------------------------------------------------------------------------
Subtotal 4,994.0 4,994.0 4,407.8 4,407.8 4,079.1 4,079.1
- -------------------------------------------------------------------------------------------------
Trading Account 55.9 55.9 4.0 4.0 56.8 56.8
- -------------------------------------------------------------------------------------------------
Total Securities $5,624.6 $5,656.0 $5,053.1 $5,069.7 $4,725.8 $4,755.8
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Book Values to Fair Values of
Securities Held to Maturity June 30, 1995
- ---------------------------------------------------------------------------------------------------
Gross Unrealized
Book ---------------- Fair
(In Millions) Value Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Government $ 88.1 $ .2 $ .1 $ 88.2
Obligations of States and
Political Subdivisions 434.7 31.6 .1 466.2
Federal Agency 22.7 .2 .3 22.6
Other 29.2 -- .1 29.1
- ---------------------------------------------------------------------------------------------------
Total $574.7 $32.0 $ .6 $606.1
- ---------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Reconciliation of Amortized Cost to Fair Values of
Securities Available for Sale June 30, 1995
- -------------------------------------------------------------------------------------------------------
Gross Unrealized
Amortized ---------------- Fair
(In Millions) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Government $ 731.4 $1.8 $ 3.9 $ 729.3
Federal Agency 3,937.9 3.0 4.5 3,936.4
Preferred Stock 188.2 -- .2 188.0
Other 142.7 .5 2.9 140.3
- -------------------------------------------------------------------------------------------------------
Total $5,000.2 $5.3 $11.5 $4,994.0
- -------------------------------------------------------------------------------------------------------
</TABLE>
Unrealized gains and losses on off-balance sheet financial instruments used to
hedge available for sale securities totaled $8.3 million and $5.4 million,
respectively, as of June 30, 1995. Unrealized gains on these hedges are
reported as other assets in the consolidated balance sheet; unrealized losses
are reported as other liabilities. As of June 30, 1995, stockholders' equity
included a charge of $2.1 million, net of tax, to recognize the depreciation on
securities available for sale and the related hedges.
3. PLEDGED ASSETS - Securities and loans pledged to secure public and trust
deposits, repurchase agreements and for other purposes as required or permitted
by law were $5.2 billion on June 30, 1995, $3.7 billion on December 31, 1994 and
$4.1 billion on June 30, 1994.
4. CONTINGENT LIABILITIES - Standby letters of credit outstanding were $848.0
million on June 30, 1995, $819.9 million on December 31, 1994 and $830.8 million
on June 30, 1994.
5. LOANS AND LEASES - Amounts outstanding in selected loan categories are shown
below.
<TABLE>
<CAPTION>
June 30 December 31 June 30
------------------------------------------------
(In Millions) 1995 ` 1994 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic
Commercial $3,185.6 $2,672.0 $2,674.1
Residential Real Estate 3,550.2 3,299.1 3,161.7
Commercial Real Estate 471.1 494.1 480.2
Broker 241.8 274.6 349.5
Consumer 734.2 662.1 568.8
Other 673.3 642.1 647.7
Lease Financing 163.4 159.9 133.9
- ---------------------------------------------------------------------------------------------------------
Total Domestic 9,019.6 8,203.9 8,015.9
International 402.2 386.7 556.5
- ---------------------------------------------------------------------------------------------------------
Total Loans and Leases $9,421.8 $8,590.6 $8,572.4
- ---------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
At June 30, 1995, other domestic and international loans include $842.1 million
of overnight trust-related advances in connection with next day security
settlements, compared with $716.5 million at December 31, 1994 and $799.0
million at June 30, 1994.
Northern Trust adopted Statements of Financial Accounting Standards Nos. 114 and
118, "Accounting by Creditors for Impairment of a Loan", effective January 1,
1995. These statements provide guidance as to when loans should be classified
and reported as impaired and address how the reserve for credit losses related
to these loans should be determined. Any shortfall in the estimated value of
an impaired loan compared with the recorded investment of the loan is identified
as an allocated portion of the reserve for credit losses and is one of the
factors considered by management in their overall assessment of reserve
adequacy. No changes were required to Northern Trust's accounting policies for
loans, charge-offs and interest income as a result of adopting these statements.
These policies are described in Notes to Consolidated Financial Statements
(Notes 1E and 1F) in the 1994 Annual Report.
At June 30, 1995, nonperforming assets totaled $34.5 million. Included in this
amount were loans with a recorded investment of $30.0 million which were also
classified as impaired. Impaired loans totaling $26.0 million had no portion of
the reserve for credit losses allocated to them, while $4.0 million had an
allocated reserve of $.7 million. For the second quarter of 1995, the total
recorded investment in impaired loans averaged $26.4 million. Total interest
income recognized on impaired loans for the quarter ended June 30, 1995 was $230
thousand, most of which was recognized using the cash-basis method of
accounting.
6. RESERVE FOR CREDIT LOSSES - Changes in the reserve for credit losses were
as follows.
<TABLE>
<CAPTION>
Six Months
Ended June 30
-----------------------
(In Millions) 1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Balance at Beginning of Period $144.8 $145.5
Losses Charged to Reserve (5.6) (7.3)
Recoveries Credited to Reserve 2.6 2.7
- ----------------------------------------------------------
Net Losses Charged to Reserve (3.0) (4.6)
Provision for Credit Losses 3.0 4.0
Addition due to Acquisition 1.1 --
- ----------------------------------------------------------
Balance at End of Period $145.9 $144.9
- ----------------------------------------------------------
</TABLE>
7. ACQUISITIONS - The acquisition of Beach One Financial Services, Inc.,
parent company of The Beach Bank of Vero Beach, Florida, was completed on March
31, 1995. The acquisition was effected through a merger in which Northern Trust
Corporation issued 1,622,568 shares of its Common Stock. The Corporation has
accounted for the transaction as a pooling-of-interests. Prior period
consolidated financial statements were not restated due to the immateriality of
the transaction.
In February, 1995, the Corporation entered into a definitive agreement to
acquire Tanglewood Bancshares, Inc., parent company of Tanglewood Bank N.A.
Houston for $33.0 million in cash.
8
<PAGE>
Tanglewood's assets totaled $229.9 million at December 31, 1994 and net income
totaled $2.6 million in 1994. Following approval by Tanglewood
shareholders in May and regulatory approval in June, the acquisition was
completed July 31, 1995.
In March, 1995, the Corporation entered into a definitive agreement to acquire
RCB International Inc. an international provider of institutional investment
management services, for approximately $14.2 million in cash and 608,571 shares
of Northern Trust Corporation Common Stock, with a portion payable at closing
and the balance payable through deferred compensation plans. RCB, headquartered
in Stamford, Connecticut and with offices in Canada and the United Kingdom, had
net revenues of $11.1 million in the fiscal year ending June 30, 1995. The
agreement, which was approved by RCB shareholders in July 1995, is subject to
regulatory approvals and is expected to close in the second half of 1995.
8. OFF BALANCE SHEET FINANCIAL INSTRUMENTS - In accordance with the terms of
the 1994 agreement with The Benchmark Funds (see the 1994 Annual Report, Note
17c. to Consolidated Financial Statements) the Corporation exercised its option
in June 1995 to purchase from the Funds certain floating rate federal agency
securities at an aggregate price of $110.6 million, equal to the Funds'
amortized cost basis in the securities. The securities, which mature in February
1997, were recorded by the Corporation at their fair value of $107.7 million.
The charge recorded by the Corporation when it entered into the 1994 agreement
more than covered the difference between the purchase price and fair value.
9
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER EARNINGS HIGHLIGHTS
Net income for the second quarter totaled a record $53.1 million, an
increase of 9% from the $48.7 million reported in the second quarter of
1994. Net income per common share on a fully diluted basis increased 5% to
$.89 in the 1995 quarter from $.85 in the second quarter of 1994, which
included a nonrecurring gain and certain nonrecurring charges that resulted
in a net addition to income of $5.2 million. This earnings performance
produced an annualized return on average common equity (ROE) of 17.09%
versus 18.06% reported last year and a return on average assets (ROA) of
1.13% versus 1.10% in 1994. Record levels of trust fees, net interest
income, and foreign exchange trading profits contributed to the quarter's
performance. Total noninterest expenses increased 6% after adjusting for
several nonrecurring items in the year ago quarter's results, and were
essentially unchanged from the first quarter of 1995.
NONINTEREST INCOME
Noninterest income totaled $168.5 million for the quarter, accounting for
63% of total taxable equivalent revenue. Excluding the effects of the
$28.5 million pretax gain on the sale of the Corporation's interest in
Banque Scandinave en Suisse (BSS) recorded in the second quarter of 1994,
total noninterest income improved 12%. Trust fees, which represent 73% of
noninterest income and 46% of total taxable equivalent revenue, grew 9% or
$9.8 million over last year reaching $123.3 million. The increase reflects
9% growth levels in both the Corporate and Institutional Services (C&IS)
and Personal Financial Services (PFS) business units. Total trust assets
under administration at quarter-end were $549.3 billion, up $68.2 billion
from one year ago.
Trust fees from C&IS increased $5.0 million to $62.7 million. The
increases in fees from Hazlehurst & Associates, Inc., acquired in the
second quarter of 1994, securities lending activities and investment
management services were the principal factors contributing to the growth
over the year ago quarter. Domestic securities lending fees, up 33% versus
last year, reflect a 10% increase in the volume of securities loaned as
well as higher spreads earned from the investment of the cash collateral.
Investment management fees increased 24% as a result of new business,
particularly in actively managed equity funds and fixed income investments.
Custody fees were essentially unchanged from the second quarter of 1994,
due in part to a greater portion of global custody assets being reinvested
into the U.S. market where both custody fees and the expense structure of
custody providers are lower. In addition, new business growth has been
partially offset by pricing adjustments to retain custody clients who also
tend to use foreign exchange,
10
<PAGE>
securities lending and deposit and other related services. C&IS trust
assets under administration grew 14% or $59.5 billion over last year and
now total $491.4 billion. C&IS Assets under the management of Northern
Trust total $55.8 billion, up 16% from a year ago.
PFS trust fees amounted to $60.6 million, up 9% or $4.8 million from one
year ago. The main contributors to this fee growth were the Wealth
Management Group and the Florida and Texas subsidiaries. Personal
Financial Services fees benefited from higher investment management
revenues and increased advisory and servicing revenues from The Northern
Funds, established in April of 1994. The increase in trust fees also
reflects the contribution of The Beach Bank of Vero Beach, Florida (Beach
Bank), a March 31, 1995 acquisition. Total personal trust assets under
administration increased $8.7 billion over last year and totaled $57.9
billion, with $35.3 billion under management.
Security commissions and trading income totaled $5.2 million, compared with
$6.0 million reported in the second quarter of last year.
Other operating income in the quarter totaled $39.9 million, compared to
$59.4 million in the second quarter of 1994 which included a $28.5 million
pretax gain on the sale of the Corporation's interest in BSS. Foreign
exchange trading profits were at record levels and totaled $15.6 million,
an increase of $9.4 million. Foreign exchange revenues are related
primarily to the cross-border investment activities of Master Trust/Master
Custody clients. The fee portion of treasury management revenues rose 3%
to $12.1 million. Total treasury management revenues, which, in addition
to fees, include the value of compensating deposit balances, increased 5%
to $19.2 million. These compensating deposit balances also contributed to
the improvement in net interest income.
NET INTEREST INCOME
Net interest income for the second quarter totaled $88.0 million, 8% higher
than the $81.3 million reported in the second quarter of 1994. Net
interest income is defined as the total of interest income and amortized
fees on earning assets less interest expense on deposits and borrowed funds
adjusted for the impact of off-balance sheet hedging activity. When net
interest income is adjusted to a fully taxable equivalent (FTE) basis,
yields on taxable, nontaxable and partially taxable assets are comparable,
although the adjustment to a FTE basis has no impact on net income. Net
interest income on an FTE basis for the second quarter was $97.5 million,
up 9% from the $89.5 million reported in 1994. This increase is due to
higher levels of average earning assets, reflecting in part the acquisition
of Beach Bank, in addition to a modest improvement in the net interest
margin to 2.35% from 2.32% last year.
11
<PAGE>
Earning assets for the second quarter averaged $16.7 billion, up 8% from
the $15.5 billion in the second quarter of 1994. The $1.2 billion growth
in earning assets reflects an 8% or $702 million increase in average loans,
a $1.3 billion or 29% growth in average securities and a $854 million or
33% decrease in average money market assets.
Overall loan volume reflected an $850 million or 11% growth in domestic
lending. Approximately one-half of the increase in domestic lending is
attributable to residential mortgage loans now accounting for 39% of the
total average loan portfolio. Commercial and industrial loans grew 14% or
$386 million to average $3.1 billion for the quarter. In addition,
domestic and international overnight advances related to processing certain
trust client investments averaged $623 million, up $66 million from a year
ago. Securities for the quarter averaged $5.9 billion, up 29% from the
$4.6 billion reported last year, due primarily to a $2.5 billion increase
in short-term federal agency securities, offset in part by a $1.1 billion
reduction in U.S. Government securities. The decline in money market
assets of $854 million was due to short term interest rates providing fewer
opportunities to add marginal net interest income.
The growth in average earning assets was funded primarily by increased
levels of interest-bearing time deposits and noninterest-related funds.
Interest-bearing deposits averaged $9.4 billion, up $1.3 billion from the
second quarter of 1994. This growth came principally from savings
certificates (up $847 million), global custody deposit activity in London
(up $298 million), and an increase of $216 million in other foreign time
deposits which also are global custody related. The 73% increase in the
average volume of savings certificates is due in large part to successful
certificate of deposit campaigns conducted periodically during last year's
fourth quarter and the first quarter of 1995. This inflow of funds has
helped to reduce the reliance on wholesale funding sources, as average
borrowed funds declined by $382 million from last year. Average
noninterest-related funds increased $226 million, due primarily to growth
in stockholders' equity. Total average stockholders' equity increased $153
million or 13% from the second quarter of 1994. This increase reflects the
retention of earnings and the March 31, 1995 issuance of approximately 1.6
million shares of Northern Trust Corporation Common Stock to complete the
acquisition of Beach Bank.
The net interest margin increased to 2.35% compared with 2.32% last year
due primarily to an increased volume of loans on which a higher margin is
earned versus money market assets. Also contributing to the improvement in
net interest margin was the increase in average noninterest-related funds.
PROVISION FOR CREDIT LOSSES
The provision for credit losses of $1.5 million compares to $1.0 million in
the second quarter of 1994. For a discussion of the reserve for credit
losses, refer to the Asset Quality section on pages 15 and 16.
12
<PAGE>
NONINTEREST EXPENSES
Noninterest expenses totaled $177.9 million for the quarter, down 5% from
$187.5 million in the second quarter of 1994. Included in the year ago
quarter's results were approximately $20.1 million in special charges.
Adjusting for these nonrecurring items results in an increase in total
noninterest expenses of 6% compared to last year. Included in the current
quarter is a $.7 million expense for compensation payments pursuant to a
consent decree resolving the investigation by the Department of Justice
into the fair lending practices of Northern Trust's Illinois banking
subsidiaries. The majority of the remaining increase was concentrated
primarily in salaries and benefits, technology, personal trust business
expansion, and Northern's growing global custody business.
Salaries and benefits, which represent 59% of total noninterest expenses,
increased 6% to $105.2 million. The prior year results include a $3.0
million addition to salary expense covering back pay obligations as a
result of a review of the Corporation's overtime pay policy. Exclusive of
this special charge, salary and benefit costs increased 9% from the second
quarter of 1994. The principal items contributing to the increase were
merit increases, additions to staff at Hazlehurst & Associates, Inc.,
personnel added in the Beach Bank acquisition, and higher costs related to
incentive plans, health care, retirement benefits and payroll taxes. Staff
on a full-time equivalent basis, including 106 positions at Hazlehurst and
86 positions at Beach Bank, averaged 6,560 compared with 6,356 in the
second quarter of 1994. Excluding the positions added by the Beach Bank
acquisition, staff levels declined by approximately 120 positions since the
end of 1994.
Net occupancy expenses totaled $15.3 million, up 4% or $.7 million from
$14.6 million in 1994. The principal components of the increase were
higher lease operating costs, amortization and depreciation of leasehold
improvements and buildings, as well as expansion costs related to the
opening of new offices in Florida and Illinois.
Equipment expense, which includes depreciation, rental, and maintenance
costs, totaled $12.0 million, down $10.7 million from the second quarter of
1994. Included in the prior year results is a charge of $11.2 million
covering the trade-in and the sale and leaseback of mainframe computer
equipment. Exclusive of this nonrecurring item, total equipment expense
increased $.5 million or 4% primarily reflecting higher computer rental and
maintenance costs, offset in part by reduced depreciation expense as a
result of last year's sale and leaseback transaction.
Other operating expenses totaled $45.4 million, down 10% from $50.6 million
in the second quarter of 1994. The prior period results include a $3.5
million charge relating to an agreement with The Benchmark Funds and a $2.4
million write-down of older trust-related software. Included in other
operating expenses is a one-time charge of $.7 million related to the
consent decree resolving the Department of Justice investigation. Increases
in computer software amortization, up $1.7 million to $8.7 million, along
with increases in professional services, transaction-based
13
<PAGE>
depository fees, business promotion and advertising, were partially offset
by lower levels of costs incurred from processing errors and other real
estate owned operating costs.
PROVISION FOR INCOME TAXES
The provision for income taxes was $24.0 million for the second quarter
compared with $22.9 million in 1994. The higher tax provision in 1995
resulted from the growth in taxable earnings for federal income tax
purposes while tax-exempt income declined slightly. Partially offsetting
this was a lower state income tax provision due to increased levels of tax-
exempt income for state purposes. The effective tax rate was 31% for the
quarter versus 32% in 1994.
SIX MONTHS EARNINGS HIGHLIGHTS
Net income totaled $102.4 million for the six months ended June 30, 1995
compared to $94.1 million last year, an increase of 9%. On a fully diluted
basis, net income per common share was $1.74, up 6% from the $1.64 earned
last year. The ROE for the six month period was 16.97% versus 17.96% one
year ago, while the ROA was 1.11% versus 1.08% in 1994.
Noninterest income increased 1% to $330.1 million from $328.4 million in
the like period of 1994. Excluding the BSS gain of $28.5 million recorded
last year, the year to year increase was $30.2 million or 10%. Noninterest
income comprised 63% of total taxable equivalent revenue in 1995. Trust
fees totaled $244.1 million, up 9.5% from $223.0 million last year.
Security commissions and trading income totaled $11.1 million, down $1.7
million from the $12.8 million earned last year. Other operating income,
excluding the BSS gain from the prior year, increased 17% to $74.7 million.
Foreign exchange trading profits were at record levels and totaled $26.8
million, an increase of $10.6 million compared with the first six months of
1994. The fee portion of treasury management revenues totaled $24.4
million, a 3% improvement from the $23.7 million reported in 1994. Total
treasury management revenues, which in addition to fees include the value
of compensating deposit balances, increased 8% and totaled $39.1 million.
These compensating deposit balances also contributed to the improvement in
net interest income.
Net interest income stated on a fully taxable equivalent basis totaled a
record $195.6 million, up 9% from the $178.9 million reported in the like
period of 1994. The provision for credit losses decreased to $3.0 million
from $4.0 million last year. Net loan charge-offs likewise declined to $3.0
million from $4.6 million in 1994. Noninterest expenses totaled $355.2
million, up 2% from $349.4 million in 1994. Exclusive of nonrecurring
charges in 1994, total noninterest expenses increased 8% from prior year
levels.
14
<PAGE>
BALANCE SHEET
Total assets as of June 30, 1995 were $19.3 billion and averaged $18.6
billion for the first six months, up 6% from last year's average of $17.5
billion. With increased lending activity and the March 31,1995 acquisition
of Beach Bank, loans and leases totaled $9.4 billion at June 30, 1995, and
averaged $8.8 billion for the first six months. This compares with $8.6
billion in total loans on June 30, 1994 and $8.1 billion on average for the
first six months of last year. Driven primarily by continued strong
earnings growth and the acquisition of Beach Bank, common stockholders'
equity increased 16% and totaled $1.220 billion at June 30, 1995, versus
$1.055 billion at June 30, 1994. Total stockholders' equity increased
commensurately and totaled $1.390 billion at June 30, 1995 compared with
$1.225 billion at June 30, 1994. Northern Trust's risk-based capital
ratios remained strong at 9.2% for tier 1 and 12.3% for total capital at
June 30, 1995. These capital ratios are well above the minimum regulatory
requirements of 4% for tier 1 and 8% for total risk-based capital ratios.
The leverage ratio (tier 1 capital to second quarter average assets) of
6.6% at June 30, 1995, also exceeded the regulatory requirement of 3%.
See Note 7 in Notes to Consolidated Financial Statements for a description
of pending acquisitions.
ASSET QUALITY
Nonperforming assets consist of nonaccrual loans and leases, restructured
loans, and other real estate owned (OREO). Nonperforming assets at June
30, 1995 totaled $34.5 million, compared with $30.0 million at December 31,
1994 and $39.6 million at June 30, 1994. Domestic nonaccrual loans and
leases, consisting primarily of commercial loans, totaled $29.8 million, or
.33% of total domestic loans and leases at June 30, 1995. Included in this
total are commercial real estate loans of $7.3 million.
The following Nonperforming Asset table presents the outstanding amounts of
nonaccrual loans and leases, restructured loans and OREO. Also shown are
loans that have interest or principal payments that are delinquent 90 days
or more and are still accruing interest. The balance in this category at
any quarter end can fluctuate widely based on the timing of cash
collections, renegotiations and renewals.
15
<PAGE>
Nonperforming Assets and 90 Day Past Due Loans and Leases
<TABLE>
<CAPTION>
June 30 March 31 December 31 June 30
(In Millions) 1995 1995 1994 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual Loans
Domestic $29.8 $19.7 $26.5 $34.5
International .7 1.3 1.3 1.3
- --------------------------------------------------------------------------------------------------
Total Nonaccrual Loans 30.5 21.0 27.8 35.8
Restructured Loans 2.8 2.8 -- --
OREO 1.2 1.6 2.2 3.8
- --------------------------------------------------------------------------------------------------
Total Nonperforming Assets $34.5 $25.4 $30.0 $39.6
- --------------------------------------------------------------------------------------------------
Total 90 Day Past Due Loans
(still accruing) $14.1 $11.6 $17.3 $31.1
- --------------------------------------------------------------------------------------------------
</TABLE>
PROVISION AND RESERVE FOR CREDIT LOSSES. The provision for credit losses
is the charge against current earnings that is determined by management
through a disciplined credit review process as the amount needed to
maintain a reserve that is sufficient to absorb credit losses inherent in
Northern Trust's loan and lease portfolios and other credit undertakings.
While the largest portion of this reserve is intended to cover loan and
lease losses, it is considered a general reserve that is available to cover
all credit-related exposures.
The 1995 second quarter provision for credit losses was $1.5 million,
compared with $1.0 million in 1994. Net charge-offs totaled $1.4 million
in the second quarter of 1995 versus net charge-offs of $1.7 million last
year. The reserve for credit losses was $145.9 million, equal to 1.55% of
outstanding loans at June 30, 1995. This compares with $144.8 million or
1.69% of outstanding loans at December 31, 1994 and $144.9 million or 1.69%
of outstanding loans at June 30, 1994. The lower reserve to outstanding
loans ratio at June 30, 1995 is attributable to loan growth, a significant
portion of which is in low-risk residential lending.
The overall credit quality of the domestic portfolio has remained good as
evidenced by the low level of nonperforming loans and net charge-offs.
Management's assessment of the current U.S. economy and the financial
condition of certain clients facing financial difficulties together with
portfolio growth were primary factors impacting management's decision to
maintain the reserve for credit losses at $145.9 million at June 30, 1995,
essentially unchanged from December 31, 1994 and June 30, 1994.
Northern Trust continues to monitor closely several credits, but the
overall quality of its loan portfolio remains sound and the reserve for
credit losses is adequate to cover credit-related uncertainties as they
exist today. Established credit review procedures ensure that close
attention is given to commercial real estate-related loans and other
commercial loans, as well as other credit exposures that might be adversely
affected by significant increases in interest rates or unexpected downturns
in segments of the economies of the United States or other countries.
16
<PAGE>
The following schedule should be read in conjunction with the Net Interest
Income section of Management's Discussion and Analysis of Financial Condition
and Results of Operations
CONSOLIDATED ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
SECOND QUARTER
--------------------------------------------------
(Interest and rate on a 1995 1994
taxable equivalent basis) ------------------------ ------------------------
($ Amounts in Millions) INTEREST VOLUME RATE Interest Volume Rate
- -------------------------- -------- --------- ----- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
AVERAGE EARNING ASSETS
Money Market Assets
Federal Funds Sold and
Repurchase Agreements $ 3.9 $ 258.2 6.21% $ 1.8 $ 167.3 4.16%
Time Deposits with Banks 20.8 1,483.8 5.62 26.1 2,277.3 4.60
Other .3 13.9 6.68 1.7 165.5 4.12
- -------------------------- ------ --------- ----- ------ --------- -----
Total Money Market Assets 25.0 1,755.9 5.72 29.6 2,610.1 4.54
- -------------------------- ------ --------- ----- ------ --------- -----
Securities
U.S. Government 12.8 915.4 5.59 20.8 2,026.4 4.11
Obligations of States and
Political Subdivisions 12.0 440.4 10.95 13.4 469.4 11.44
Federal Agency 65.9 4,115.6 6.42 17.9 1,635.0 4.38
Other 5.9 376.8 6.25 5.2 401.2 5.18
Trading Account 1.0 57.5 6.77 1.2 59.4 8.05
- -------------------------- ------ --------- ----- ------ --------- -----
Total Securities 97.6 5,905.7 6.62 58.5 4,591.4 5.10
- -------------------------- ------ --------- ----- ------ --------- -----
Loans and Leases 158.0 8,973.7 7.06 120.1 8,271.6 5.83
- -------------------------- ------ --------- ----- ------ --------- -----
Total Earning Assets $280.6 $16,635.3 6.76% $208.2 $15,473.1 5.39%
- -------------------------- ------ --------- ----- ------ --------- -----
AVERAGE SOURCE OF FUNDS
Deposits
Savings and Money Market
Deposits $ 27.4 $ 3,289.0 3.34% $ 20.5 $ 3,454.0 2.38%
Savings Certificates 30.6 2,000.9 6.12 12.5 1,154.1 4.33
Other Time 8.0 539.5 5.95 4.3 416.8 4.20
Foreign Offices Time 47.2 3,579.0 5.30 30.9 3,065.2 4.04
- -------------------------- ------ --------- ----- ------ --------- -----
Total Deposits 113.2 9,408.4 4.83 68.2 8,090.1 3.38
Federal Funds Purchased 16.1 1,068.6 6.04 13.5 1,395.3 3.89
Repurchase Agreements 25.0 1,666.5 6.02 10.4 1,089.2 3.83
Commercial Paper 2.2 146.3 5.96 1.3 130.5 3.96
Other Borrowings 15.9 1,162.1 5.51 11.4 1,305.3 3.49
Senior Medium-Term Notes 5.8 379.7 6.04 7.5 803.4 3.74
Notes Payable 4.9 244.7 8.04 6.4 326.7 7.72
- -------------------------- ------ --------- ----- ------ --------- -----
Total Interest-Related
Funds 183.1 14,076.3 5.22 118.7 13,140.5 3.62
- -------------------------- ------ --------- ----- ------ --------- -----
Interest Rate Spread -- -- 1.54% -- -- 1.77%
- -------------------------- ------ --------- ----- ------ --------- -----
Noninterest-Related Funds -- 2,559.0 -- -- 2,332.6 --
- -------------------------- ------ --------- ----- ------ --------- -----
Total Source of Funds $183.1 $16,635.3 4.41% $118.7 $15,473.1 3.07%
- -------------------------- ------ --------- ----- ------ --------- -----
NET INTEREST INCOME/MARGIN $ 97.5 -- 2.35% $ 89.5 -- 2.32%
- -------------------------- ------ --------- ----- ------ --------- -----
</TABLE>
ANALYSIS OF NET INTEREST INCOME CHANGES
DUE TO VOLUME AND RATE
<TABLE>
<CAPTION>
SECOND QUARTER 1995/94 SIX MONTHS 1995/94
---------------------- ---------------------
CHANGE DUE TO CHANGE DUE TO
--------------- -------------
(In Millions) VOLUME RATE TOTAL VOLUME RATE TOTAL
- ---------------------- ------ ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets $22.0 $50.4 $72.4 $48.7 $102.4 $151.1
Interest-Related Funds 14.0 50.4 64.4 26.5 107.9 134.4
- ---------------------- ----- ----- ----- ----- ------ ------
Net Interest Income $ 8.0 $ -- $ 8.0 $22.2 $ (5.5) $ 16.7
- ---------------------- ----- ----- ----- ----- ------ ------
</TABLE>
17
<PAGE>
Northern Trust Corporation
<TABLE>
<CAPTION>
SIX MONTHS
----------------------------------------------------
1995 1994
-------------------------- -------------------------
Interest Volume Rate Interest Volume Rate
---------- --------- ----- --------- --------- -----
<S> <C> <C> <C> <C> <C>
$ 7.4 $ 245.9 6.11% $ 4.0 $ 207.9 3.82%
47.5 1,669.1 5.74 48.6 2,178.1 4.50
.5 14.1 6.47 2.7 140.4 3.89
--------- --------- ----- ------ --------- -----
55.4 1,929.1 5.79 55.3 2,526.4 4.41
--------- --------- ----- ------ --------- -----
25.8 953.7 5.45 48.4 2,500.5 3.90
24.5 446.7 11.00 27.3 476.8 11.46
127.6 3,997.6 6.44 26.5 1,286.9 4.14
11.9 379.5 6.30 8.9 356.6 5.00
1.5 42.0 7.22 2.1 55.1 7.85
--------- --------- ----- ------ --------- -----
191.3 5,819.5 6.62 113.2 4,675.9 4.87
--------- --------- ----- ------ --------- -----
304.7 8,756.0 7.02 231.8 8,102.0 5.77
--------- --------- ----- ------ --------- -----
$551.4 $16,504.6 6.74% $400.3 $15,304.3 5.27%
--------- --------- ----- ------ --------- -----
$ 54.0 $ 3,276.1 3.32% $ 39.7 $ 3,458.9 2.31%
55.1 1,860.0 5.97 23.8 1,127.1 4.25
14.4 498.3 5.82 7.4 364.3 4.11
97.8 3,744.5 5.27 54.2 2,865.6 3.81
--------- --------- ----- ------ --------- -----
221.3 9,378.9 4.76 125.1 7,815.9 3.23
32.2 1,095.4 5.92 26.8 1,533.3 3.53
49.1 1,681.6 5.89 19.7 1,131.4 3.51
4.3 145.1 5.90 2.3 127.0 3.61
26.4 986.0 5.41 20.9 1,320.6 3.19
12.7 424.4 5.97 14.0 777.6 3.60
9.8 244.8 8.09 12.6 326.7 7.76
--------- --------- ----- ------ --------- -----
355.8 13,956.2 5.14 221.4 13,032.5 3.42
--------- --------- ----- ------ --------- -----
-- -- 1.60% -- -- 1.85%
--------- --------- ----- ------ --------- -----
-- 2,548.4 -- -- 2,271.8 --
--------- --------- ----- ------ --------- -----
$355.8 $16,504.6 4.35% $221.4 $15,304.3 2.91%
--------- --------- ----- ------ --------- -----
$195.6 -- 2.39% $178.9 -- 2.36%
--------- --------- ----- ------ --------- -----
</TABLE>
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - In a consent decree filed and approved June 1,
1995, the Illinois banking subsidiaries of Northern Trust Corporation
resolved claims brought by the U.S. Department of Justice after an 18-
month fair lending investigation. The Department alleged the banks had
in 1992 and 1993 not assisted African-Americans and Hispanic mortgage
loan applicants as much as similarly situated non-minority applicants,
in violation of Federal fair lending laws. The agreement reflected in
the decree commits the banks to continue three initiatives: an
intensive second-review process for all mortgage loan applicants
proposed to be denied; The Northern Trust Company's Community Mortgage
Team, which focuses on lending in low-to-moderate income neighborhoods;
and the Fair Lending Policy Committee, which develops and coordinates
corporate-wide fair lending initiatives.
The banks also agreed to offer compensation to minority applicants who
were denied loans in 1992 and 1993 but who, the Department and Northern
agree, would have received loans or counteroffers under the banks'
current standards. Payments will range from $1,500 to $40,000, with the
average expected to be under $10,000. The banks agreed to set aside and
Northern has expensed, a $700,000 fund for these payments.
The banks will file reports with the Department of Justice for three
years under the decree, which expires after five years. No penalties
or payments in lieu of penalties are called for by the consent decree.
The decree reflects the banks' denial that they engaged in any illegal
discrimination and specifically notes that the Department of Justice
found no evidence of racial animosity or hostility on the part of the
banks' personnel.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
--------
Exhibit (3) Amendments to By-laws of the Corporation and By-laws as
amended.
Exhibit (10) Northern Trust Corporation (1995) Management Performance
Plan
Exhibit (11) Computation of Per Share Earnings
Exhibit (27) Financial Data Schedule
(b.) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed for the three months ended June 30,
1995.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHERN TRUST CORPORATION
--------------------------
(Registrant)
Date: August 11, 1995 By: PERRY R. PERO
----------------------
PERRY R. PERO
Senior Executive Vice President
and Chief Financial Officer
Date: August 11, 1995 By: HARRY W. SHORT
----------------------
HARRY W. SHORT
Senior Vice President and Controller
(Chief Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
-------------
The following exhibits have been filed herewith.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
(3) Amendments to By-laws of the Corporation and By-laws as
amended.
(10) Northern Trust Corporation (1995) Management Performance
Plan
(11) Computation of Per Share Earnings.
(27) Financial Data Schedule.
</TABLE>
21
<PAGE>
EXHIBIT NUMBER (3)
TO 6/30/95 FORM 10-Q
RESOLUTION 6/20/95
- --------------------------------------------------------------------------------
NORTHERN TRUST CORPORATION
AMENDMENT TO CORPORATION BY-LAWS
--------------------------------
RESOLVED, that Section 3.1 of Article III of the By-laws of the
Corporation is hereby amended to read in its entirety as follows:
SECTION 1. Number, Tenure and Quorum. The Directors shall each year
appoint no less than five Directors, one of whom shall be the Chairman of
the Board and one of whom shall be the President if the President is
designated the Chief Executive Officer, who shall constitute and be called
the Executive Committee. Each Director so appointed shall act as a member
of the Committee until another is appointed and acts in his place. The
Chairman of the Board shall preside at meetings of the Committee. In the
absence or disqualification of a member of the Committee, the members
thereof present at any meeting and not disqualified from voting, whether
or not they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. In the absence or inability to act of the
Chairman of the Board, or upon the request of the Chairman, the President,
if he is a member of the Committee, or a member elected by the Committee
shall preside at meetings of the Committee.
A majority of the members of the Executive Committee shall
constitute a quorum for the transaction of business.
FURTHER RESOLVED, that Sections 9.1 and 9.3 of Article IX of the
By-laws of the Corporation are hereby amended to read in their entirety as
follows:
SECTION 9.1 Number and Term of Office. The officers of the
Corporation shall be a Chairman of the Board and a President, one of whom
shall be designated Chief Executive Officer by the Board of Directors, and
may also include one or more Vice Chairmen, one or more Executive Vice
Presidents (any of whom may be designated a Senior Executive Vice
President), such additional Vice Presidents with such designations, if
any, as may be determined by the Board of Directors, a Secretary, and a
Treasurer and one or more Assistant Secretaries and Assistant Treasurers
as may be determined by the Board of Directors, and such other officers as
may from time to time be appointed by the Board of Directors. Any two or
more offices may be held by the same person. The Chairman of the Board,
the President, and the Vice Chairmen shall be elected from among the
Directors; the other officers may be appointed by the Board of Directors.
The officers of the Corporation shall be elected or appointed
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of stockholders. Vacancies or new
offices may be filled at any time. Each officer shall hold office until
his successor shall have been duly elected or appointed or until his death
or until he shall resign or shall have been removed by the Board of
Directors.
<PAGE>
RESOLUTION -2- 6/20/95
- -----------------------------------------------------------------------------
NORTHERN TRUST CORPORATION
SECTION 9.3 The Chairman of the Board. The Chairman of the Board shall have
such powers as are vested in him by the Board of Directors, by law or by these
By-laws. He shall preside at the meetings of the stockholders, of the Board of
Directors, and of the Executive Committee.
FURTHER RESOLVED, that a new Section 9.5 of Article IX of the By-laws of
the Corporation shall be inserted immediately following Section 9.4 of Article
IX of the By-laws of the Corporation to read as follows:
SECTION 9.5 The Chief Executive Officer. The Chief Executive Officer of
the Corporation shall have, subject to the supervision and direction of the
Board of Directors or of the Executive Committee, general supervision of the
business, property and affairs of the Corporation and the powers vested in him
by the Board of Directors, by law or by these By-laws or which usually attach or
pertain to such office. Except in those instances in which the authority to
execute is expressly delegated to another officer or agent of the Corporation or
a different mode of execution is expressly prescribed by the Board of Directors,
the Chief Executive Officer may execute for the Corporation any contracts,
deeds, mortgages, bonds, or other instruments which the Board of Directors has
authorized, and he may (without previous authorization by the Board of
Directors) execute such contracts and other instruments as the conduct of the
Corporation's business in its ordinary course requires.
FURTHER RESOLVED, that former Sections 9.5, 9.6, 9.7, 9.8, 9.9, 9.10, and
9.11 of Article IX of the By-laws of the Corporation shall be renumbered as
Sections 9.6, 9.7, 9.8, 9.9, 9.10, 9.11, and 9.12 of Article IX of the By-laws,
respectively.
<PAGE>
Exhibit Number (3)
To 6/30/95 Form 10-Q
RESOLUTION 4/18/95
- --------------------------------------------------------------------------------
NORTHERN TRUST CORPORATION
AMENDMENT TO CORPORATION BY-LAWS
--------------------------------
RESOLVED, that a new ARTICLE VII and a new ARTICLE VIII shall be
inserted immediately following ARTICLE VI of the By-laws of the
Corporation to read as follows:
ARTICLE VII
THE PERSONAL FINANCIAL SERVICES COMMITTEE
Section 7.1. The Personal Financial Services Committee. A Personal
Financial Services Committee and its Chairman shall be appointed each year
by the Board of Directors to review the policies, strategies, and
performance of the Personal Financial Services Business Unit of the
Corporation and such other related matters as may from time to time be
deemed appropriate by the Committee. The Committee shall consist of no
less than four Directors, none of whom shall be an active officer of the
Corporation. The Committee shall meet upon the call of the Chairman or any
member of the Committee. In the absence or disqualification of a member of
the Committee, the members thereof present at any meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
ARTICLE VIII
THE CORPORATE AND INSTITUTIONAL SERVICES COMMITTEE
Section 8.1. The Corporate and Institutional Services Committee. A
Corporate and Institutional Services Committee and its Chairman shall be
appointed each year by the Board of Directors to review the policies,
strategies, and performance of the Corporate and Institutional Services
Business Unit of the Corporation and such other related matters as may
from time to time be deemed appropriate by the Committee. The Committee
shall consist of no less than four Directors, none of whom shall be an
active officer of the Corporation. The Committee shall meet upon the call
of the Chairman or any member of the Committee. In the absence or
disqualification of a member of the Committee, the members thereof present
at any meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
FURTHER RESOLVED, that former ARTICLES VII, VIII, IX, X, XI, XII,
XIII and XIV shall be renumbered as ARTICLES IX, X, XI, XII, XIII, XIV, XV
and XVI, respectively.
<PAGE>
Exhibit Number (3)
To 6/30/95 Form 10-Q
By-laws
of
Northern Trust Corporation
Chicago, Illinois
As Effective June 20, 1995
<PAGE>
<TABLE>
Table of Contents
<C> <S> <C>
Article I--The Stockholders
SECTION 1.1 --ANNUAL MEETING.............................................. 1
SECTION 1.2 --SPECIAL MEETINGS............................................ 1
SECTION 1.3 --NOTICE OF MEETINGS.......................................... 1
SECTION 1.4 --FIXING DATE OF RECORD....................................... 2
SECTION 1.5 --INSPECTORS OF ELECTION...................................... 2
SECTION 1.6 --QUORUM...................................................... 3
SECTION 1.7 --CUMULATIVE VOTING RIGHTS.................................... 3
SECTION 1.8 --PROXIES..................................................... 3
SECTION 1.9 --VOTING BY BALLOT............................................ 3
SECTION 1.10 --VOTING LISTS................................................ 3
SECTION 1.11 --PLACE OF MEETING............................................ 4
SECTION 1.12 --VOTING OF SHARES OF CERTAIN HOLDERS......................... 4
Article II--The Board of Directors
SECTION 2.1 --GENERAL POWERS.............................................. 5
SECTION 2.2 --NUMBER, TENURE AND QUALIFICATIONS........................... 5
SECTION 2.3 --REGULAR MEETINGS............................................ 5
SECTION 2.4 --SPECIAL MEETINGS; NOTICE.................................... 5
SECTION 2.5 --TIME OF NOTICE.............................................. 6
SECTION 2.6 --QUORUM...................................................... 6
SECTION 2.7 --MANNER OF ACTING............................................ 7
SECTION 2.8 --DIRECTORS' COMPENSATION..................................... 7
SECTION 2.9 --VACANCIES................................................... 7
SECTION 2.10 --CONSENT IN LIEU OF MEETING.................................. 7
Article III--The Executive Committee
SECTION 3.1 --NUMBER, TENURE, AND QUORUM.................................. 7
SECTION 3.2 --POWERS...................................................... 8
SECTION 3.3 --MEETINGS.................................................... 8
SECTION 3.4 --RECORDS AND REPORTS......................................... 8
Article IV--The Audit Committee
SECTION 4.1 --FUNCTIONS................................................... 9
SECTION 4.2 --COMPOSITION................................................. 9
SECTION 4.3 --PROCEDURES.................................................. 10
SECTION 4.4 --COUNSEL..................................................... 10
Article V--The Nominating Committee
SECTION 5.1 --THE NOMINATING COMMITTEE.................................... 10
Article VI--The Compensation and Benefits Committee
SECTION 6.1 --THE COMPENSATION AND BENEFITS
COMMITTEE................................................... 11
Article VII--The Personal Financial Services Committee
SECTION 7.1 --THE PERSONAL FINANCIAL SERVICES COMMITTEE................... 11
Article VIII--The Corporate and Institutional Services Committee
SECTION 8.1 --THE CORPORATE AND INSTITUTIONAL SERVICES COMMITTEE.......... 11
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
Article IX--The Officers
SECTION 9.1 --NUMBER AND TERM OF OFFICE................................... 11
SECTION 9.2 --REMOVAL..................................................... 12
SECTION 9.3 --THE CHAIRMAN OF THE BOARD................................... 12
SECTION 9.4 --THE PRESIDENT............................................... 12
SECTION 9.5 --THE VICE CHAIRMEN........................................... 12
SECTION 9.6 --THE EXECUTIVE VICE PRESIDENTS............................... 12
SECTION 9.7 --THE VICE PRESIDENTS......................................... 13
SECTION 9.8 --THE TREASURER............................................... 13
SECTION 9.9 --THE SECRETARY............................................... 13
SECTION 9.10 --ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.............. 14
SECTION 9.11 --SALARIES.................................................... 14
Article X--Contracts, Loans, Checks and Deposits
SECTION 10.1 --CONTRACTS................................................... 14
SECTION 10.2 --LOANS....................................................... 14
SECTION 10.3 --CHECKS, DRAFTS, ETC......................................... 14
SECTION 10.4 --DEPOSITS.................................................... 15
SECTION 10.5 --POWER TO EXECUTE PROXIES.................................... 15
Article XI--Certificates for Shares and Their Transfer
SECTION 11.1 --CERTIFICATES FOR SHARES..................................... 16
SECTION 11.2 --TRANSFERS OF SHARES......................................... 16
Article XII--Fiscal Year
SECTION 12.1 --FISCAL YEAR................................................. 16
Article XIII--SEAL
SECTION 13.1 --SEAL........................................................ 16
Article XIV--Waiver of Notice
SECTION 14.1 --WAIVER OF NOTICE............................................ 16
Article XV--Indemnification
SECTION 15.1 --INDEMNIFICATION REQUEST..................................... 17
SECTION 15.2 --DETERMINATION OF INDEMNIFICATION REQUEST.................... 17
SECTION 15.3 --PRESUMPTION OF ENTITLEMENT; CONCLUSIVE EFFECT OF FINDINGS OF
FACT AND LAW; OTHER PROCEDURES.............................. 18
SECTION 15.4 --COOPERATION AND EXPENSES.................................... 18
SECTION 15.5 --SELECTION OF INDEPENDENT COUNSEL............................ 18
SECTION 15.6 --TIME FOR DETERMINATION...................................... 19
SECTION 15.7 --FAILURE TO MAKE DETERMINATION; REMEDIES FOR ENFORCEMENT..... 20
SECTION 15.8 --APPEAL OF ADVERSE DETERMINATION............................. 20
SECTION 15.9 --BURDEN OF PROOF............................................. 20
SECTION 15.10 --DEFINITION OF "DISINTERESTED DIRECTOR"...................... 21
SECTION 15.11 --DEFINITION OF "CHANGE OF CONTROL"........................... 21
SECTION 15.12 --ADVANCEMENT OF EXPENSES..................................... 22
SECTION 15.13 --PERSONAL LIABILITY OF DIRECTORS............................. 22
Article XVI--Amendments
SECTION 16.1 --AMENDMENTS.................................................. 23
</TABLE>
ii
<PAGE>
By-laws
of
The Northern Trust Corporation
Chicago, Illinois
ARTICLE I
THE STOCKHOLDERS
SECTION 1.1 Annual Meeting. There shall be an
annual meeting of the stockholders on the third
Tuesday in April of each year at ten-thirty o'clock
A.M., or at such other date or time as shall be
designated from time to time by the Board of
Directors and stated in the notice of the meeting,
for the election of Directors and for the
transaction of such other business as may come
before the meeting.
SECTION 1.2 Special Meetings. A special meeting of
the stockholders may be called at any time by the
Board of Directors, the Chairman of the Board, the
President, or a Vice Chairman, and shall be called
upon request in writing from the holders of at
least one-third of the issued and outstanding shares
of capital stock of the Corporation entitled to vote
at such meeting specifying the purpose or purposes for
which such meeting shall be called.
SECTION 1.3 Notice of Meetings. Unless a different
manner of giving notice is prescribed by statute,
written or printed notice stating the place, day,
and hour of the meeting, and in case of a special
meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than
ten nor more than fifty days before the date of the
meeting either personally or by mail, to each
stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to
be delivered when deposited in the United States
mail with postage thereon prepaid addressed to the
stockholder at his address as it appears on the
records of the Corporation.
1
<PAGE>
ARTICLE SECTION 1.4. Fixing Date of Record.
I
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in
writing without a meeting, or entitled to receive
payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more
than sixty or less than ten days before the date of
such meeting, nor more than sixty days prior to any
other action.
(b) If no record date is fixed:
(i) The record date for determining stockholders
entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on
the day next preceding the day on which notice is
given, or, if notice is waived, at the close of
business on the day next preceding the day on which
the meeting is held.
(ii) The record date for determining stockholders
entitled to express consent to corporate action in
writing without a meeting, when no prior action by
the Board of Directors is necessary, shall be the
day on which the first written consent is expressed.
(iii) The record date for determining stockholders
for any other purpose shall be at the close of
business on the day on which the Board of Directors
adopts the resolution relating thereto.
(c) A determination of stockholders of record
entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of
Directors may fix a new record date for the
adjourned meeting.
SECTION 1.5. Inspectors of Election. Inspectors of
Election shall be appointed by the Board of
Directors or the Executive Committee to act at any
meeting of stockholders at
2
<PAGE>
which any election is held. The Inspectors of ARTICLE
Election shall examine proxies, pass upon their I
regularity, receive the votes and act as tellers,
or perform any other duties which the Chairman
may require of them at said meeting.
SECTION 1.6. Quorum. A majority of the outstanding
shares of capital stock entitled to vote at the
meeting, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders.
In the absence of a quorum, a meeting may be
adjourned from time to time without notice to the
stockholders.
SECTION 1.7. Cumulative Voting Rights. At all
elections of Directors of the Corporation, each
stockholder entitled generally to vote for the
election of Directors shall be entitled to as many
votes as shall equal the number of votes which
(except for this provision as to cumulative voting)
he would be entitled to cast for the election of
Directors with respect to his shares of stock
multiplied by the number of Directors to be
elected, and he may cast all of such votes for a
single Director or may distribute them among the
number to be voted for, or for any two or more of
them as he may see fit.
SECTION 1.8. Proxies. At all meetings of
stockholders, a stockholder entitled to vote may
vote either in person or by proxy executed in
writing by the stockholder or by his duly
authorized attorney-in-fact. Such proxy shall be
filed with the Secretary before or at the time of
the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless
otherwise provided in the proxy.
SECTION 1.9. Voting by Ballot. Voting in any
election for Directors shall be by ballot.
SECTION 1.10. Voting Lists. The officer who has
charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every
meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting,
arranged in alphabetical order, and showing the
address of each stockholder and the number of
shares registered in the name of each stockholder.
Such list shall be open to the examination of any
stockholder, for any purpose germane to the
3
<PAGE>
ARTICLE meeting, during ordinary business hours, for a
I period of at least ten days prior to the meeting,
either at a place within the city where the meeting
is to be held, which place shall be specified in
the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The
list shall also be produced and kept at the time
and place of the meeting during the whole time
thereof, and may be inspected by any stockholder
who is present.
SECTION 1.11. Place of Meeting. The Board of
Directors may designate any place, either within or
without the State of Delaware, as the place of
meeting for any annual meeting or any special
meeting called by the Board of Directors. If no
designation is made, or if a special meeting is
otherwise called, the place of meeting shall be the
principal office of the Corporation in the City of
Chicago.
SECTION 1.12. Voting of Shares of Certain Holders.
Shares of capital stock of the Corporation standing
in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or
proxy as the by-laws of such corporation may
prescribe, or, in the absence of such provision, as
the board of directors of such corporation may
determine.
Shares of capital stock of the Corporation standing
in the name of a deceased person, a minor ward or
an incompetent person, may be voted by his
administrator, executor, court appointed guardian
or conservator, either in person or by proxy
without a transfer of such shares into the name of
such administrator, executor, court appointed
guardian or conservator. Shares of capital stock of
the Corporation standing in the name of a trustee
may be voted by him, either in person or by proxy.
Shares of capital stock of the Corporation standing
in the name of a receiver may be voted by such
receiver, and shares held by or under the control
of a receiver may be voted by such receiver without
the transfer thereof into his name if authority so
to do be contained in an appropriate order of the
court by which such receiver was appointed.
A stockholder whose shares are pledged shall be
entitled to vote such shares until the shares have
been transferred into
4
<PAGE>
the name of the pledgee, and thereafter the pledgee ARTICLE
shall be entitled to vote the shares so transferred. I
Shares of its own capital stock belonging to this
Corporation shall not be voted, directly or
indirectly, at any meeting and shall not be counted
in determining the total number of outstanding
shares at any given time, but shares of its own
stock held by it in a fiduciary capacity may be
voted and shall be counted in determining the total
number of outstanding shares at any given time.
ARTICLE II
THE BOARD OF DIRECTORS
SECTION 2.1. General Powers. The business and
affairs of the Corporation shall be managed by its
Board of Directors.
SECTION 2.2. Number, Tenure and Qualifications. The
Board of Directors of the Corporation shall consist
of such number of Directors, not less than 5 nor
more than 25, as shall be fixed from time to time
by the Board of Directors. Each Director shall hold
office until the next annual meeting of
stockholders or until his successor is elected.
SECTION 2.3. Regular Meetings. A regular meeting of
the Board of Directors shall be held at least once
each quarter at such place, date and hour as the
Board may appoint. Notice of each regular meeting,
unless waived, shall be given in the same manner as
is provided for notice of a special meeting.
SECTION 2.4. Special Meetings; Notice. A special
meeting of the Board of Directors may be called by
or at the request of the Chairman of the Board, the
President, a Vice Chairman, or any two Directors.
The person or persons calling or requesting such
meeting may fix the place, date and hour thereof.
Notice of the place, date, and hour of each special
meeting, unless waived, shall be given to a
Director in person, by mail, by telegram or cable,
by telephone or wireless, or by any other means
that reasonably may be expected to provide similar
5
<PAGE>
ARTICLE notice. Except in emergency situations as described
II below, notice by any means shall be given at least
two days prior to the meeting. For purposes of
dealing with an emergency situation (as
conclusively determined by the officer or Directors
calling the meeting), notice may be given in
person, by telegram or cable, by telephone or
wireless, or by any other means that reasonably may
be expected to provide similar notice, not less
than two hours prior to the meeting. Such notice
may be given by the Secretary or by the officer or
Directors calling the meeting.
SECTION 2.5. Time of Notice. If notice to a
Director is given:
(a) in person, such notice shall be deemed to have
been given when delivered;
(b) by mail, such notice shall be deemed to have
been given when deposited in the United States
mail, postage prepaid, addressed to the Director at
such address as appears on the records of the
Corporation for such Director;
(c) by telegram, cable or other similar means (not
including mail) that provide written notice, such
notice shall be deemed to have been given when
delivered to any transmission company, with charges
prepaid, addressed to the Director at such address
as appears on the records of the Corporation for
such Director; or
(d) by telephone, wireless or other means of voice
transmission, such notice shall be deemed to have
been given when transmitted to such number or call
designation as appears on the records of the
Corporation for such Director.
Any meeting of the Board of Directors shall be a
legal meeting without any notice having been given
if all the Directors are present at the meeting,
and no notice of a meeting shall be required to be
given to any Director who attends such meetings.
SECTION 2.6. Quorum. A majority of the Board of
Directors shall constitute a quorum for the
transaction of business at any meeting of the Board
of Directors, provided that if less than a majority
of the Directors are present at said meeting, a
majority of the Directors present may adjourn the
meeting from time to time without further notice.
6
<PAGE>
SECTION 2.7. Manner of Acting. The act of the ARTICLE
majority of the Directors present at a meeting at II
which a quorum is present shall be the act of the
Board of Directors, except on additions,
amendments, repeal or any changes whatsoever in the
By-laws or the adoption of new By-laws, when the
affirmative votes of at least a majority of the
members of the Board shall be necessary for the
adoption of such changes.
A director may participate in a meeting of the
Board of Directors or any committee thereof by
means of conference telephone or similar
communications equipment by means of which all
persons participating in the meeting can hear each
other, and such participation shall constitute
presence in person at such meetings.
SECTION 2.8. Directors' Compensation. The Directors
shall receive such compensation as may be fixed by
the Board for services to the Corporation.
SECTION 2.9. Vacancies. If vacancies occur in the
Board of Directors caused by death, resignation,
retirement, disqualification or removal from office
of any Director or Directors, or otherwise, or if
any new Directorship is created by any increase in
the authorized number of Directors, a majority of
the surviving or remaining Directors then in
office, though less than a quorum, may choose a
successor or successors, or fill the newly created
Directorship, and the Directors so chosen shall
hold office until the next annual meeting of
stockholders or until their successors are elected.
SECTION 2.10. Consent in Lieu of Meeting. Unless
otherwise restricted by the Certificate of
Incorporation or these By-laws, any action required
or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board
or committee thereof, as the case may be, consent
thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the
Board or committee.
ARTICLE III
THE EXECUTIVE COMMITTEE
SECTION 3.1. Number, Tenure and Quorum. The
Directors
7
<PAGE>
ARTICLE shall each year appoint no less than five
III Directors, one of whom shall be the Chairman of the
Board and one of whom shall be the President if the
President is designated the Chief Executive Officer,
who shall constitute and be called the Executive
Committee. Each Director so appointed shall act as a
member of the Committee until another is appointed and
acts in his place. The Chairman of the Board shall
preside at meetings of the Committee. In the absence or
disqualification of a member of the Committee, the
members thereof present at any meeting and not
disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at
the meeting in the place of any such absent or
disqualified member. In the absence or inability to act
of the Chairman of the Board, or upon the request of
the Chairman, the President, if he is a member of
the Committee, or a member elected by the Committee
shall preside at meetings of the Committee.
A majority of the members of the Executive
Committee shall constitute a quorum for the
transaction of business.
SECTION 3.2. Powers. The Executive Committee may,
while the Board of Directors is not in session,
exercise all or any of the powers of the Board of
Directors; except that the Executive Committee
shall not have the power or authority of the Board
of Directors in reference to amending the Restated
Certificate of Incorporation, adopting an agreement
of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and
assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a
dissolution, or amending the By-laws of the
Corporation, or declaring a dividend or authorizing
the issuance of stock.
SECTION 3.3. Meetings. Meetings of the Executive
Committee shall be held at the office of the
Corporation, or elsewhere, and at such time as they
may appoint, but the Committee shall at all times
be subject to the call of the Chairman of the Board
or any member of the Committee.
SECTION 3.4. Records and Reports. The Executive
Committee, through the Secretary or any Assistant
Secretary, shall keep books of separate minutes and
report all its action at every regular meeting of
the Board of Directors, or as often as may be
required by the Board.
8
<PAGE>
ARTICLE IV ARTICLE
THE AUDIT COMMITTEE IV
SECTION 4.1. Functions. An Audit Committee shall be
appointed each year by the Board of Directors. The
Committee shall perform the following functions for
the Corporation and its subsidiaries on a
consolidated basis and for such individual banking
subsidiaries as the Board shall direct:
(a) Reviewing with management and the independent
public accountant the reports issued with respect
to the annual financial statements, the internal
control structure and procedures for financial
reporting and compliance with laws and regulations
and the basis for such reports.
(b) Reviewing with management and the independent
public accountant the scope of services required by
the annual audit, significant accounting policies,
and audit conclusions regarding significant
accounting estimates.
(c) Reviewing with management and the independent
public accountant their assessments of the adequacy
of internal controls, and the resolution of
identified material weaknesses and reportable
conditions in internal controls over financial
reporting, including the prevention or detection of
management override or compromise of the internal
control system.
(d) Reviewing with management and the independent
public accountant compliance with those laws and
regulations with respect to which management and
the independent public accountant are required to
report.
(e) Discussing with management the selection and
termination of the independent public accountant
and any significant disagreements between the
independent public accountant and management.
(f) Reviewing the internal audit program and
results of examinations.
(g) Reviewing the program of the Chief Compliance
Officer and the compliance function generally.
(h) Reviewing the results of regulatory
examinations.
(i) Reviewing such other matters as the Committee
deems appropriate.
SECTION 4.2. Composition. The Committee shall
consist of no less than four Directors. All of the
members of the Committee shall, in the judgement of
the Board of Directors,
9
<PAGE>
ARTICLE be independent of management of the Corporation and its
IV subsidiaries and shall meet other applicable regulatory
requirements.
SECTION 4.3. Procedures. The Committee shall be
appointed annually at the organization meeting of
the Board of Directors and at the same time a
Chairman shall be appointed. The Committee shall
meet upon the call of the Chairman or any member of
the Committee. In the absence or disqualification
of a member of the Committee, the members thereof
present at any meeting and not disqualified from
voting, whether or not they constitute a quorum,
may unanimously appoint another qualified member of
the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
SECTION 4.4. Counsel. The Committee may, in order
to assist it in the performance of its functions,
engage counsel of its choosing without the approval
of the engagement by the Board of Directors or
management and may direct the proper officers of
the Corporation to pay the reasonable fees and
expenses of any such counsel.
ARTICLE V
THE NOMINATING COMMITTEE
SECTION 5.1. The Nominating Committee. A Nominating
Committee and its Chairman shall be appointed each
year by the Board of Directors to receive
recommendations for, and to review, study and
evaluate the qualifications of all candidates for
senior management succession and for nomination to
the Board of Directors or its Committees. The
Committee shall report to the Board its conclusions
with respect to such candidates and its
recommendations for nominees for election or
reelection or appointment to fill vacancies in the
Board and as officers of the Corporation. The
Committee shall consist of no less than four
Directors and shall meet upon the call of the
Chairman or any member of the Committee. In the
absence or disqualification of a member of the
Committee, the members thereof present at any
meeting and not disqualified from voting, whether
or not they constitute a quorum, may unanimously
appoint another member of the Board of Directors to
act at the meeting in the place of any such absent
or disqualified member.
10
<PAGE>
ARTICLE VI ARTICLE
THE COMPENSATION AND BENEFITS COMMITTEE VI
SECTION 6.1. The Compensation and Benefits
Committee. A Compensation and Benefits Committee
and its Chairman shall be appointed each year by
the Board of Directors to study, review and make
recommendations to the Board with respect to the
salary policy for the Corporation, the compensation
of senior officers, and the development of and
amendment to incentive and benefit plans. The
Committee shall consist of no less than three
Directors, none of whom shall be an active officer
of the Corporation. The Committee shall meet upon
the call of the Chairman or any member of the
Committee. In the absence or disqualification of a
member of the Committee, the members thereof
present at any meeting and not disqualified from
voting, whether or not they constitute a quorum,
may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of
any such absent or disqualified member.
ARTICLE VII
THE PERSONAL FINANCIAL SERVICES COMMITTEE
SECTION 7.1. The Personal Financial Services
Committee. A Personal Financial Services Committee
and its Chairman shall be appointed each year by
the Board of Directors to review the policies,
strategies and performance of the Personal Financial
Services Business Unit of the Corporation and such
other related matters as may from time to time be
deemed appropriate by the Committee. The
Committee shall consist of no less than four
Directors, none of whom shall be an active officer
of the Corporation. The Committee shall meet upon
the call of the Chairman or any member of the
Committee. In the absence or disqualification of
a member of the Committee, the members thereof
present at any meeting and not disqualified from
voting, whether or not they constitute a quorum,
may unanimously appoint another member of the
Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
ARTICLE VIII
THE CORPORATE AND INSTITUTIONAL SERVICES COMMITTEE
SECTION 8.1. The Corporate and Institutional
Services Committee. A Corporate and Institutional
Services Committee and its Chairman shall be
appointed each year by the Board of Directors
to review the policies, strategies, and
performance of the Corporate and Institutional
Services Business Unit of the Corporation and such
other related matters as may from time to time be
deemed appropriate by the Committee. The Committee
shall consist of no less than four Directors, none
of whom shall be an active officer of the
Corporation. The Committee shall meet upon the
call of the Chairman or any member of the
Committee. In the absence or disqualification of
a member of the Committee, the members thereof
present at any meeting and not disqualified from
voting, whether or not they constitute a quorum,
may unanimously appoint another member of the
Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
ARTICLE IX
THE OFFICERS
SECTION 9.1. Number and Term of Office. The
officers of the Corporation shall be a Chairman of
the Board and a President, one of whom shall be
designated Chief Executive Officer by the Board
of Directors, and may also include one or more
Vice Chairmen, one or more Executive Vice
Presidents (any of whom may be designated a
Senior Executive Vice President), such additional
Vice Presidents with such designations, if any,
as may be determined by the Board of Directors, a
Secretary, and a Treasurer and one or more
Assistant Secretaries and Assistant Treasurers as
may be determined by the Board of Directors, and
such other officers as may from time to time be
appointed by the Board of Directors. Any two or more
offices may be held by the same person. The Chairman
of the Board, the President and the Vice Chairmen
shall be elected from among the Directors; the
other officers may be appointed by the Board of
Directors.
The officers of the Corporation shall be elected or
appointed annually by the Board of Directors at the
first meeting of the Board of Directors held after
each annual meeting of stockholders. Vacancies or
new offices may be filled at any time. Each officer
shall hold office until his successor shall have
been duly elected or appointed or until his death
or until he shall resign or shall have been removed
by the Board of Directors.
11
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ARTICLE SECTION 9.2. Removal. An officer may be removed by
IX the Board of Directors whenever in its judgment the
best interests of the Corporation would be served
thereby.
SECTION 9.3. The Chairman of the Board. The
Chairman of the Board shall have such powers as
are vested in him by the Board of Directors, by
law or by these By-laws. He shall preside at the
meetings of the stockholders, of the Board of
Directors, and of the Executive Committee.
SECTION 9.4. The President. The President shall
have the powers and duties vested in him by the
Board of Directors, by law or by these By-laws. In
the absence or inability to act of the Chairman of
the Board, or upon the request of the Chairman of
the Board, he shall preside at meetings of the
stockholders and of the Board of Directors and
shall have and exercise all of the powers and
duties of the Chairman of the Board.
SECTION 9.5. The Chief Executive Officer. The
Chief Executive Officer of the Corporation shall
have, subject to the supervision and direction
of the Board of Directors or of the Executive
Committee, general supervision of the business,
property and affairs of the Corporation and the
powers vested in him by the Board of Directors, by
law or by these By-laws or which usually attach or
pertain to such office. Except in those instances
in which the authority to execute is expressly
delegated to another officer or agent of the
Corporation or a different mode of execution is
expressly prescribed by the Board of Directors,
the Chief Executive Officer may execute for the
Corporation any contracts, deeds, mortgages, bonds,
or other instruments which the Board of Directors
has authorized, and he may (without previous
authorization by the Board of Directors) execute
such contracts and other instruments as the conduct
of the Corporation's business in its ordinary course
requires.
SECTION 9.6. The Vice Chairmen. A Vice Chairman
shall have such powers as are vested in him by the
Board of Directors, by law or by these By-laws. In
the absence or inability to act of the Chairman of
the Board and the President, or upon request of the
Chairman of the Board, or in his absence upon
request of the President, a Vice Chairman (or in
the event there be more than one Vice Chairman, the
Vice Chairmen in the order designated, or in the
absence of any designation, then in the order of
their election) shall preside at meetings of
stockholders and of the Board of Directors and
shall have and exercise all their powers and
duties.
SECTION 9.7. The Executive Vice Presidents. In the
absence of the Chairman of the Board, the President
and the Vice Chairmen or in the event of their
inability or refusal to act, the Executive Vice
President (or in the event there be more than one
Executive Vice President, the Executive Vice
Presidents in the order designated, or in the
absence of any designation, then in the order of
their election) shall perform the duties
12
<PAGE>
of the Chairman of the Board, of the President, and ARTICLE
of the Vice Chairmen and when so acting, shall have IX
all the powers of and be subject to all the
restrictions upon the Chairman of the Board, the
President and the Vice Chairmen. Any Executive Vice
President may sign, with the Secretary or any
Assistant Secretary, certificates for shares of the
corporation; and shall perform such other duties as
from time to time may be assigned to him by the
Chairman of the Board, the President, a Vice
Chairman, the Board of Directors, or these By-laws.
SECTION 9.8. The Vice Presidents. The Vice
Presidents shall perform such duties as may be
assigned to them from time to time by the Chairman
of the Board, the President, the Vice Chairmen, or
the Board of Directors, or these By-laws. Any Vice
President may sign, with the Secretary or an
Assistant Secretary, certificates for shares of the
Corporation.
SECTION 9.9. The Treasurer. If required by the
Board of Directors, the Treasurer shall give a bond
for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board
of Directors shall determine. He shall (a) have
charge and custody of and be responsible for all
funds and securities of the Corporation; receive
and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit
all such moneys in the name of the Corporation in
such banks, trust companies or other depositaries
as shall be selected in accordance with the
provisions of Article VIII of these By-laws; (b) in
general perform all the duties incident to the
office of Treasurer and such other duties as from
time to time may be assigned to him by the Chairman
of the Board, the President, a Vice Chairman, the
Board of Directors, or these By-laws.
SECTION 9.10. The Secretary. The Secretary shall
have the custody of the corporate seal and the
Secretary or any Assistant Secretary shall affix
the same to all instruments or papers requiring the
seal of the Corporation. The Secretary, or in his
absence, any Assistant Secretary, shall see that
proper notices are sent of the meetings of the
stockholders, the Board of Directors and the
Executive Committee, and shall see that all proper
notices are given, as required by these By-laws.
The Secretary or any Assistant Secretary shall keep
the minutes of all meetings of stockholders and
Directors and all committees which may request
their services.
13
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ARTICLE SECTION 9.11. Assistant Treasurers and Assistant
IX Secretaries. The Assistant Treasurers shall
respectively, if required by the Board of
Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as
the Board of Directors shall determine. The
Assistant Secretaries as thereunto authorized by
the Board of Directors may sign with the Chairman
of the Board, the President, a Vice Chairman, or an
Executive Vice President certificates for shares of
the Corporation, the issue of which shall have been
authorized by a resolution of the Board of
Directors. The Assistant Treasurers and Assistant
Secretaries, in general, shall perform such duties
as shall be assigned to them by the Treasurer or
the Secretary, respectively, or by the Chairman of
the Board, the President, a Vice Chairman, the
Board of Directors, or these By-laws.
SECTION 9.12. Salaries. The salaries of the
officers shall be fixed from time to time by the
Board of Directors and no officer shall be
prevented from receiving such salary by reason of
the fact that he is also a director of the
Corporation.
ARTICLE X
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 10.1. Contracts. The Board of Directors may
authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the
Corporation, and such authority may be general or
confined to specific instances.
SECTION 10.2. Loans. No loans shall be contracted on
behalf of the Corporation and no evidences of
indebtedness shall be issued in its name unless
authorized by a resolution of the Board of
Directors. Such authority may be general or
confined to specific instances.
SECTION 10.3. Checks, Drafts, etc. All checks,
drafts or other orders for the payment of money,
notes or other evidences of indebtedness issued in
the name of the Corporation, shall be signed by
such officer or officers, agent or agents
14
<PAGE>
of the Corporation and in such manner as shall from ARTICLE
time to time be determined by resolution of the X
Board of Directors.
SECTION 10.4. Deposits. All funds of the Corporation
not otherwise employed shall be deposited from time
to time to the credit of the Corporation in such
banks, trust companies or other depositaries as the
Board of Directors may select.
SECTION 10.5. Power to Execute Proxies. The Chairman
of the Board, the President, a Vice Chairman, or
any Executive Vice President may execute proxies on
behalf of the Corporation with respect to the
voting of any shares of stock owned by the
Corporation.
ARTICLE XI
CERTIFICATES FOR SHARES
AND THEIR TRANSFER
SECTION 11.1. Certificates for Shares. Certificates
representing shares of the Corporation shall be in
such form as may be determined by the Board of
Directors. Such certificates shall be signed by the
Chairman of the Board, the President, a Vice
Chairman, an Executive Vice President or a Vice
President and by the Secretary or an Assistant
Secretary and shall be sealed with the seal of the
Corporation. The seal may be a facsimile. If a
stock certificate is countersigned (i) by a
transfer agent other than the Corporation or its
employee, or (ii) by a registrar other than the
Corporation or its employee, any other signature on
the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer,
transfer agent, or registrar before such
certificate is issued, it may be issued by the
Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of
issue. All certificates for shares shall be
consecutively numbered or otherwise identified. The
name of the person to whom the shares represented
thereby are issued, with the number of shares and
date of issue, shall be entered on the books of the
Corporation.
15
<PAGE>
ARTICLE All certificates surrendered to the Corporation for
XI transfer shall be cancelled and no new certificates
shall be issued until the former certificate for a
like number of shares shall have been surrendered
and cancelled, except that in case of a lost,
destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may
prescribe.
SECTION 11.2. Transfers of Shares. Transfers of
shares of the Corporation shall be made only on the
books of the Corporation by the holder of record
thereof or by his legal representative, who shall
furnish proper evidence of authority to transfer,
or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary
of the Corporation, and on surrender for
cancellation of the certificate for such shares.
The person in whose name shares stand on the books
of the Corporation shall be deemed the owner
thereof for all purposes as regards the
Corporation.
ARTICLE XII
FISCAL YEAR
SECTION 12.1. Fiscal Year. The fiscal year of the
Corporation shall begin on the first day of January
in each year and end on the last day of December in
each year.
ARTICLE XIII
SEAL
SECTION 13.1. Seal. The Board of Directors shall
provide a corporate seal which shall be in the form
of a circle and shall have inscribed thereon the
name of the Corporation.
ARTICLE XIV
WAIVER OF NOTICE
SECTION 14.1. Waiver of Notice. Whenever any notice
whatever is required to be given under the
provisions of these By-laws or under the provisions
of the Restated Certificate of Incorporation or
under the provisions of the General Corporation Law
of Delaware, waiver thereof in writing, signed by
the
16
<PAGE>
person or persons entitled to such notice, whether ARTICLE
before or after the time stated therein, shall be XIV
deemed equivalent to the giving of such notice.
Attendance of any person at a meeting for which any
notice whatever is required to be given under the
provisions of these By-laws, the Restated
Certificate of Incorporation or the General
Corporation Law of Delaware shall constitute a
waiver of notice of such meeting, except when the
person attends for the express purpose of
objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is
not lawfully called or convened.
ARTICLE XV
INDEMNIFICATION
SECTION 15.1. Indemnification Request. A director,
officer or other person (the ``Indemnitee'') who
seeks indemnification (other than advancement of
expenses pursuant to Section 13.12 hereof), in
respect of amounts paid or owing as expenses,
judgments, fines, or in settlement, shall submit a
written request for indemnification (the
``Indemnification Request'') to the Board of
Directors of the Corporation by delivering or
mailing the same, registered or certified mail, to
the Board of Directors c/o the Secretary of the
Corporation at the Corporation's principal
executive offices. If mailed, the Indemnification
Request shall be deemed made 48 hours after
depositing the same in the United States mail
addressed as aforesaid.
SECTION 15.2. Determination of Indemnification
Request. The determination of the Indemnitee's
entitlement to indemnification as set forth in the
Indemnification Request shall be made in the
specific case, at the expense of the Corporation,
as set forth in paragraph 5 of Article Eighth of
the Restated Certificate of Incorporation. However,
in the event a Change of Control (as hereinafter
defined) shall have occurred, such determination
shall be made by Independent Counsel in a written
opinion to the Board of Directors, a copy of which
shall be delivered to the Indemnitee.
17
<PAGE>
ARTICLE SECTION 15.3. Presumption of Entitlement;
XV Conclusive Effect of Findings of Fact and Law;
Other Procedures. The termination with respect to
the Indemnitee of any action, suit or proceeding or
of any claim, issue or matter therein, by judgment,
order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not of
itself adversely affect the right of the Indemnitee
to indemnification or create a presumption that the
Indemnitee did not meet the standard of conduct
required by Article Eighth of the Restated
Certificate of Incorporation for indemnification.
If the Indemnitee is a person referred to in
paragraphs 1, 2 or 3 Article Eighth of the Restated
Certificate of Incorporation, the Indemnitee shall
be presumed to have met the required standard of
conduct but only to the extent not contrary to any
final findings of fact or law made in any action,
suit or proceeding to which the Indemnitee is or
was a party and for which indemnification is
requested. The person, persons or entity making the
determination of the Indemnitee's entitlement to
indemnification shall be entitled to rely upon all
such findings of fact and law made known to such
person, persons or entity. Such person, persons or
entity may consider such other matters as they or
it deem appropriate, shall not be required to
receive or hear evidence, oral presentations,
briefs or other submission, shall not be required
to hold hearings, and shall not otherwise be
subject to any rules of evidence or procedure
applicable to judicial or other proceedings.
SECTION 15.4. Cooperation and Expenses. The
Indemnitee shall cooperate with the person, persons
or entity making the determination with respect to
the Indemnitee's entitlement to indemnification,
including providing to such person, persons or
entity upon reasonable advance request, any
documentation or information which is not
privileged or otherwise protected from disclosure
and which is reasonably available to the Indemnitee
and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and
disbursements) reasonably incurred by the
Indemnitee in so cooperating with the person,
persons or entity making such determination shall
be borne by the Corporation irrespective of the
determination as to the Indemnitee's entitlement to
indemnification.
SECTION 15.5. Selection of Independent Counsel. If
a determination of the Indemnitee's entitlement to
indemnification
18
<PAGE>
is to be made by Independent Counsel, the ARTICLE
Independent Counsel shall be selected as provided XV
in this Section 13.5. If a Change of Control shall
not have occurred, Independent Counsel shall be
selected by a majority vote of a quorum of the
Board of Directors consisting of Disinterested
Directors. If a Change of Control shall have
occurred, or if a quorum shall decline or fail to
select Independent Counsel within 5 business days
after having directed, pursuant to paragraph 5(b)
of Article Eighth of the Restated Certificate of
Incorporation, the determination of the
Indemnitee's entitlement to indemnification to be
submitted to Independent Counsel, then Independent
Counsel shall be selected by the law firm regularly
or most frequently engaged by the Corporation
during the preceding three years for representation
or counseling in connection with general corporate
matters. In any event, Independent Counsel shall be
selected from among those Chicago, Illinois, or
Delaware law firms having a significant and
continuous practice in the field of corporate law
but excluding any firm that: (i) has, within the
preceding three years represented the Corporation,
the Indemnitee or affiliates of either in any
significant matter; (ii) has, within the preceding
three years, represented any other party in any
significant judicial or other proceeding against or
in opposition to the Corporation, the Indemnitee or
any affiliate of either; (iii) had any involvement
of any significant nature in or with respect to the
claim for which indemnification is requested; or
(iv) has any other material conflict of interest in
being engaged as Independent Counsel.
SECTION 15.6. Time for Determination. The
determination of the Indemnitee's entitlement to
indemnification shall be made within 60 days after
such Indemnitee shall have submitted all such
additional information, if any, as shall have been
reasonably requested during the 30-day period
following the initial submission of the
Indemnification Request to the Board of Directors
pursuant to Section 13.1 hereof. The foregoing
notwithstanding, in the event that the claim with
respect to which indemnification is requested is
the subject of a judicial, government or other
proceeding, the Board of Directors, stockholders or
Independent Counsel, as the case may be, may defer
their determination until 60 days after any
19
<PAGE>
ARTICLE such proceeding shall have been finally adjudicated
XV or terminated (by settlement or otherwise) and all
periods for appeal, rehearing or reinstitution of
such proceeding (whether in a different forum or
otherwise) have expired.
SECTION 15.7. Failure To Make Determination;
Remedies For Enforcement. If a determination of the
Indemnitee's entitlement to indemnification shall
not be made within the period specified in these
By-laws, unless due to a material failure of the
Indemnitee to comply with his or her obligations
under Section 13.4 hereof, then the Indemnitee
shall be entitled to indemnification to the extent
and in the manner set forth in the Indemnification
Request. The Indemnitee may only enforce his or her
rights to indemnification, whether pursuant to a
determination that the Indemnitee is entitled to
indemnification or pursuant to this Section 13.7,
in any judicial proceeding brought, at the election
of the Indemnitee, in any court having jurisdiction
within the State of Delaware, the State of
Illinois, or the state in which the Corporation
shall then have its principal executive offices.
The Indemnitee shall be entitled to all expenses
actually and reasonably incurred by him or her in
connection with the successful enforcement of the
Indemnitee's right to indemnification.
SECTION 15.8. Appeal of Adverse Determination. In
the event that a determination shall be made that
the Indemnitee is not entitled to indemnification,
in whole or in part, the Indemnitee may only
institute an action in any court having
jurisdiction within the State of Delaware, the
State of Illinois, or the state in which the
Corporation shall have its principal executive
offices to establish the Indemnitee's right to
indemnification. Any such proceeding shall be
conducted in all respects as a de novo
determination on the merits and any such prior
determination made pursuant to these By-laws that
the Indemnitee is not entitled to indemnification
shall not constitute a presumption that the
Indemnitee is not entitled to indemnification.
SECTION 15.9. Burden of Proof. In any judicial
proceeding regarding the Indemnitee's right or
entitlement to indemnification or advancement of
expenses, the Corporation shall have the burden of
proving that any Indemnitee who is a person
20
<PAGE>
referred to in paragraphs 1, 2 or 3 of Article ARTICLE
Eighth of the Restated Certificate of Incorporation XV
is not entitled to indemnification or advancement
of expenses as the case may be, subject, however,
to principles of res judicata and collateral
estoppel relating to prior judicial proceedings to
which the Indemnitee is or was a party. In cases in
which the Indemnitee is not a person referred to in
paragraphs 1, 2 or 3 of Article Eighth of the
Restated Certificate of Incorporation, the
Indemnitee shall have the burden of proving he or
she is entitled to indemnification or the
advancement of expenses.
SECTION 15.10. Definition of ``Disinterested
Director.'' A Disinterested Director shall mean any
director who (i) was not a party to the claim or
proceeding with respect to which indemnification is
requested, (ii) has not submitted an
Indemnification Request or a request for
advancement of expenses on his or her own behalf
that has not been finally resolved; or (iii) does
not have any direct and material financial or other
personal interest in the determination of the
Indemnification Request.
SECTION 15.11. Definition of ``Change of Control.''
A Change of Control shall be deemed to have
occurred on the earliest of:
(a) The receipt by the Corporation of a Schedule
13D or other statement filed under Section 13(d) of
the Securities Exchange Act of 1934, as amended
(the ``Exchange Act''), indicating that any entity,
person, or group has acquired beneficial ownership,
as that term is defined in Rule 13d-3 under the
Exchange Act, of more than 30% of the outstanding
capital stock of the Corporation entitled to vote
for the election of directors (``voting stock'');
(b) The commencement by an entity, person, or group
(other than the Corporation or a subsidiary of the
Corporation) of a tender offer or an exchange offer
for more than 20% of the outstanding voting stock
of the Corporation;
(c) The effective time of (i) a merger or
consolidation of the Corporation with one or more
other corporations as a result of which the holders
of the outstanding voting stock of the
21
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ARTICLE Corporation immediately prior to such merger or consolidation
XV hold less than 80% of the voting stock of the surviving or
resulting corporation, or (ii) a transfer of substantially all of
the property of the Corporation other than to an entity of which
the Corporation owns at least 80% of the voting stock; or
(d) The election to the Board of Directors of the
Corporation, without the recommendation or approval
of the incumbent Board of Directors of the
Corporation, of the lesser of (i) three directors
or (ii) directors constituting a majority of the
number of directors of the Corporation then in
office.
SECTION 15.12. Advancement of Expenses. Expenses
as may be incurred by a person referred to in
paragraphs 1, 2 or 3 of Article Eighth of the
Restated Certificate of Incorporation in defending
a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the
final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on
behalf of such person to repay such amount if it
shall ultimately be determined that he or she is
not entitled to be indemnified by the Corporation
as authorized in such Article Eighth. Such expenses
as may be incurred by other employees and agents
may be so paid on such terms and conditions, if
any, as the Board of Directors deems appropriate.
For purposes of the foregoing, a determination that
a person referred to in paragraphs 1, 2 or 3 of
Article Eighth of the Restated Certificate of
Incorporation is not entitled to be indemnified by
the Corporation shall be made in the manner
hereinbefore provided for the determination of an
Indemnification Request; provided, however, that
the Board of Directors may initiate such
determination whenever it shall deem the same to be
appropriate. In connection with such determination,
such person shall be subject to all requirements of
these By-laws imposed on an ``Indemnitee'' in
respect of a determination made pursuant to Section
13.2 hereof.
SECTION 15.13. Personal Liability of Directors. No
director of the Corporation shall be personally
liable to any person seeking indemnification or
advancement of expenses for any determination, act
or omission in connection therewith.
22
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ARTICLE XVI ARTICLE
AMENDMENTS XVI
SECTION 16.1. Amendments. These By-laws may be
altered, amended or repealed and new By-laws may be
adopted at any meeting of the Board of Directors of
the Corporation by the affirmative vote of a
majority of the members of the Board.
23
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EXHIBIT NUMBER (10)
TO 6/30/95 FORM 10-Q
NORTHERN TRUST CORPORATION
MANAGEMENT PERFORMANCE PLAN
1995
I. Purpose of Plan
---------------
The purpose of the Annual Performance Plan (the "Plan") is to promote the
achievement of superior financial and operating performance of the
Northern Trust Corporation and its subsidiaries (hereinafter referred to as
the "Corporation"), and further the objective of delivering unrivaled
service quality to its clients and partners through the awarding of cash
incentive payments to selected officers.
II. Plan Year
---------
The Plan is effective from January 1, 1995 to December 31, 1995.
III. Eligibility and Participation
-----------------------------
Eligibility to participate in the Plan is restricted to selected executive
officers and subject to approval by the Compensation and Benefits Committee
of the Board of Directors (the "Committee").
IV. Participant Target Awards
-------------------------
At the beginning of the Plan year, the Committee shall determine individual
target awards. The target award will be described as a percent of the
annual base salary earned during the Plan year.
V. Award Determination
-------------------
The Committee establishes a Corporate Earnings Target for the Plan at the
beginning of the Plan year. The available funding for participant awards
will be based on (a) the aggregate of participants' target award amounts
and (b) the Corporation's financial achievement versus the Corporate
Earnings Target. The amount of the award funding will either increase or
decrease as calculated by the formula detailed in Attachment I.
VI. Payment of Awards
-----------------
Awards will be paid in cash as soon as practicable following the completion
of the Plan year. Any award amount that, with all other compensation paid
or to be paid for that year to the participant, exceeds the level of tax
deductible compensation to the Corporation, as determined by the Internal
Revenue Service 162(m), will be deferred and paid in the year following the
participant's retirement. Deferred award balances will be adjusted with an
interest factor as shall be determined at the time of the deferral by the
Committee.
<PAGE>
Notwithstanding the foregoing, awards payable because of a Change in
Control of the Corporation pursuant to Paragraph VIII shall be paid in cash
as soon as practicable following such Change in Control.
VII. Administration
--------------
The Plan shall be administered by the Management Committee of the
Corporation (the "Committee"). Subject to the provisions of the Plan, the
Committee shall be authorized to interpret the Plan, to establish, amend
and rescind any rules and regulations relating to the Plan, and to make all
other determinations necessary or advisable for the administration of the
Plan. The determinations of the Committee in the effective administration
of the Plan, as described herein, shall be final and conclusive.
The Board of Directors of the Corporation, by written resolution, may
amend, suspend, or terminate any or all provisions of the Plan at any time.
VIII. Miscellaneous Provisions
------------------------
The following miscellaneous provisions are applicable to the Plan:
(a) In the event of a participant's death, disability or retirement, awards
shall be prorated to the date of the event, and paid as described in
Section VI.
(b) Termination of employment by a participant during the Plan year, for
reasons other than death, disability, or retirement shall result in
immediate exclusion from the Plan unless the Compensation and Benefits
Committee decides otherwise in its sole discretion.
(c) Except in the event of the death of a participant, the rights and
interests of a participant under the Plan shall not be assigned,
encumbered, or transferred.
(d) No employee or other person shall have any claim or right to be granted
an award under the Plan. Neither the Plan, nor any action taken
thereunder, shall be construed as giving any employee or other person
any right to be retained in the employ of the Corporation.
(e) The Corporation shall have the right to deduct from all payments made
under the Plan any taxes required by law to be withheld with respect to
such payment.
(f) All questions pertaining to the validity, construction and
administration of the Plan and any award hereunder shall be determined
in conformity with the laws of the State of Illinois.
2
<PAGE>
(g) Each participant shall designate a beneficiary (the "Designated
Beneficiary") to receive the award, if any, allocated to a participant, in
the event of such participant's death. If no Designated Beneficiary
survives the participant, it shall be the surviving spouse of the
participant or, if there is no surviving spouse, it shall be the
participant's estate.
(h) Notwithstanding any other terms contained herein, in the event of a Change
in Control of the Corporation, discretionary awards shall be paid in
accordance with the last sentence of Section VI of this Plan. For purposes
of this paragraph, a "Change in Control" of the Corporation shall be deemed
to occur on the earliest of:
(i) The receipt by the Corporation of a Schedule 13D or other statement
filed under Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), indicating that any entity, person, or
group has acquired beneficial ownership, as that term is defined in
Rule 13d-3 under the Exchange Act, or more than 30% of the
outstanding capital stock of the Corporation entitled to vote for the
election of directors ("voting stock");
(ii) The commencement by any entity, person, or group (other than the
Corporation or a subsidiary of the Corporation) of a tender offer or
an exchange offer for more than 20% of the outstanding voting stock
of the Corporation;
(iii) The effective time of (A) a merger or consolidation of the
Corporation with one or more other corporations as a result of which
the holders of the outstanding voting stock of the Corporation
immediately prior to such merger or consolidation hold less than 80%
of the voting stock of the surviving or resulting corporation, or (B)
a transfer of substantially all of the property of the Corporation
other than to an entity of which the Corporation owns at least 80% of
the voting stock; or
(iv) The election to the Board of Directors of the Corporation, without
the recommendation or approval of the incumbent Board of Directors of
the Corporation, or the lesser of (A) three directors or (B)
directors constituting a majority of the number of directors of the
Corporation then in office.
3
<PAGE>
Attachment I
MANAGEMENT PERFORMANCE PLAN
CORPORATE EARNINGS TARGET AND AWARD SCHEDULE
1995 CORPORATE EARNINGS TARGET
- ------------------------------
The 1995 Management Performance Plan Corporate Earnings Target is $213.8
million. Actual earnings after the accrual for payments made under the Plan and
after any adjustments for unusual and/or extraordinary items will be compared
against the Corporate Earnings Target.
TARGET AWARD SCHEDULE
- ---------------------
The percentage of the aggregate target award funding will be determined in
accordance with the following formula:
For each percent change in net income above/below the respective earnings
target, the pool amount shall change by: 1% for each percent between
0% - 5%, 2% for each percent between 5.1% - 10%, 3% for each percent
between 10.1% - 15%, and 4% for each percent between 15.1% - 20%.
================================================================================
% of Net Income Target % of Pool Amount Funded
- --------------------------------------------------------------------------------
120% 150%
- -------------------------------------------------------------------------------
115% 130%
- -------------------------------------------------------------------------------
110% 115%
- -------------------------------------------------------------------------------
107% 109%
- -------------------------------------------------------------------------------
105% 105%
- -------------------------------------------------------------------------------
103% 103%
- -------------------------------------------------------------------------------
100% 100%
- -------------------------------------------------------------------------------
97% 97%
- -------------------------------------------------------------------------------
95% 95%
- -------------------------------------------------------------------------------
93% 91%
- -------------------------------------------------------------------------------
90% 85%
- -------------------------------------------------------------------------------
85% 70%
- -------------------------------------------------------------------------------
80% 50%
==============================================================================
4
<PAGE>
EXHIBIT NUMBER (11)
TO 6/30/95 FORM 10-Q
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Second Quarter Ended June 30 Six Months Ended June 30
-------------------------------- --------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Computations Required by
- -----------------------
Regulation S-K
- --------------
Primary Earnings Per Share
- ---------------------------
Net Income Applicable to
Common Shares $50,946,144 $46,968,577 $98,127,843 $90,732,442
=========== =========== =========== ===========
Weighted Average Number of Common
and Common Equivalent Shares Outstanding
Common Shares 55,975,449 53,878,250 55,117,831 53,602,539
Dilutive Effect of Common
Equivalent Shares (A)
Stock Options 534,482 979,076 560,390 986,587
Long Term Performance Stock Plan 355,597 393,575 339,360 375,782
Other 12,502 10,157 10,357 7,978
----------- ----------- ----------- -----------
56,878,030 55,261,057 56,027,938 54,972,886
=========== =========== =========== ===========
Net Income Per Common and
Common Equivalent Share $0.90 $0.85 $1.75 $1.65
=========== =========== =========== ===========
</TABLE>
(A) Determined by application of the treasury stock method.
<PAGE>
EXHIBIT NUMBER (11)
TO 6/30/95 FORM 10-Q
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Second Quarter Ended June 30 Six Months Ended June 30
-------------------------------- --------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Computations Required by
- -----------------------
Regulation S-K
- --------------
Fully Diluted Earnings Per Share
- --------------------------------
Net Income Applicable to
Common Shares $50,946,144 $46,968,577 $98,127,843 $90,732,442
Add Back: Dividend on Series E Convertible
Preferred Stock 785,353 768,277 1,562,500 1,545,328
----------- ----------- ----------- -----------
$51,731,497 $47,736,854 $99,690,343 $92,277,770
=========== =========== =========== ===========
Weighted Average Number of Common
and Common Equivalent Shares Outstanding
Common Shares 55,975,449 53,878,250 55,117,831 53,602,539
Dilutive Effect of Common
Equivalent Shares (A)
Stock Options 610,847 979,907 656,258 1,009,134
Long Term Performance Stock Plan 372,812 393,575 349,420 376,574
Other 14,514 10,157 11,680 8,167
Other Potentially Dilutive Securities
Equivalent Shares Assuming Conversion of
Series E Convertible Preferred Stock 1,204,820 1,204,820 1,204,820 1,204,820
----------- ----------- ----------- -----------
58,178,442 56,466,708 57,340,009 56,201,234
=========== =========== =========== ===========
Net Income Per Common and
Common Equivalent Share $0.89 $0.85 $1.74 $1.64
=========== =========== =========== ===========
</TABLE>
(A) Determined by application of the treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,092,760
<INT-BEARING-DEPOSITS> 8,376,023
<FED-FUNDS-SOLD> 403,978
<TRADING-ASSETS> 55,856
<INVESTMENTS-HELD-FOR-SALE> 4,994,101
<INVESTMENTS-CARRYING> 574,642
<INVESTMENTS-MARKET> 606,037
<LOANS> 9,421,795
<ALLOWANCE> 145,945
<TOTAL-ASSETS> 19,301,158
<DEPOSITS> 11,247,276
<SHORT-TERM> 5,893,428
<LIABILITIES-OTHER> 412,026
<LONG-TERM> 358,116
<COMMON> 93,393
0
170,000
<OTHER-SE> 1,126,919
<TOTAL-LIABILITIES-AND-EQUITY> 19,301,158
<INTEREST-LOAN> 302,735
<INTEREST-INVEST> 172,736
<INTEREST-OTHER> 56,809
<INTEREST-TOTAL> 532,280
<INTEREST-DEPOSIT> 221,302
<INTEREST-EXPENSE> 355,761
<INTEREST-INCOME-NET> 176,519
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> 243
<EXPENSE-OTHER> 355,263
<INCOME-PRETAX> 148,384
<INCOME-PRE-EXTRAORDINARY> 148,384
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,438
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.74
<YIELD-ACTUAL> 2.16
<LOANS-NON> 30,474
<LOANS-PAST> 14,113
<LOANS-TROUBLED> 2,800
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 144,838
<CHARGE-OFFS> 5,626
<RECOVERIES> 2,683
<ALLOWANCE-CLOSE> 145,945
<ALLOWANCE-DOMESTIC> 107,775
<ALLOWANCE-FOREIGN> 2,737
<ALLOWANCE-UNALLOCATED> 35,433
</TABLE>
