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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $1.66 2/3 PAR VALUE
-------
PREFERRED STOCK PURCHASE RIGHTS
-------
DEPOSITARY SHARES, EACH REPRESENTING ONE-TWENTIETH OF A SHARE OF THE
6.25% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES E OF THE REGISTRANT
(TITLE OF CLASS)
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[_]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
AT FEBRUARY 6, 1995, 54,194,369 SHARES OF COMMON STOCK, $1.66 2/3 PAR VALUE,
WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE COMMON STOCK (BASED UPON
THE LAST SALE PRICE OF THE COMMON STOCK AT FEBRUARY 6, 1995, AS REPORTED BY THE
NASDAQ STOCK MARKET) HELD BY NON-AFFILIATES WAS APPROXIMATELY $1,677,571,999.
DETERMINATION OF STOCK OWNERSHIP BY NON-AFFILIATES WAS MADE SOLELY FOR THE
PURPOSE OF RESPONDING TO THIS REQUIREMENT AND THE REGISTRANT IS NOT BOUND BY
THIS DETERMINATION FOR ANY OTHER PURPOSE.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:
ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 -
PART I AND PART II
1995 NOTICE AND PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD ON APRIL 18, 1995 - PART III
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NORTHERN TRUST CORPORATION
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
INDEX
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PART I
Item 1 Business...................................................................................4
Supplemental Item-Executive Officers of the Registrant....................................22
Item 2 Properties................................................................................23
Item 3 Legal Proceedings.........................................................................23
Item 4 Submission of Matters to a Vote of Security Holders.......................................23
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.....................24
Item 6 Selected Financial Data...................................................................24
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.....24
Item 8 Financial Statements and Supplementary Data...............................................24
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......24
PART III
Item 10 Directors and Executive Officers of the Registrant........................................25
Item 11 Executive Compensation....................................................................25
Item 12 Security Ownership of Certain Beneficial Owners and Management............................25
Item 13 Certain Relationships and Related Transactions............................................25
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........................26
SIGNATURES.........................................................................................27
EXHIBIT INDEX......................................................................................28
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PART I
ITEM 1-BUSINESS
NORTHERN TRUST CORPORATION
Northern Trust Corporation (Corporation) is a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended. The Corporation was
organized in Delaware in 1971 and on December 1 of that year became the owner of
all of the outstanding capital stock, except directors' qualifying shares, of
The Northern Trust Company (Bank), an Illinois banking corporation located in
the Chicago financial district. The Corporation also owns three other banks in
the Chicago metropolitan area, a bank in each of Florida, Arizona, California
and Texas, and various other nonbank subsidiaries, including a securities
brokerage firm and a futures commission merchant. The Corporation expects that
although the operations of other subsidiaries will be of increasing
significance, the Bank will in the foreseeable future continue to be the major
source of the Corporation's assets, revenues and net income. Except where the
context otherwise requires, the term "Northern Trust" refers to Northern Trust
Corporation and its consolidated subsidiaries.
At December 31, 1994, Northern Trust had consolidated total assets of
approximately $18.6 billion and stockholders' equity of $1.3 billion. At
June 30, 1994 Northern Trust was the third largest bank holding company
headquartered in Illinois and the 37th largest in the United States, based on
consolidated total assets of approximately $18.4 billion on that date.
THE NORTHERN TRUST COMPANY
The Bank was founded by Byron L. Smith in 1889 to provide banking and trust
services to the public. Currently in its one hundred and sixth year, the Bank's
growth has come from internal sources rather than through merger or acquisition.
At December 31, 1994, the Bank had consolidated assets of approximately $14.7
billion. At June 30, 1994, the Bank was the third largest bank in Illinois and
the 38th largest in the United States, based on consolidated total assets of
approximately $14.9 billion on that date.
The Bank currently has six active wholly owned subsidiaries: The Northern
Trust International Banking Corporation, NorLease, Inc., MFC Company, Inc.,
Nortrust Nominees Ltd., The Northern Trust Company U.K. Pension Plan Limited and
The Northern Trust Company, Canada. The Northern Trust International Banking
Corporation, located in New York, was organized under the Edge Act for the
purpose of conducting international business. NorLease, Inc. was established by
the Bank to enable it to broaden its leasing and leasing-related lending
activities. MFC Company, Inc. holds properties that are received from the Bank
in connection with certain problem loans. Nortrust Nominees Ltd., located in
London, is a U.K. trust corporation organized to hold U.K. real estate for
fiduciary accounts. The Northern Trust Company U.K. Pension Plan Limited was
established in connection with the pension plan for the Bank's London branch.
The Northern Trust Company, Canada was established to offer institutional trust
products and services to Canadian entities.
In early 1995, Northern Global Financial Services Ltd. was incorporated in
Hong Kong and, upon receipt of regulatory approval will enhance securities
lending and relationship servicing capabilities for large asset custody clients
in Asia and the Pacific Rim.
OTHER NORTHERN TRUST CORPORATION SUBSIDIARIES
The Corporation has three banking subsidiaries in the Chicago metropolitan
area: Northern Trust Bank/O'Hare N.A., Northern Trust Bank/DuPage, and Northern
Trust Bank/Lake Forest N.A. At December 31, 1994, these three Illinois banking
subsidiaries had nine office locations with combined total assets of
approximately $1.5 billion. The Corporation expects to seek regulatory approval
to merge these three Illinois banking subsidiaries into the Bank during 1995.
The Corporation's Florida banking subsidiary, Northern Trust Bank of Florida
N.A., is headquartered in Miami and at December 31, 1994, had sixteen offices
located throughout Florida, with total assets of approximately $1.4 billion. The
Corporation's Arizona banking subsidiary, Northern Trust Bank of Arizona N.A.,
is headquartered in Phoenix and at December 31,1994 had total assets of
approximately $270 million and serviced clients from five office locations. The
Corporation has a Texas banking subsidiary, Northern Trust Bank of Texas N.A.,
headquartered in Dallas. It had four office locations and total assets of
approximately $190 million at December 31, 1994. The Corporation's California
banking subsidiary, Northern Trust Bank of California N.A., is headquartered in
Santa Barbara. At December 31,1994, it had six office locations and total assets
of approximately $250 million.
The Corporation has several nonbank subsidiaries. Among them are Northern
Trust Securities, Inc. which provides full brokerage services to clients of the
Bank and the Corporation's other banking and trust subsidiaries and selectively
underwrites general obligation tax-exempt securities. Northern Futures
Corporation is a futures commission merchant. Northern Investment Corporation
holds certain investments, including a loan made to a developer of a property in
which the Bank is the principal tenant. Berry, Hartell, Evers & Osborne, Inc. is
an investment management firm in San Francisco. The Northern Trust Company of
New York provides security clearance services for all nondepository eligible
securities held by
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trust, agency, and fiduciary accounts administered by the Corporation's
subsidiaries. Northern Trust Cayman International, Ltd. provides fiduciary
services to clients residing outside of the U.S. Hazlehurst & Associates, Inc.
is a retirement benefit plan services company in Atlanta, Georgia. Northern
Trust Services, Inc. provides management consulting services to nonaffiliated
financial institutions.
CORPORATION'S INTERNAL ORGANIZATION
Northern Trust's business is organized broadly into two principal business
units: Corporate and Institutional Services, and Personal Financial Services,
both of which report to President and Chief Operating Officer William A. Osborn.
In addition, the Worldwide Operations Unit encompasses all trust and banking
operations and systems activities, and the Risk Management Unit focuses on
financial and risk management. The following is a brief summary of each unit's
business activities.
CORPORATE AND INSTITUTIONAL SERVICES (CIS)
During late 1994, client corporate and institutional markets were brought
together by merging Corporate Financial Services, Commercial Banking and
Treasury Management Services into a single business unit. The commercial banking
and corporate trust relationship teams were brought together under Sheila A.
Penrose, Executive Vice President of the Corporation and the Bank. This
realignment focuses Northern Trust's knowledge of the client's needs and
provides more seamless service across product lines, thereby increasing client
satisfaction opportunities, and strengthens relationships.
Trust activities encompass custody related services for securities in
the United States and foreign markets, as well as securities lending, asset
management, and related cash management services. Master Trust and Master
Custody are the principal products. Custody of securities traded in markets
foreign to the client, has been provided primarily through the Bank's London
Branch. Related foreign exchange services are also conducted at the London
Branch as well as in Chicago.
As measured by number of clients, Northern Trust is a leading provider of
Master Trust and Master Custody services in various market segments. At December
31,1994, total assets under administration were $447.2 billion. The major market
segments served are corporate pension, profit sharing and savings plans; state
and municipal retirement funds; taxable asset portfolios (foundations,
endowments and insurance companies); international asset portfolios
(international assets of domestic and foreign institutions); and a correspondent
trust market segment which provides custody, systems and investment services to
smaller bank trust departments. The Northern Trust Company of New York, The
Northern Trust Company, Canada, NorLease, Inc., The Northern Trust International
Banking Corporation and Hazlehurst & Associates, Inc. are also included in CIS.
A full range of commercial banking services through the Bank which
places special emphasis on developing institutional relationships in three
target markets: middle market companies in the Chicago and Midwest area, large
domestic corporations, and financial institutions (both domestic and
international). Credit services are administered in three groups: a Large
Corporations Group, a Mid-sized Corporations Group, and a Financial
Institutions Group.
Treasury Management Services serves the treasury needs of major corporations
and financial institutions by providing products and services to accelerate
cash collections, control disbursement outflows, and generate information to
manage their cash positions. Treasury management products and services,
including lockbox collection, controlled disbursement products and electronic
banking, are developed and marketed in this group.
PERSONAL FINANCIAL SERVICES (PFS)
Services to individuals is another major dimension of the trust business.
Barry G. Hastings, Vice Chairman of the Corporation and the Bank, is head of
Personal Financial Services (PFS) which encompasses personal trust, investment
management services, estate administration, personal banking and mortgage
lending. A key element of the personal trust strategy combines private banking
and trust services to targeted high net worth individuals in rapidly growing
areas of wealth concentration. These services are delivered through the Bank and
a network of banking subsidiaries located in Florida, Arizona, California, Texas
and suburban Chicago. PFS is one of the largest bank managers of personal trust
assets in the United States, with total assets under administration of $51.4
billion at December 31, 1994.
Northern Trust Securities, Inc. and Berry, Hartell, Evers & Osborne, Inc. are
also part of PFS.
In December 1993, Northern Trust Corporation entered into a definitive
agreement to acquire Beach One Financial Services, Inc., parent company of The
Beach Bank of Vero Beach (Florida). Beach One's assets totaled $198.6 million at
December 31, 1994 and net income totaled $2.9 million in 1994. The acquisition
agreement calls for Beach One shareholders to receive Northern Trust Corporation
Common Stock aggregating $56.2 million with the exchange ratio set on the basis
of the average last-sale prices for Northern Common Stock on the NASDAQ National
Market System over a 20-day trading period ending just prior to closing. The
maximum number of shares Northern is required to issue without further approval
of
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directors is 1,701,515, equivalent to a formula price of $33 per share. The
minimum number of shares Beach One holders are required to accept is 1,169,791,
equivalent to a formula price of $48 per share. The acquisition was approved by
Beach One shareholders on February 23, 1995 and by the Federal Reserve Bank on
March 1, 1995, and, is expected to close on March 31, 1995. This transaction is
expected to be accounted for as a pooling-of-interests.
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. Tanglewood's assets totaled $229.9 million at
December 31, 1994 and net income totaled $2.6 million in 1994. The agreement is
subject to the approval of Tanglewood shareholders, to final due diligence and
to various regulatory approvals and is expected to close in the second half of
1995.
WORLDWIDE OPERATIONS UNIT
Supporting all of Northern Trust's business activities is the Worldwide
Operations Unit. During the fourth quarter of 1994 Trust and Banking operations
and system activities were merged to insure that both day-to-day and strategic
linkage between the new operations unit and all the areas it supports are
maintained and strengthened. This combined unit will leverage experience in
quality and productivity improvements, develop a shared technology strategy, and
draw on a large pool of talent to address product and delivery complexities.
James J. Mitchell, Executive Vice President of the Corporation and the Bank,
heads the Worldwide Operations Unit. This Unit focuses on supporting sales,
relationship management and product management activities for Corporate and
Institutional Services and Personal Financial Services.
RISK MANAGEMENT UNIT
The Risk Management Unit, headed by Senior Executive Vice President and Chief
Financial Officer Perry R. Pero, includes the Credit Policy function and the
Bank's Treasury Department. The Credit Policy function is described fully on
page 16 of this report. The Treasury Department is responsible for managing
the Bank's wholesale funding and interest rate risk, as well as the portfolio of
interest rate risk management instruments under the direction of the Corporate
Asset and Liability Policy Committee. It is also responsible for the investment
portfolios of the Corporation and the Bank and provides investment advice and
management services to the subsidiary banks.
The Risk Management Unit also includes the Corporate Controller, Corporate
Treasurer, Investor Relations and Economic Research functions.
GOVERNMENT POLICIES
The earnings of Northern Trust are affected by numerous external influences,
principally general economic conditions, both domestic and international, and
actions that the United States and foreign governments and their central banks
take in managing their economies. These general conditions affect all of the
Northern Trust's businesses, as well as the quality and volume of the loan
and investment portfolios.
An important regulator of domestic economic conditions is the Board of
Governors of the Federal Reserve System, which has the general objective of
promoting orderly economic growth in the United States. Implementation of this
objective is accomplished by its open market operations in United States
Government securities, the discount rate at which member banks may borrow from
Federal Reserve Banks and changes in the reserve requirements for deposits. The
policies adopted by the Federal Reserve may strongly influence interest rates
and hence what banks earn on their loans and investments and what they pay on
their savings and time deposits and other purchased funds. Fiscal policies in
the United States and abroad also affect the composition and use of the Northern
Trust's resources.
COMPETITION
Northern Trust's principal business strategy is to provide quality financial
services to targeted market segments in which it believes it has a competitive
advantage and favorable growth prospects. As part of this strategy, Northern
Trust seeks to deliver a level of service to its clients that distinguishes
it from its competitors. In addition, Northern Trust emphasizes the development
and growth of recurring sources of fee-based income and is one of only six
major bank holding companies in the United States that generates more revenues
from fee-based services than from net interest income. Northern Trust seeks
to develop and expand its recurring fee-based revenue by identifying selected
market niches and providing a high level of individualized service to its
clients in such markets. Northern Trust also seeks to preserve its asset quality
through established credit review procedures and to maintain a conservative
balance sheet. Finally, Northern Trust seeks to maintain a strong management
team with senior officers having broad experience and long tenure.
Active competition exists in all principal areas in which the subsidiaries
are presently engaged. CIS and PFS compete with domestic and foreign financial
institutions, trust companies, financial companies, personal loan companies,
mutual funds and investment advisers. Northern Trust is a leading provider
of Master Trust and Master Custody services and has the leading market share
in the Chicago area personal trust market.
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Commercial Banking and Treasury Management Services compete with domestic and
foreign financial institutions, finance companies and leasing companies. Its
products also face increased competition due to the general trend among
corporations and other institutions to rely more upon direct access to the
credit and capital markets (such as through the direct issuance of commercial
paper) and less upon commercial banks and other traditional financial
intermediaries.
The chief local competitors of the Bank for trust and banking business are
Bank of America Illinois N.A., The First National Bank of Chicago and its
affiliate American National Bank and Trust Company of Chicago, Harris Trust and
Savings Bank, and LaSalle National Bank. The chief national competitors of the
Bank for Master Trust/Master Custody services are Mellon Bank Corporation, State
Street Boston Corporation, Bankers Trust New York Corporation, Chase Manhattan
Corporation and Bank of New York Company, Inc.
REGULATION AND SUPERVISION
The Corporation is a bank holding company subject to the Bank Holding Company
Act of 1956, as amended (Act), and to regulation by the Board of Governors
of the Federal Reserve System. The Act limits the activities which may be
engaged in by the Corporation and its nonbanking subsidiaries to those so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Also, under section 106 of the 1970 amendments to the Act and
the Federal Reserve Board's regulations, a bank holding company, as well as
certain of its subsidiaries, is prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or provision of any
property or services.
The Act also prohibits bank holding companies from acquiring substantially
all the assets of or owning more than 5% of the voting shares of any bank or
nonbanking company which is not already majority owned without prior approval
of the Board of Governors. No application to acquire shares or assets of a
bank located outside the state in which the operations of a bank holding
company's banking subsidiaries are principally conducted may be approved by the
Federal Reserve Board unless such acquisition is specifically authorized by a
statute of the state in which the bank to be acquired is located.
Illinois law permits bank holding companies located in any state of the United
States to acquire banks or bank holding companies located in Illinois subject to
regulatory determinations that the laws of the other state permit Illinois bank
holding companies to acquire banks and bank holding companies within that state
on qualifications and conditions not unduly restrictive compared to those
imposed by Illinois law. Subject to these regulatory determinations, the
Corporation may acquire banks and bank holding companies in such states, and
bank holding companies in those states may acquire banks and bank holding
companies in Illinois.
Applicable laws also permit the Corporation to acquire banks or bank holding
companies in Arizona, California, Texas, Florida and certain other states.
Illinois law permits an Illinois bank holding company to acquire banks
anywhere in the state. Illinois legislation also now allows Illinois banks to
open branches anywhere within Illinois.
Beginning September 29, 1995 the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Act) permits an adequately capitalized and
adequately managed bank holding company to acquire, with Federal Reserve Board
approval, a bank located in a state other than the bank company's home state,
without regard to whether the transaction is permitted under any state law,
except that a host state may establish by statute the minimum age of its banks
(up to a maximum of 5 years) subject to acquisition by out-of-state bank holding
companies. The Federal Reserve Board may not approve the acquisition if the
applicant bank holding company, upon consummation, would control more than 10%
of total U.S. insured depository institution deposits or more than 30% of the
host state's total insured depository institutions deposits. Effective as of
September 29, 1994, the Interstate Act permits a bank, with the approval of the
appropriate Federal bank regulatory agency, to establish a de novo branch in a
state, other than the bank's home state, in which the bank does not presently
maintain a branch if the host state has enacted a law that applies equally to
all banks and expressly permits all out-of-state banks to branch de novo into
the host state. Commencing June 1, 1997, banks having different home states may,
with approval of the appropriate Federal bank regulatory agency, merge across
state lines, unless the home state of a participating bank has opted-out. The
Interstate Act permits as of September 29, 1995 any bank subsidiary of a bank
holding company to receive deposits, renew time deposits, close loans, service
loans and receive payments on loans and other obligations as agent for a bank or
thrift affiliate, whether such affiliate is located in a different state or in
the same state.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) amended the Act to authorize the Federal Reserve Board to allow bank
holding companies to acquire any savings association (whether healthy, failed or
failing) and removed "tandem operations" restrictions, which previously
prohibited savings associations from being operated in tandem with a bank
holding company's other subsidiaries. As a result, bank holding companies now
have expanded opportunities to acquire savings associations.
Under FIRREA, an insured depository institution which is commonly controlled
with another insured depository institution shall generally be liable for any
loss incurred, or reasonably anticipated to be incurred, by the Federal Deposit
Insurance Corporation (FDIC) in connection with the default of such commonly
controlled institution, or for any assistance
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provided by the FDIC to such commonly controlled institution, which is in danger
of default. The term "default" is defined to mean the appointment of a
conservator or receiver for such institution. Thus, any of the Corporation's
banking subsidiaries could incur liability to the FDIC pursuant to this
statutory provision in the event of a loss suffered by the FDIC in connection
with any of the Corporation's other banking subsidiaries (whether due to a
default or the provision of FDIC assistance). Although neither the Corporation
nor any of its nonbanking subsidiaries may be assessed for such loss under
FIRREA, the Corporation has agreed to indemnify each of its banking
subsidiaries, other than the Bank, for any payments a banking subsidiary may be
liable to pay to the FDIC pursuant to the provisions of FIRREA.
The Bank is a member of the Federal Reserve System, its deposits are insured
by the FDIC and it is subject to regulation by both these entities, as well
as by the Illinois Commissioner of Banks and Trust Companies. The Bank is also
a member of and subject to the rules of the Chicago Clearinghouse Association,
and is registered as a government securities dealer in accordance with the
Government Securities Act of 1986. As a government securities dealer its
activities are subject to the rules and regulations of the Department of the
Treasury. The Bank is registered as a transfer agent with the Federal Reserve
and is therefore subject to the rules and regulations of the Federal Reserve.
The national bank subsidiaries are members of the Federal Reserve System and
the FDIC and are subject to regulation by the Comptroller of the Currency.
Northern Trust Bank/DuPage, a state chartered institution that is not a member
of the Federal Reserve System, is regulated by the FDIC and the Illinois
Commissioner of Banks and Trust Companies.
The Corporation's nonbanking affiliates are all subject to examination by the
Federal Reserve. In addition, The Northern Trust Company of New York is subject
to regulation by the Banking Department of the State of New York. Northern
Futures Corporation is registered as a futures commission merchant with the
Commodity Futures Trading Commission, is a member of the National Futures
Association, the Chicago Board of Trade and the Board of Trade Clearing
Corporation, and is a clearing member of the Chicago Mercantile Exchange.
Northern Trust Securities, Inc. is registered with the Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc., and, as such, is subject to the rules and regulations of both these
bodies. Berry, Hartell, Evers & Osborne, Inc. is registered with the Securities
and Exchange Commission under the Investment Advisers Act of 1940 and is subject
to that Act and the rules and regulations of the Commission promulgated
thereunder. Two families of mutual funds for which the Bank acts as investment
adviser are also subject to regulation by the Securities and Exchange Commission
under the Investment Company Act. Various other subsidiaries and branches
conduct business in other states and foreign countries and, therefore, may be
subject to their regulations and restrictions.
The Corporation and its subsidiaries are affiliates within the meaning of the
Federal Reserve Act so that the banking subsidiaries are subject to certain
restrictions with respect to loans to the Corporation or its nonbanking
subsidiaries and certain other transactions with them or involving their
securities.
Information regarding dividend restrictions on banking subsidiaries is
incorporated herein by reference to Note 12 titled Restrictions on Subsidiary
Dividends and Loans or Advances on page 59 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1994.
Under the FDIC's risk-based insurance assessment system, each insured bank
is placed in one of nine risk categories based on its level of capital and
other relevant information. Each insured bank's insurance assessment rate is
then determined by the risk category in which it has been classified by the
FDIC. There is an eight basis point spread between the highest and lowest
assessment rates, so that banks classified as strongest by the FDIC are subject
to a rate of .23%, and banks classified as weakest by the FDIC are subject to a
rate of .31%. The FDIC is prohibited from lowering the average assessment rate
below .23% until the Bank Insurance Fund (Fund) has reached a reserve ratio of
1.25%. The FDIC currently estimates the Fund will achieve the designated reserve
ratio in 1995 and has proposed significant reductions in assessment rates.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
substantially revised the bank regulatory and funding provisions of the Federal
Deposit Insurance Act and made revisions to several other federal banking
statutes. In general, FDICIA subjects banks to significantly increased
regulation and supervision. Among other things, FDICIA requires federal bank
regulatory authorities to take "prompt corrective action" with respect to banks
that do not meet minimum capital requirements, and imposes certain restrictions
upon banks which meet minimum capital requirements but are not "well
capitalized" for purposes of FDICIA. FDICIA and the regulations adopted under it
establish five capital categories as follows, with the category for any
institution determined by the lowest of any of these ratios:
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Tier 1 Tier 1 Total
Leverage Ratio Risk-Based Ratio Risk-Based Ratio
-------------- ---------------- ----------------
Well Capitalized 5% or above 6% or above 10% or above
Adequately Capitalized 4% or above* 4% or above 8% or above
Undercapitalized Less than 4% Less than 4% Less than 8%
Significantly Undercapitalized Less than 3% Less than 3% Less than 6%
Critically Undercapitalized - - 2% or below
*3% for banks with the highest CAMEL (supervisory) rating.
An insured depository institution may be deemed to be in a capital
category that is lower than is indicated by the capital position reflected on
its balance sheet if it receives an unsatisfactory rating by its examiners with
respect to its assets, management, earnings or liquidity. Although a bank's
capital categorization thus depends upon factors in addition to the balance
sheet ratios in the table above, the Corporation has set capital goals for each
of its subsidiary banks that would allow each bank to meet the minimum ratios
that are one of the conditions for it to be considered to be well capitalized.
At December 31, 1994, the Bank and each of the other subsidiary banks met or
exceeded these goals. The capital ratios are disclosed and discussed on page 44
of the Corporation's Annual Report to Stockholders for the year ended December
31, 1994.
Under FDICIA, a bank that is not well capitalized is generally prohibited from
accepting or renewing brokered deposits and offering interest rates on deposits
significantly higher than the prevailing rate in its normal market area or
nationally (depending upon where the deposits are solicited); in addition, "pass
through" insurance coverage may not be available for certain employee benefit
accounts.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized banks are subject to limitations on growth
and are required to submit a capital restoration plan, which must be guaranteed
by the institution's parent company. Institutions that fail to submit an
acceptable plan, or that are significantly undercapitalized, are subject to a
host of more drastic regulatory restrictions and measures.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions or depository institutions' holding companies relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses and other standards as they deem appropriate. Many
regulations implementing these directives have been proposed and adopted by the
agencies.
FDICIA also contains a variety of other provisions that may affect the
operations of a bank, including new reporting requirements, regulatory standards
for real estate lending, "truth in savings" provisions and a requirement that a
depository institution give 90 days' prior notice to customers and regulatory
authorities before closing any branch.
STAFF
Northern Trust employed 6,608 full-time equivalent officers and staff members
as of December 31, 1994, approximately 4,800 of whom were employed by the Bank.
================================================================================
9
<PAGE>
================================================================================
STATISTICAL DISCLOSURES
The following statistical disclosures, included in the Corporation's Annual
Report to Stockholders for the year ended December 31, 1994, are incorporated
herein by reference.
1994
ANNUAL REPORT
SCHEDULE PAGE(S)
___________________________________________________ _____________
Foreign Outstandings.............................. ......... 37
Nonperforming Assets and 90 Day Past Due Loans.... ......... 37
Analysis of Reserve for Credit Losses............. ......... 38
Average Balance Sheet............................. ......... 72
Ratios............................................ ......... 72
Analysis of Net Interest Income................... .... 74 & 75
___________________________________________________ _____________
Additional statistical information on a consolidated basis is set forth below.
REMAINING MATURITY AND AVERAGE YIELD OF SECURITIES HELD TO MATURITY AND
AVAILABLE FOR SALE
(Yield on a taxable equivalent basis giving effect of the federal and state tax
rates)
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years Over Ten Years
---------------- ----------------- ----------------- --------------- Average
($ in Millions) Book Yield Book Yield Book Yield Book Yield Maturity
------------------------------------ -------- ----- -------- ------ -------- ----- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Held to Maturity
U.S. Government $ 137.2 5.79% $ -- --% $ -- --% $ -- --% 3 mos.
Obligations of States and
Political Subdivisions 103.7 12.87 155.4 11.79 137.1 10.93 78.3 9.56 64 mos.
Other--Fixed 7.7 8.64 2.7 9.69 .2 10.52 16.6 6.05 79 mos.
--Floating .2 8.00 2.0 8.00 .2 8.00 -- -- 36 mos.
------------------------------------ -------- ----- ------ ----- ------ ----- ------ ----- --------
Total Securities Held to Maturity $ 248.8 8.83% $160.1 11.70% $137.5 10.92% $ 94.9 8.95% 52 mos.
------------------------------------ -------- ----- ------ ----- ------ ----- ------ ----- --------
Securities Available for Sale
U.S. Government $ 459.1 4.89% $342.2 5.08% $ -- --% $ -- --% 12 mos.
Federal Agency 2,861.7 6.30 304.6 6.21 83.0 6.14 2.2 6.14 6 mos.
Other--Fixed 54.7 4.99 67.5 5.28 -- -- -- -- 15 mos.
--Floating 30.6 6.73 11.1 6.25 6.4 6.18 184.7 6.79 114 mos.
------------------------------------ -------- ----- ------ ----- ------ ----- ------ ----- --------
Total Securities Available for Sale $3,406.1 6.09% $725.4 5.58% $ 89.4 6.14% $186.9 6.78% 13 mos.
------------------------------------ -------- ----- ------ ----- ------ ----- ------ ----- --------
December 31, 1993
------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years Over Ten Years
---------------- ----------------- ----------------- --------------- Average
($ in Millions) Book Yield Book Yield Book Yield Book Yield Maturity
------------------------------------ -------- ----- -------- ------ -------- ----- -------- ----- ---------
Securities Held to Maturity
U.S. Government $1,934.4 3.61% $364.7 4.37% $ 44.6 5.60% $ -- --% 8 mos.
Obligations of States and
Political Subdivisions 42.9 12.03 204.9 12.44 144.3 11.21 101.4 10.19 68 mos.
Federal Agency 405.6 3.59 388.0 3.91 38.2 3.76 1.3 3.76 19 mos.
Other--Fixed 21.5 6.64 12.3 4.60 .2 10.40 16.6 6.05 50 mos.
--Floating 27.2 4.15 28.0 4.12 4.4 4.08 10.3 8.72 43 mos.
------------------------------------ -------- ----- ------ ----- ------ ----- ------ ----- --------
Total Securities Held to Maturity $2,431.6 3.78% $997.9 5.84% $231.7 8.76% $129.6 9.48% 19 mos.
------------------------------------ -------- ----- ------ ----- ------ ----- ------ ----- --------
Total Securities Available for Sale* $ 11.2 7.24% $ 25.5 6.73% $ 18.5 6.68% $156.4 4.56% 111 mos.
------------------------------------ -------- ----- ------ ----- ------ ----- ------ ----- --------
</TABLE>
================================================================================
*Prior to 1994, securities shown as Available for Sale were classified as Held
for Sale and carried at the lower of cost or fair value.
================================================================================
10
<PAGE>
================================================================================
<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY AND AVAILABLE FOR SALE
December 31
---------------------------------------------------------
(In Millions) 1994 1993 1992 1991 1990
--------------------------------------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Securities Held to Maturity
U.S. Government $ 137.2 $2,343.7 $1,522.8 $1,822.2 $ 295.0
Obligations of States and Political Subdivisions 474.5 493.5 508.5 526.1 535.5
Federal Agency -- 833.1 559.2 293.1 563.5
Other 29.6 120.5 189.0 473.3 800.4
--------------------------------------------------------------- -------- -------- -------- -------- --------
Total Securities Held to Maturity $ 641.3 $3,790.8 $2,779.5 $3,114.7 $2,194.4
--------------------------------------------------------------- -------- -------- -------- -------- --------
Securities Available for Sale
U.S. Government $ 801.3 $ -- $ 227.6 $ -- $ --
Federal Agency 3,251.5 40.9 46.1 -- --
Other 355.0 170.7 126.4 -- --
--------------------------------------------------------------- -------- -------- -------- -------- --------
Total Securities Available for Sale $4.407.8 $ 211.6 $ 400.1 $ -- $ --
--------------------------------------------------------------- -------- -------- -------- -------- --------
Average Total Securities $5,000.9 $4,232.0 $3,190.3 $2,499.8 $2,396.6
--------------------------------------------------------------- -------- -------- -------- -------- --------
Total Securities at Year-End $5,053.1 $4,038.7 $3,181.2 $3,174.9 $2,229.6
--------------------------------------------------------------- -------- -------- -------- -------- --------
==============================================================================================================================
LOANS AND LEASES BY TYPE
December 31
---------------------------------------------------------
(In Millions) 1994 1993 1992 1991 1990
--------------------------------------------------------------- --------- -------- -------- -------- --------
Domestic
Commercial $2,672.0 $2,421.1 $2,409.0 $2,719.4 $2,596.0
Broker 274.6 249.4 336.3 336.0 83.2
Residential Real Estate 3,299.1 2,883.3 2,372.8 1,793.6 1,472.1
Commercial Real Estate 494.1 506.5 511.2 515.0 608.0
Consumer 662.1 617.5 505.9 449.7 334.3
Other 642.1 453.5 392.0 37.2 92.4
Lease Financing 159.9 138.4 135.2 120.7 97.4
--------------------------------------------------------------- -------- -------- -------- -------- --------
Total Domestic 8,203.9 7,269.7 6,662.4 5,971.6 5,283.4
International 386.7 353.3 273.5 308.1 252.9
--------------------------------------------------------------- -------- -------- -------- -------- --------
Total Loans and Leases $8,590.6 $7,623.0 $6,935.9 $6,279.7 $5,536.3
--------------------------------------------------------------- -------- -------- -------- -------- --------
Average Loans and Leases $8,316.1 $7,297.1 $6,452.9 $6,199.4 $5,847.7
--------------------------------------------------------------- -------- -------- -------- -------- --------
==============================================================================================================================
REMAINING MATURITY OF SELECTED LOANS AND LEASES
December 31, 1994
---------------------------------------------------
One Year One to Over Five
(In Millions) Total or Less Five Years Years
--------------------------------------------------------------- -------- --------- ---------- ---------
Domestic (Excluding Residential Real Estate and Consumer Loans)
Commercial $2,672.0 $1,911.0 $614.5 $146.5
Commercial Real Estate 494.1 187.1 238.8 68.2
Other 916.7 903.4 11.2 2.1
Lease Financing 159.9 27.7 78.2 54.0
--------------------------------------------------------------- -------- -------- ------ ------
Total Domestic 4,242.7 3,029.2 942.7 270.8
International 386.7 345.6 36.4 4.7
--------------------------------------------------------------- -------- -------- ------ ------
Total Selected Loans and Leases $4,629.4 $3,374.8 $979.1 $275.5
--------------------------------------------------------------- -------- -------- ------ ------
Interest Rate Sensitivity of Loans and Leases
Fixed Rate $3,451.5 $2,588.9 $647.0 $215.6
Variable Rate 1,177.9 785.9 332.1 59.9
--------------------------------------------------------------- -------- -------- ------ ------
Total $4,629.4 $3,374.8 $979.1 $275.5
--------------------------------------------------------------- -------- -------- ------ ------
=========================================================================================================================
=========================================================================================================================
</TABLE>
11
<PAGE>
===============================================================================
AVERAGE DEPOSITS BY TYPE
<TABLE>
<CAPTION>
(In Millions) 1994 1993 1992 1991 1990
---------------------------------------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Domestic Offices
Demand and Noninterest-Bearing
Individuals, Partnerships and Corporations $ 1,540.4 $ 1,487.5 $1,354.1 $1,191.8 $1,126.4
Correspondent Banks 192.2 201.1 199.6 182.9 188.6
Other 859.9 866.3 322.3 261.1 282.2
---------------------------------------------- ---------- ---------- --------- --------- ---------
Total $ 2,592.5 $ 2,554.9 $1,876.0 $1,635.8 $1,597.2
---------------------------------------------- ---------- ---------- --------- --------- ---------
Time
Savings and Money Market Deposits $ 3,385.7 $ 3,432.1 $3,372.2 $3,208.1 $2,975.9
Savings Certificates less than $100,000 699.9 668.6 732.6 835.7 790.0
Savings Certificates $100,000 and more 529.7 504.3 638.2 734.0 666.9
Other Certificates 412.8 404.7 493.9 533.1 520.8
---------------------------------------------- ---------- ---------- --------- --------- ---------
Total $ 5,028.1 $ 5,009.7 $5,236.9 $5,310.9 $4,953.6
---------------------------------------------- ---------- ---------- --------- --------- ---------
Total Domestic Offices $ 7,620.6 $ 7,564.6 $7,112.9 $6,946.7 $6,550.8
---------------------------------------------- ---------- ---------- --------- --------- ---------
Foreign Offices
Demand $ 361.7 $ 65.3 $ 56.2 $ 41.8 $ 81.8
Time 3,284.8 2,436.4 1,815.6 1,100.6 1,105.6
---------------------------------------------- ---------- ---------- --------- --------- ---------
Total Foreign Offices $ 3,646.5 $ 2,501.7 $1,871.8 $1,142.4 $1,187.4
---------------------------------------------- ---------- ---------- --------- --------- ---------
Total Deposits $11,267.1 $10,066.3 $8,984.7 $8,089.1 $7,738.2
---------------------------------------------- ---------- ---------- --------- --------- ---------
====================================================================================================================
</TABLE>
AVERAGE RATES PAID ON TIME DEPOSITS BY TYPE
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------------------------------------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Time Deposits
Savings and Money Market Deposits 2.52% 2.30% 2.94% 4.96% 6.54%
Savings Certificates less than $100,000 4.77 4.61 5.46 6.47 7.76
Savings Certificates $100,000 and more 4.45 3.91 4.68 6.85 8.05
Other Certificates 4.50 3.88 5.15 7.19 8.18
---------------------------------------------- ---------- ---------- --------- --------- ---------
Total Domestic Offices 3.20 2.89 3.71 5.68 7.11
---------------------------------------------- ---------- ---------- --------- --------- ---------
Total Foreign Offices Time 4.18 3.71 5.27 8.05 9.90
---------------------------------------------- ---------- ---------- --------- --------- ---------
Total Time Deposits 3.58% 3.16% 4.11% 6.09% 7.62%
---------------------------------------------- ---------- ---------- --------- --------- ---------
====================================================================================================================
</TABLE>
REMAINING MATURITY OF TIME DEPOSITS $100,000 AND MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1994 December 31, 1993
------------------------------------ -----------------------------------
DOMESTIC OFFICES Domestic Offices
----------------------- -----------------------
CERTIFICATES OTHER FOREIGN Certificates Other Foreign
(In Millions) OF DEPOSIT TIME OFFICES of Deposit Time Offices
--------------------------------- ------------- ------ -------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
3 Months or Less $ 515.2 $ 2.0 $3,806.1 $399.1 $ 1.0 $2,716.6
Over 3 through 6 Months 162.4 1.5 40.7 163.1 2.2 18.2
Over 6 through 12 Months 137.9 4.0 7.7 95.9 2.0 4.4
Over 12 Months 172.8 7.6 3.6 140.2 5.3 --
--------------------------------- ------------- ------ -------- ------------- ------ ---------
Total $ 988.3 $15.1 $3,858.1 $798.3 $10.5 $2,739.2
--------------------------------- ============= ====== ======== ------------- ------ ---------
======================================================================================================================
</TABLE>
12
<PAGE>
================================================================================
<TABLE>
<CAPTION>
PURCHASED FUNDS
Federal Funds Purchased
(Overnight Borrowings)
($ in Millions) 1994 1993 1992
---------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Balance on December 31 $ 972.0 $1,215.8 $2,034.2
Highest Month-End Balance 1,595.9 2,311.5 2,034.2
Year--Average Balance 1,350.7 1,692.5 1,540.2
--Average Rate 4.11% 3.02% 3.47%
Average Rate at Year-End 4.26 2.82 3.12
---------------------------------------------- -------- -------- --------
Securities Sold under Agreements to Repurchase
($ in Millions) 1994 1993 1992
---------------------------------------------- -------- -------- --------
Balance on December 31 $2,216.9 $ 602.2 $ 282.3
Highest Month-End Balance 2,777.1 1,571.2 1,052.2
Year--Average Balance 1,444.3 664.4 542.9
--Average Rate 4.28% 3.00% 3.65%
Average Rate at Year-End 5.08 2.81 3.18
---------------------------------------------- -------- -------- --------
Other Borrowings
(Includes Treasury Tax and Loan Demand Notes
and Term Federal Funds Purchased)
($ in Millions) 1994 1993 1992
---------------------------------------------- -------- -------- --------
Balance on December 31 $ 833.6 $2,001.2 $ 672.8
Highest Month-End Balance 2,982.2 2,620.7 1,782.8
Year--Average Balance 864.5 868.9 526.6
--Average Rate 3.75% 2.83% 3.45%
Average Rate at Year-End 4.83 2.85 2.61
---------------------------------------------- -------- -------- --------
Total Purchased Funds
($ in Millions) 1994 1993 1992
---------------------------------------------- -------- -------- --------
Balance on December 31 $4,022.5 $3,819.2 $2,989.3
Year--Average Balance 3,659.5 3,225.8 2,609.7
--Average Rate 4.09% 2.96% 3.50%
---------------------------------------------- -------- -------- --------
================================================================================
Commercial Paper
($ in Millions) 1994 1993 1992
---------------------------------------------- -------- -------- --------
Balance on December 31 $123.8 $124.1 $127.0
Highest Month-End Balance 172.3 167.6 163.1
Year--Average Balance 138.1 131.5 132.9
--Average Rate 4.31% 3.23% 3.88%
Average Rate at Year-End 5.73 3.19 3.62
---------------------------------------------- -------- -------- --------
================================================================================
</TABLE>
================================================================================
13
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
CHANGES IN NET INTEREST INCOME
1994/93 1993/92
------------------------------ ------------------------------
Change Due To Change Due To
(Interest on a taxable equivalent basis) ------------------- -------------------
(In Millions) Volume Rate Total Volume Rate Total
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) In Interest Income
Money Market Assets
Federal Funds Sold and Repurchase Agreements $ 3.0 $ 2.4 $ 5.4 $ (2.2) $ (1.1) $ (3.3)
Time Deposits with Banks 5.0 6.3 11.3 14.9 (24.0) (9.1)
Other 2.0 .6 2.6 (1.1) (.9) (2.0)
Securities
U.S. Government (35.9) 7.2 (28.7) 34.6 (22.4) 12.2
Obligations of States and Political Subdivisions (4.2) (1.6) (5.8) (1.6) 1.0 (.6)
Federal Agency 76.3 8.2 84.5 9.7 (3.9) 5.8
Other 4.8 1.2 6.0 (4.8) (4.5) (9.3)
Trading Account 2.0 .1 2.1 1.0 .2 1.2
Loans and Leases 61.7 2.5 64.2 51.2 (60.0) (8.8)
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total $114.7 $26.9 $141.6 $101.7 $(115.6) $(13.9)
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Increase (Decrease) In Interest Expense
Deposits
Savings and Money Market Deposits $ (1.2) $ 7.7 $ 6.5 $ 1.4 $(21.7) $(20.3)
Savings Certificates 2.6 3.8 6.4 (8.5) (10.9) (19.4)
Other Time .4 2.5 2.9 (3.4) (6.3) (9.7)
Foreign Offices Time 35.5 11.3 46.8 23.0 (28.3) (5.3)
Federal Funds Purchased (14.0) 18.4 4.4 4.6 (7.0) (2.4)
Repurchase Agreements 33.4 8.5 41.9 3.7 (3.5) .2
Commercial Paper .2 1.4 1.6 (.1) (.8) (.9)
Other Borrowings (.2) 8.0 7.8 9.7 (3.2) 6.5
Senior Medium-Term Notes 9.9 5.5 15.4 15.5 (.1) 15.4
Notes Payable (.3) -- (.3) 3.0 (.7) 2.3
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total 66.3 67.1 133.4 48.9 (82.5) (33.6)
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Increase (Decrease) In Net Interest Income $ 48.4 $(40.2) $ 8.2 $52.8 $(33.1) $ 19.7
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Note: Changes not due only to volume changes or rate changes are included in the change due to volume column.
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL OPERATIONS (BASED ON OBLIGOR'S DOMICILE)
See also Note 21 titled International Operations on pages 66 and 67 of the Corporation's Annual Report to Stockholders
for the year ended December 31, 1994, which is incorporated herein by reference.
Selected Average Assets and Liabilities Attributable to International Operations
(In Millions) 1994 1993 1992 1991 1990 1989
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Assets $2,820.5 $2,328.8 $2,033.0 $1,709.2 $1,297.5 $1,007.4
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Time Deposits with Banks 2,063.1 1,956.7 1,618.6 1,323.4 889.1 582.1
Other Money Market Assets .4 .9 38.8 3.2 2.7 7.8
Loans 445.5 279.9 287.6 299.4 310.0 327.4
Customers' Acceptance Liability 3.0 4.8 3.8 10.2 11.2 18.3
Foreign Investments 21.6 29.8 31.4 30.3 30.8 26.2
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total Liabilities $4,089.4 $2,715.0 $2,125.3 $1,278.2 $1,364.0 $1,133.9
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Deposits 4,010.6 2,706.2 2,099.0 1,214.7 1,287.5 1,032.0
Liability on Acceptances 3.0 4.8 3.8 10.3 11.2 18.3
----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
====================================================================================================================================
====================================================================================================================================
</TABLE>
14
<PAGE>
================================================================================
PERCENT OF INTERNATIONAL RELATED AVERAGE ASSETS AND LIABILITIES TO TOTAL
CONSOLIDATED AVERAGE ASSETS
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Assets 16% 15% 15% 14% 11%
----------------------------- -------- -------- -------- -------- --------
Liabilities 23 17 16 11 12
----------------------------- -------- -------- -------- -------- --------
================================================================================
</TABLE>
RESERVE FOR CREDIT LOSSES RELATING TO INTERNATIONAL OPERATIONS
<TABLE>
<CAPTION>
(In Millions) 1994 1993 1992 1991 1990
----------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $ 6.7 $5.3 $ 6.9 $7.0 $ 21.3
Charge-Offs -- (.6) (6.0) -- (1.1)
Recoveries -- .1 .4 .1 2.2
Provision for Credit Losses (2.1) 1.9 4.0 (.2) (15.4)
----------------------------- -------- -------- -------- -------- --------
Balance at End of Year $ 4.6 $6.7 $ 5.3 $6.9 $ 7.0
----------------------------- -------- -------- -------- -------- --------
</TABLE>
The Securities and Exchange Commission requires the disclosure of the reserve
for credit losses that is applicable to international operations. The above
table has been prepared in compliance with this disclosure requirement and is
used in determining international operating performance. In 1990 the remaining
$13.1 million of the reserve designated for loans to less developed countries
was transferred to the general unallocated portion of the reserve for credit
losses. The amounts shown in the table should not be construed as being the only
amounts that are available for international loan charge-offs, since the entire
reserve for credit losses is available to absorb losses on both domestic and
international loans. In addition, these amounts are not intended to be
indicative of future charge-off trends.
================================================================================
DISTRIBUTION OF INTERNATIONAL LOANS AND DEPOSITS BY TYPE
<TABLE>
<CAPTION>
December 31
------------------------------------------------
Loans 1994 1993 1992 1991 1990
----------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial $ 233.8 $157.9 $122.3 $166.9 $146.0
Foreign Governments and
Official Institutions 72.8 47.1 26.4 27.3 10.7
Banks 77.0 145.9 121.9 113.8 95.9
Other 3.1 2.4 2.9 .1 .3
----------------------------- -------- -------- -------- -------- --------
Total $ 386.7 $353.3 $273.5 $308.1 $252.9
----------------------------- -------- -------- -------- -------- --------
December 31
------------------------------------------------
Deposits 1994 1993 1992
----------------------------- -------- -------- --------
Commercial $2,817.2 $2,378.0 $1,195.1
Foreign Governments and
Official Institutions 803.8 263.2 353.6
Banks 485.2 410.8 367.8
Other Time 182.4 200.4 159.2
Other Demand 8.4 6.6 80.3
----------------------------- -------- -------- --------
Total $4,297.0 $3,259.0 $2,156.0
----------------------------- -------- -------- --------
================================================================================
</TABLE>
================================================================================
15
<PAGE>
================================================================================
CREDIT RISK MANAGEMENT
Overview
The Credit Policy function reports to the Chief Financial Officer.
Credit Policy provides a system of checks and balances for Northern Trust's
diverse credit-related activities by establishing and monitoring all credit-
related policies and practices and ensuring their uniform application. These
activities are designed to ensure that credit exposure is diversified on an
industry and client basis, thus lessening the overall credit risk.
Individual credit authority for commercial loans and within Personal
Financial Services is limited to specified amounts and maturities. Credit
decisions involving commitment exposure in excess of the specified individual
limits are submitted to the appropriate Group Credit Approval Committee
(Committee). Each Committee is chaired by the executive in charge of the area
and has a Credit Policy officer as a voting participant. Each Committee's credit
approval authority is specified, based on commitment levels, credit ratings and
maturities. Credits involving commitment exposure in excess of these group
credit limits require, dependent upon the internal credit rating, the approval
of the Credit Policy Credit Approval Committee, the head of Credit Policy, or
the business unit head.
Credit Policy established the Counterparty Risk Management Committee
in order to manage counterparty risk more effectively. This committee has sole
credit authority for exposure to all foreign banks, certain domestic banks
which Credit Policy deems to be counterparties and which do not have commercial
credit relationships within the Corporation, and other organizations which
Credit Policy deems to be counterparties.
Under the auspices of Credit Policy, country exposure limits are
reviewed and approved on a country-by-country basis.
As part of the Corporation's ongoing credit granting process, internal
credit ratings are assigned to each client and credit before credit is extended,
based on creditworthiness. Credit Policy performs at least annually a review of
selected significant credit exposures to identify at the earliest possible
stages clients who might be facing financial difficulties. Internal credit
ratings are also reviewed during this process. Above average risk loans, which
will vary from time to time, receive special attention by both lending officers
and Credit Policy. This approach allows management to take remedial action in an
effort to deal with potential problems.
An integral part of the Credit Policy function is a monthly formal
review of all past due and potential problem loans to determine which credits,
if any, need to be placed on nonaccrual status or charged off. The provision
is reviewed quarterly to determine the amount necessary to maintain an adequate
reserve for credit losses.
Management of credit risk is reviewed by various bank regulatory
agencies. Independent auditors also perform a review of credit-related
procedures, the loan portfolio and other extensions of credit, and the reserve
for credit losses as part of their audit of the consolidated financial
statements.
Allocation of the Reserve for Credit Losses
The reserve for credit losses is established and maintained on an
overall basis and in practice is not specifically allocated to specific loans or
segments of the portfolio. Thus, the reserve is available to absorb credit
losses from all loans, leases and credit related exposures. Bank disclosure
guidelines issued by the Securities and Exchange Commission request management
to furnish a breakdown of the reserve for credit losses by loan category and
provide the percentage of loans in each category to total loans.
In prior years, the allocation of the reserve represented an estimate of
the amount that was necessary to provide for potential losses related to
specific nonperforming loans only. Beginning in 1994, the methodology was
revised to allocate the reserve for credit losses associated with all loans,
leases and commitments based on historical loss experience, internal credit
ratings and specific amounts designated for certain above average risk loans.
This allocation method should not be interpreted as an indication of expected
losses within the next year or any specified time period.
================================================================================
16
<PAGE>
================================================================================
As required by the Securities and Exchange Commission, the following
tables break down the reserve for credit losses at December 31, 1990 through
1994:
Reserve for Credit Losses
<TABLE>
<CAPTION>
(In Millions) 1994
--------------------------------------- ------
<S> <C>
Allocated Reserve
Commercial $ 86.0
Residential Real Estate 5.0
Commercial Real Estate 12.0
Consumer 6.0
International 3.0
Unallocated Reserve 32.8
--------------------------------------- ------
Total Reserve $144.8
--------------------------------------- ------
================================================================================
</TABLE>
Reserve for Credit Losses
<TABLE>
<CAPTION>
(In Millions) 1993 1992 1991 1990
---------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Allocated Reserve on Nonperforming Loans $ .2 $ 11.0 $ 5.3 $ 8.7
Unallocated Reserve 145.3 134.5 140.4 139.3
---------------------------------------- ------ ------ ------ ------
Total Reserve $145.5 $145.5 $145.7 $148.0
--------------------------------------- ------ ------ ------ ------
================================================================================
</TABLE>
Loan and lease categories as a percent of total loans and leases as
of December 31, 1990 through 1994, are presented below.
Loan and Lease Category to Total Loans and Leases
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Loan and Lease Category
Commercial 32% 33% 37% 45% 49%
Residential Real Estate 38 38 34 29 27
Commercial Real Estate 6 7 7 8 11
Consumer 8 8 7 7 6
Other 11 9 11 6 3
International 5 5 4 5 4
--------------------------------------- ------ ------ ------ ------ ------
Total 100% 100% 100% 100% 100%
--------------------------------------- ------ ------ ------ ------ ------
================================================================================
</TABLE>
================================================================================
17
<PAGE>
================================================================================
The information presented in the "Credit Risk Management" section should
be read in conjunction with the following information that is incorporated
herein by reference to the Corporation's Annual Report to Stockholders for the
year ended December 31, 1994:
1994
Annual Report
Notes to Consolidated Financial Statements Page(s)
---------------------------------------------------------------- -------------
1. Accounting Policies
D. Interest Risk Management Instruments..................... ...........50
E. Loans and Leases......................................... ......50 & 51
F. Reserve for Credit Losses................................ ...........51
I. Other Real Estate Owned.................................. ...........51
4. Loans and Leases............................................ ...........54
5. Reserve for Credit Losses................................... ...........55
15. Contingent Liabilities...................................... ...........61
17. Off-Balance Sheet Financial Instruments..................... ........63-66
----------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations
----------------------------------------------------------------
Asset Quality and Credit Risk................................... ........34-39
---------------------------------------------------------------- -------------
In addition, the following schedules on page 15 of this Form 10-K should
be read in conjunction with the "Credit Risk Management" section:
Reserve for Credit Losses Relating to International Operations
Distribution of International Loans and Deposits by Type
================================================================================
18
<PAGE>
================================================================================
INTEREST RATE SENSITIVITY ANALYSIS
For the discussion of interest rate sensitivity, see the section
entitled "Asset and Liability Management" on page 41 of Management's Discussion
and Analysis of Financial Condition and Results of Operations of the
Corporation's Annual Report to Stockholders, which is incorporated herein by
reference.
================================================================================
19
<PAGE>
================================================================================
The following unaudited Consolidated Balance Sheet and Consolidated
Statement of Income for The Northern Trust Company were prepared in accordance
with generally accepted accounting principles and are provided here for
informational purposes. These consolidated financial statements should be read
in conjunction with the footnotes accompanying the consolidated financial
statements, included in the Corporation's Annual Report to Stockholders for the
year ended December 31, 1994, and incorporated herein by reference on page 24 of
this report.
The Northern Trust Company
Consolidated Balance Sheet (unaudited)
<TABLE>
<CAPTION>
December 31
---------------------
(In Millions) 1994 1993
------------------------------------------------------- --------- ---------
<S> <C> <C>
Assets
Cash and Due from Banks $ 1,013.8 $ 1,386.6
Money Market Assets
Federal Funds Sold and Securities Purchased under
Agreements to Resell 783.6 551.3
Time Deposits with Banks 1,864.4 2,090.2
Other 45.8 70.7
------------------------------------------------------- --------- ---------
Total 2,693.8 2,712.2
------------------------------------------------------- --------- ---------
Securities (Fair Value $4,161.9 in 1994 and
$3,285.7 in 1993) 4,149.2 3,247.6
Loans and Leases 6,030.5 5,408.3
------------------------------------------------------- --------- ---------
Reserve for Credit Losses (113.7) (114.9)
Buildings and Equipment 200.7 220.0
Customers' Acceptance Liability 53.5 53.1
Trust Security Settlement Receivables 305.7 293.1
Other Assets 402.0 332.1
------------------------------------------------------- --------- ---------
Total Assets $14,735.5 $13,538.1
------------------------------------------------------- --------- ---------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 2,183.8 $ 2,039.0
Savings and Money Market Deposits 1,807.3 1,874.6
Savings Certificates 624.1 521.8
Other Time 151.3 159.0
Foreign Offices --Demand 225.4 297.2
--Time 3,856.4 2,877.8
------------------------------------------------------- --------- ---------
Total Deposits 8,848.3 7,769.4
Federal Funds Purchased 1,046.0 1,300.0
Securities Sold under Agreements to Repurchase 2,075.2 482.7
Other Borrowings 893.3 2,021.2
Senior Medium-Term Notes 545.0 815.0
Notes Payable 209.6 210.0
Liability on Acceptances 53.5 53.1
Other Liabilities 273.9 162.9
------------------------------------------------------- --------- ---------
Total Liabilities 13,944.8 12,814.3
------------------------------------------------------- --------- ---------
Stockholder's Equity
Capital Stock--Par Value $60 198.0 198.0
Surplus 198.0 198.0
Undivided Profits 408.5 327.2
Net Unrealized Loss on Securities (13.8) --
Translation Adjustment -- .6
------------------------------------------------------- --------- ---------
Total Stockholder's Equity 790.7 723.8
------------------------------------------------------- --------- ---------
Total Liabilities and Stockholder's Equity $14,735.5 $13,538.1
------------------------------------------------------- --------- ---------
</TABLE>
================================================================================
20
<PAGE>
THE NORTHERN TRUST COMPANY
CONSOLIDATED STATEMENT OF INCOME (unaudited)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
------------------------------
(In Millions) 1994 1993 1992
------------------------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Interest Income
Money Market Assets
Federal Funds Sold and Securities Purchased under Agreements to Resell $ 11.4 $ 5.6 $ 8.7
Time Deposits with Banks 97.8 86.4 95.4
Other 6.8 2.9 4.5
------------------------------------------------------------------------------ ------ ------ ------
Total 116.0 94.9 108.6
------------------------------------------------------------------------------ ------ ------ ------
Securities 197.1 140.0 123.8
Loans and Leases 328.4 285.0 301.2
------------------------------------------------------------------------------ ------ ------ ------
Total Interest Income 641.5 519.9 533.6
------------------------------------------------------------------------------ ------ ------ ------
Interest Expense
Deposits--Savings and Money Market Deposits 49.8 44.4 58.9
--Savings Certificates 24.4 23.2 34.1
--Other Time 11.2 7.7 14.4
--Foreign Offices 140.1 92.4 97.2
Federal Funds Purchased 57.4 53.1 55.8
Securities Sold under Agreements to Repurchase 57.2 16.6 15.1
Other Borrowings 33.9 27.2 28.1
Senior Medium-Term Notes 33.6 18.3 2.8
Notes Payable 15.6 17.9 12.7
------------------------------------------------------------------------------ ------ ------ ------
Total Interest Expense 423.2 300.8 319.1
------------------------------------------------------------------------------ ------ ------ ------
Net Interest Income 218.3 219.1 214.5
Provision for Credit Losses 4.9 17.4 20.8
------------------------------------------------------------------------------ ------ ------ ------
Net Interest Income after Provision for Credit Losses 213.4 201.7 193.7
------------------------------------------------------------------------------ ------ ------ ------
Noninterest Income
Trust Fees 326.7 297.9 273.3
Security Commissions and Trading Income (.4) (.5) .8
Other Operating Income 143.7 113.2 109.7
Investment Security Gains (Losses) (.1) 1.7 3.4
------------------------------------------------------------------------------ ------ ------ ------
Total Noninterest Income 469.9 412.3 387.2
------------------------------------------------------------------------------ ------ ------ ------
Income before Noninterest Expenses 683.3 614.0 580.9
------------------------------------------------------------------------------ ------ ------ ------
Noninterest Expenses
Salaries 229.1 216.6 198.2
Pension and Other Employee Benefits 55.7 51.5 45.0
Occupancy Expense 39.2 38.8 37.8
Equipment Expense 48.6 33.9 29.6
Other Operating Expenses 124.1 105.7 116.4
------------------------------------------------------------------------------ ------ ------ ------
Total Noninterest Expenses 496.7 446.5 427.0
------------------------------------------------------------------------------ ------ ------ ------
Income before Income Taxes 186.6 167.5 153.9
Provision for Income Taxes (Includes related investment security
transactions tax provision of none in 1994, $.7 in 1993 and $1.3 in 1992) 56.5 46.4 42.4
------------------------------------------------------------------------------ ------ ------ ------
NET INCOME $130.1 $121.1 $111.5
------------------------------------------------------------------------------ ------ ------ ------
Dividends Paid to the Corporation 48.0 44.0 40.0
------------------------------------------------------------------------------ ------ ------ ------
</TABLE>
21
<PAGE>
SUPPLEMENTAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT
DAVID W. FOX
Mr. Fox was elected Chairman of the Board of the Corporation and the Bank in
April 1990, and Chief Executive Officer of the Corporation and the Bank on
December 1989. He held the title of President of the Corporation and the Bank
from 1987 through 1993. Mr. Fox, 63, joined the Bank in 1955.
WILLIAM A. OSBORN
Mr. Osborn was elected President and Chief Operating Officer of the Corporation
and the Bank effective January 1994. He was a Senior Executive Vice President
of the Corporation and the Bank from 1992 through 1993 and prior to that time
had served as an Executive Vice President of the Bank since 1987, and of the
Corporation since 1989. Mr. Osborn, 47, began his career with the Bank in 1970.
BARRY G. HASTINGS
Mr. Hastings was elected Vice Chairman of the Corporation and the Bank effective
January 1994, and is currently head of Personal Financial Services. He was a
Senior Executive Vice President of the Corporation and the Bank from 1992
through 1993 and prior to that time had served as an Executive Vice President of
the Bank since 1987, and of the Corporation since 1990. Mr. Hastings, 47, began
his career with the Corporation in 1974.
J. DAVID BROCK
Mr. Brock became an Executive Vice President of the Corporation and the Bank in
April 1990. Currently, he is responsible for Institutional Financial Services in
the Corporate and Institutional Services Business Unit. From 1990 to 1994, he
was head of Corporate Management Services and the Commercial Banking Services
Group. Mr. Brock, 50, joined the Bank in 1966.
DAVID L. EDDY
Mr. Eddy became a Senior Vice President of the Corporation and the Bank and
Treasurer of the Corporation in 1986. Mr. Eddy, 58, joined the Bank in 1960.
JOHN V. N. McCLURE
Mr. McClure was appointed an Executive Vice President of the Corporation and the
Bank in February 1994, and is currently responsible for strategic expense
management. Previously, he was responsible for Strategic Planning and Marketing.
He served as head of the Private Banking Division of Personal Financial Services
from 1989 to 1991. He had been a Senior Vice President of the Bank since 1986
and of the Corporation since 1991. Mr. McClure, 43, joined the Bank in 1973.
JAMES J. MITCHELL
Mr. Mitchell was appointed an Executive Vice President of the Bank in December
1987 and of the Corporation in October 1994, and is currently head of the
Worldwide Operations Unit. Mr. Mitchell, 52, joined the Bank in 1964.
SHEILA A. PENROSE
Ms. Penrose is an Executive Vice President of the Corporation and the Bank,
and Head of the Corporate and Institutional Services Business Unit. She became
an Executive Vice President of the Corporation in November 1994 and of the
Bank in November 1993, and prior to that time had been Senior Vice President
of the Bank since 1986. Ms. Penrose, 49, began her career with the Bank in
1977.
PERRY R. PERO
Mr. Pero is Chief Financial Officer of the Corporation and the Bank and Cashier
of the Bank. Mr. Pero is also head of the Risk Management Unit and Chairman of
the Corporate Asset and Liability Policy Committee. He became a Senior Executive
Vice President of the Corporation and the Bank in 1992 after serving as an
Executive Vice President of the Corporation and the Bank since 1987. Mr. Pero,
55, joined the Bank in 1964.
PETER L. ROSSITER
Mr. Rossiter was appointed General Counsel of the Corporation and the Bank
in April 1993. He joined the Corporation and the Bank in 1992 as an Executive
Vice President and Associate General Counsel. Mr. Rossiter, 46, had been a
partner in the law firm of Schiff Hardin & Waite from 1979 to 1992.
22
<PAGE>
HARRY W. SHORT
Mr. Short was appointed Senior Vice President and Controller of the Corporation
and the Bank in October 1994. He joined the Corporation and the Bank in January
1990 and served as Senior Vice President and General Auditor. Mr. Short, 46,
had been a partner in the accounting firm of KPMG Peat Marwick from 1982 to
1990.
WILLIAM S. TRUKENBROD
Mr. Trukenbrod was appointed an Executive Vice President of the Corporation and
the Bank in February 1994, and is currently Chairman of the Credit Policy
Committee. Previously, he served as head of the U.S. Corporate Group of
Commercial Banking from 1987 to 1992. He had been a Senior Vice President of the
Bank since 1980 and of the Corporation since 1992. Mr. Trukenbrod, 55, joined
the Bank in 1962.
There is no family relationship between any of the above executive officers
and directors.
The positions of Chairman of the Board and Chief Executive Officer, President
and Vice Chairman are elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of
stockholders. The other officers are appointed annually by the Board. Officers
continue to hold office until their successors are duly elected or unless
removed by the Board.
Mr. Fox has announced his intention to retire on October 3, 1995. The Board of
Directors of the Corporation has approved a succession plan under which Mr.
Osborn will become Chief Executive Officer on June 30, 1995, and Mr. Hastings
will become Chief Operating Officer on that date. Mr. Fox will remain Chairman
until his retirement, whereupon Mr. Osborn will become Chairman as well as Chief
Executive Officer and Mr. Hastings will become President as well as Chief
Operating Officer.
ITEM 2--PROPERTIES
The executive offices of the Corporation and the Bank are located at 50 South
LaSalle Street in the financial district of Chicago. This Bank-owned building is
occupied by various divisions of Northern Trust's business units. Financial
services are provided by the Bank at this location. Adjacent to this building
are two office buildings in which the Bank leases approximately 316,000 square
feet of space for staff divisions of the business units. The Bank also leases
approximately 112,000 square feet of a building at 125 South Wacker Drive in
Chicago for computer facilities, banking operations and personal banking
services. Financial services are also provided by the Bank at five other Chicago
area locations, two of which are owned and three of which are leased. The Bank's
trust and banking operations are located in a 465,000 square foot facility at
801 South Canal Street in Chicago. The building is owned by a developer and
leased by the Corporation. Space for the Bank's London branch, Edge Act
subsidiary and The Northern Company, Canada are leased.
The Corporation's other subsidiaries operate from 45 locations, 10 of which are
owned and 35 of which are leased. Detailed information regarding the addresses
of all Northern Trust's locations can be found on pages 80 and 81 in the
Corporation's Annual Report to Stockholders for the year ended December 31,
1994, which is incorporated herein by reference.
The facilities which are owned or leased are suitable and adequate for business
needs. For additional information relating to properties and lease commitments,
refer to Note 6 titled Buildings and Equipment and Note 7 titled Lease
Commitments on pages 55 and 56 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1994, which information is
incorporated herein by reference.
ITEM 3--LEGAL PROCEEDINGS
The information called for by this item is incorporated herein by reference
to Note 15 titled Contingent Liabilities on page 61 of the Corporation's Annual
Report to Stockholders for the year ended December 31, 1994.
In late November, 1993, the U.S. Department of Justice informed the Corporation
that the Department is investigating the mortgage lending practices of the Bank
and the Corporation's three other Illinois banking subsidiaries, as part of its
responsibility to investigate possible discrimination on the basis of race or
national origin under the Equal Credit Opportunity Act and the Fair Housing Act.
The Corporation believes it has cooperated fully with the Department of Justice
in the investigation, which is still pending.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
23
<PAGE>
===============================================================================
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information called for by this item is incorporated herein by reference
to the section of the Consolidated Financial Statistics titled "Common Stock
Dividend and Market Price" on pages 76 and 77 of the Corporation's Annual Report
to Stockholders for the year ended December 31, 1994.
Information regarding dividend restrictions of the Corporation's banking
subsidiaries is incorporated herein by reference to Note 12 titled "Restrictions
on Subsidiary Dividends and Loans or Advances" on page 59 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1994.
ITEM 6--SELECTED FINANCIAL DATA
The information called for by this item is incorporated herein by reference
to the table titled "Summary of Selected Consolidated Financial Data" on page
26 of the Corporation's Annual Report to Stockholders for the year ended
December 31, 1994.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information called for by this item is incorporated herein by reference
to Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 26 through 45 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1994.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Corporation and its subsidiaries
included in the Corporation's Annual Report to Stockholders for the year ended
December 31, 1994, are incorporated herein by reference.
<TABLE>
<CAPTION>
1994
ANNUAL REPORT
FOR NORTHERN TRUST CORPORATION AND SUBSIDIARIES: PAGE(S)
-------------------------------------------------------------------------------------------------------- -------------
<S> <C>
Consolidated Balance Sheet--December 31, 1994 and 1993.................................................. ...........46
Consolidated Statement of Income--Years Ended December 31, 1994, 1993 and 1992.......................... ...........47
Consolidated Statement of Changes in Stockholders' Equity--Years Ended December 31, 1994, 1993 and 1992. ...........48
Consolidated Statement of Cash Flows--Years Ended December 31, 1994, 1993 and 1992...................... ...........49
-------------------------------------------------------------------------------------------------------- -------------
FOR NORTHERN TRUST CORPORATION (Corporation Only)
-------------------------------------------------------------------------------------------------------- -------------
Condensed Balance Sheet--December 31, 1994 and 1993..................................................... ...........68
Condensed Statement of Income--Years Ended December 31, 1994, 1993 and 1992............................. ...........68
Consolidated Statement of Changes in Stockholders' Equity--Years Ended December 31, 1994, 1993 and 1992. ...........48
Condensed Statement of Cash Flows--Years Ended December 31, 1994, 1993 and 1992......................... ...........69
-------------------------------------------------------------------------------------------------------- -------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................................................. ........50-69
-------------------------------------------------------------------------------------------------------- -------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................................ ...........70
-------------------------------------------------------------------------------------------------------- -------------
</TABLE>
The section titled "Quarterly Financial Data" on pages 76 and 77 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1994, is incorporated herein by reference.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
===============================================================================
24
<PAGE>
===============================================================================
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10, relating to Directors and Nominees
for election to the Board of Directors, is incorporated herein by reference to
pages 2 through 5 of the Corporation's definitive 1995 Notice and Proxy
Statement filed in connection with the solicitation of proxies for the Annual
Meeting of Stockholders to be held April 18, 1995. The information called for by
Item 10 relating to Executive Officers is set forth in Part I of this Annual
Report on Form 10-K.
ITEM 11--EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by reference
to pages 8 and 9 and pages 10 through 17 of the Corporation's definitive 1995
Notice and Proxy Statement filed in connection with the solicitation of proxies
for the Annual Meeting of Stockholders to be held April 18, 1995.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by reference
to pages 6 and 7 of the Corporation's definitive 1995 Notice and Proxy
Statement filed in connection with the solicitation of proxies for the Annual
Meeting of Stockholders to be held April 18, 1995.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by reference
to page 9 of the Corporation's definitive 1995 Notice and Proxy Statement filed
in connection with the solicitation of proxies for the Annual Meeting of
Stockholders to be held April 18, 1995.
===============================================================================
25
<PAGE>
===============================================================================
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
ITEM 14(A)(1) AND (2)--
NORTHERN TRUST CORPORATION AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
The following financial information is set forth in Item 1 for
informational purposes only:
Financial Information of The Northern Trust Company (Bank Only):
Unaudited Consolidated Balance Sheet--December 31, 1994 and 1993.
Unaudited Consolidated Statement of Income--Years Ended December
31, 1994, 1993 and 1992.
The following consolidated financial statements of the Corporation and its
subsidiaries are incorporated by reference into Item 8 from the Corporation's
Annual Report to Stockholders for the year ended December 31, 1994:
Consolidated Financial Statements of Northern Trust Corporation
and Subsidiaries:
Consolidated Balance Sheet--December 31, 1994 and 1993.
Consolidated Statement of Income--Years Ended December 31,
1994, 1993 and 1992.
Consolidated Statement of Changes in Stockholders' Equity--Years
Ended December 31, 1994, 1993 and 1992.
Consolidated Statement of Cash Flows--Years Ended December
31, 1994, 1993 and 1992.
The following financial information is incorporated by reference into
Item 8 from the Corporation's Annual Report to Stockholders for the year ended
December 31, 1994:
Financial Statements of Northern Trust Corporation (Corporation):
Condensed Balance Sheet--December 31, 1994 and 1993.
Condensed Statement of Income--Years Ended December 31, 1994, 1993
and 1992.
Consolidated Statement of Changes in Stockholders' Equity--Years
Ended December 31, 1994, 1993 and 1992.
Condensed Statement of Cash Flows--Years Ended December 31, 1994,
1993 and 1992.
The Notes to Consolidated Financial Statements as of December 31, 1994,
incorporated by reference into Item 8 from the Corporation's Annual Report to
Stockholders for the year ended December 31, 1994, pertain to the Bank only
information, consolidated financial statements and Corporation only information
listed above.
The Report of Independent Public Accountants incorporated by reference into
Item 8 from the Corporation's Annual Report to Stockholders for the year ended
December 31, 1994 pertains to the consolidated financial statements and
Corporation only information listed above.
Financial statement schedules have been omitted for the reason that they
are not required or are not applicable.
ITEM 14(A)3--EXHIBITS
The exhibits listed on the Exhibit Index beginning on page 28 of this Form
10-K are filed herewith or are incorporated herein by reference to other
filings.
ITEM 14(B)--REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Corporation during the quarter
ended December 31, 1994.
===============================================================================
26
<PAGE>
===============================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-K
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 14, 1995 Northern Trust Corporation
(Registrant)
By: David W. Fox
----------------------------------
David W. Fox
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Form 10-K Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
David W. Fox Chairman of the Board,
----------------------------- Chief Executive Officer and Director
David W. Fox
Perry R. Pero Senior Executive Vice President
----------------------------- and Chief Financial Officer
Perry R. Pero
Harry W. Short Senior Vice President and Controller
----------------------------- (Chief Accounting Officer)
Harry W. Short
Worley H. Clark Director
Dolores E. Cross Director
Robert S. Hamada Director
Barry G. Hastings Director
Arthur L. Kelly Director
By: Peter L. Rossiter
Robert D. Krebs Director ------------------------
Peter L. Rossiter
William G. Mitchell Director Attorney-in-Fact
William A. Osborn Director
Harold B. Smith Director
William D. Smithburg Director
Bide L. Thomas Director
Date: March 14, 1995
</TABLE>
===============================================================================
27
<PAGE>
==============================================================================
EXHIBIT INDEX
The following Exhibits are filed herewith or are incorporated herein
by reference.
<TABLE>
<CAPTION>
Exhibit Incorporated
By Reference to
Exhibit of
Same Name in
Exhibit Prior Filing*
Number Description or Filed Herewith
-------- ---------------------------------------------------------------------------- --------------------
<C> <S> <C>
(3) Articles of Incorporation and By-laws
(i) Restated Certificate of Incorporation of Northern Trust Corporation
as amended to date. ................................................ (3)
(ii) By-laws of the Corporation. ........................................ (2)
(4) Instruments Defining the Rights of Security Holders
(i) Deposit Agreement, dated as of February 5, 1992 among Northern Trust
Corporation, Harris Trust & Savings Bank, As Depositary, and the
holders from time to time of the depositary receipts described
therein ............................................................ (1)
(ii) Form of The Northern Trust Company's Senior
Medium-Term Bank Note (Fixed Rate) ................................. (3)
(iii) Form of The Northern Trust Company's Senior
Medium-Term Bank Note (Floating Rate)............................... (3)
(iv) Form of The Northern Trust Company's
Subordinated Medium-Term Bank Note (Fixed Rate)..................... (3)
(v) Form of The Northern Trust Company's
Subordinated Medium-Term Bank Note (Floating Rate).................. (3)
(10) Material Contracts
(i) Trust System Implementation Agreement between The Northern Trust
Company and Andersen Consulting dated as of September 30, 1991...... (1)
(ii) Northern Trust Corporation Amended Incentive Stock Plan,
as amended May 20, 1986**........................................... (4)
(iii) Employment Agreement dated May 21, 1986, between Northern Trust
Corporation and David W. Fox**...................................... (4)
(iv) Form of Employment Security Agreement dated May 23, 1986,
between Northern Trust Corporation and each of 62 officers**........ (4)
(1) Amendment dated December 19, 1986, to Form of
Employment Security Agreement**............................. (5)
(v) Long-Term Performance Stock Plan of Northern Trust Corporation,
as amended April 19, 1988**......................................... (6)
(vi) Lease dated July 1, 1988 between American National Bank & Trust Company
of Chicago as Trustee under Trust Agreement dated February 12, 1986
and known as Trust No. 66603 (Landlord) and Nortrust Realty
Management, Inc. (Tenant)........................................... (6)
(vii) Restated Northern Trust Employee Stock Ownership Plan, dated January
26, 1989 as amended to date......................................... Filed Herewith
(viii) Trust Agreement between The Northern Trust Company and Citizens and
Southern Trust Company (Georgia), N.A., (predecessor of NationsBank)
dated January 26, 1989.............................................. (7)
(ix) Form of Note Agreement dated January 26, 1989 between ESOP
Trust and each of the institutional lenders, with respect to the 8.23%
Notes of the ESOP Trust............................................. (7)
(x) Guaranty Agreement of Registrant with respect to the 8.23% Notes
of the ESOP Trust, dated January 26, 1989........................... (7)
</TABLE>
===============================================================================
28
<PAGE>
==============================================================================
<TABLE>
<CAPTION>
Exhibit Incorporated
By Reference to
Exhibit of
Same Name in
Exhibit Prior Filing*
Number Description or Filed Herewith
-------- ----------------------------------------------------------------------------- ----------------------
<C> <S> <C>
(xi) Share Acquisition Agreement between Registrant and the ESOP Trust,
dated January 26, 1989.............................................. (7)
(xii) Trust Agreement, dated September 14, 1989, between The Northern
Trust Company and Harris Trust & Savings Bank regarding the
Supplemental Employee Stock Ownership Plan for Employees of
The Northern Trust Company, the Supplemental Thrift-Incentive
Plan for Employees of The Northern Trust Company and the
Supplemental Pension Plan for Employees of The Northern
Trust Company**..................................................... (8)
(xiii) Supplemental Employee Stock Ownership Plan for Employees
of The Northern Trust Company**..................................... (8)
(xiv) Supplemental Thrift-Incentive Plan for Employees of The Northern
Trust Company as amended and restated**............................. (8)
(xv) Supplemental Pension Plan for Employees of The Northern Trust
Company as amended and restated**................................... (8)
(xvi) Rights Agreement, dated as of October 17, 1989, between Northern
Trust Corporation and Harris Trust & Savings Bank................... (9)
(xvii) Stock Ownership Program for Non-Employee Directors of the
Corporation, adopted January 15, 1991**............................. (10)
(1) Amendment dated August 20, 1991, to Stock Ownership Program
for Non-Employee Directors of the Corporation**................. (11)
(xviii) Lease dated August 27, 1985 between American National Bank & Trust
Company of Chicago as Trustee under Trust Agreement dated April 5,
1990 and known as Trust No. 110513-07 (Landlord) and The Northern
Trust Company (Tenant), as amended.................................. (10)
(xix) Lease dated July 8, 1987 between American National Bank & Trust
Company of Chicago as Trustee under Trust Agreement dated July 12,
1984 and known as Trust No. 61523 (Landlord) and The Northern
Trust Company (Tenant), as amended.................................. (10)
(xx) 1992 Incentive Stock Plan**......................................... (12)
(1) Amendment dated February 21, 1995, to 1992 Incentive
Stock Plan**.................................................... Filed Herewith
(xxi) Amendments, dated December 21, 1993, to The Northern Trust Company
Employee Stock Ownership Plan, Supplemental Pension Plan for
Employees of The Northern Trust Company, and Supplemental
Thrift-Incentive Plan for Employees of the Northern Trust Company... (14)
(xxii) Life Insurance Agreement dated January 5, 1995, between Northern
Trust Corporation and David W. Fox**................................ Filed Herewith
(xxiii) Northern Trust Corporation Management Performance Plan**............ Filed Herewith
(11) Computation of Per Share Earnings........................................... Filed Herewith
(13) 1994 Annual Report to Stockholders.......................................... Filed Herewith
(21) Subsidiaries of the Registrant.............................................. Filed Herewith
(23) Consent of Independent Public Accountants................................... Filed Herewith
(24) Powers of Attorney.......................................................... Filed Herewith
(27) Financial Data Schedule..................................................... Filed Herewith
</TABLE>
===============================================================================
29
<PAGE>
==============================================================================
* Prior Filings (File No. 0-5965, except as noted)
-----------------------------------------------
(1) Annual Report on Form 10-K for the year ended December 31, 1992
(2) Registration Statement on Form S-4 dated February 10, 1994 (Reg. No.
33-52219)
(3) Quarterly Report on Form 10-Q for the quarter ended March 31, 1993
(4) Quarterly Report on Form 10-Q for the quarter ended September 30, 1986
(5) Annual Report on Form 10-K for the year ended December 31, 1986
(6) Annual Report on Form 10-K for the year ended December 31, 1988
(7) Form 8-K dated January 26, 1989
(8) Annual Report on Form 10-K for the year ended December 31, 1989
(9) Form 8-A dated October 30, 1989
(10) Annual Report on Form 10-K for the year ended December 31, 1990
(11) Annual Report on Form 10-K for the year ended December 31, 1991
(12) Quarterly Report on Form 10-Q for the quarter ended March 31, 1992
(13) Form 8-K dated February 20, 1991
(14) Annual Report on Form 10-K for the year ended December 31, 1993
** Denotes management contract or compensatory plan or arrangement
---------------------------------------------------------------
Upon written request to Peter L. Rossiter, Secretary, Northern Trust
Corporation, 50 South LaSalle Street, Chicago, Illinois 60675, copies of
exhibits listed above are available to Northern Trust Corporation stockholders
by specifically identifying each exhibit desired in the request.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Corporation
hereby agrees to furnish the Commission, upon request, any instrument defining
the rights of holders of long-term debt of the Corporation not filed as an
exhibit herein. No such instrument authorizes long-term debt securities in
excess of 10% of the total assets of the Corporation and its subsidiaries on
a consolidated basis.
==============================================================================
30
<PAGE>
EXHIBIT NUMBER (10)(vii)
TO 1994 FORM 10-K
Northern Trust
Employee Stock Ownership Plan
(As Initially Adopted and Subsequently Amended and
Restated Effective January 1, 1989)
<PAGE>
Northern Trust
Employee Stock Ownership Plan
(As Initially Adopted and Subsequently Amended
and Restated Effective January 1, 1989)
Contents
----------------------------------------------------------------------
Section Page
Article I. Nature of the Plan
1.1 Establishment and Amendment of the Plan 1
1.2 Purpose of the Plan 1
1.3 Legal Qualification 1
Article II. Definitions
2.1 Definitions 2
Article III. Participation and Service
3.1 Participation 11
3.2 Duration of Participation 11
3.3 Transferred or Rehired Employees 11
3.4 Vesting 12
3.5 Break in Service 14
3.6 One-Year Break in Service 15
Article IV. Employer Contributions
4.1 Contributions 16
4.2 Medium of Payment 16
4.3 Allocation of Employer Contributions 16
4.4 No Participant Contributions 17
4.5 Uniformed Services Employment and Reemployment Rights Act 17
Article V. Investment of Trust Assets
5.1 Investments 18
5.2 Valuation of Company Stock 18
5.3 Crediting of Stock 18
5.4 Sales and Resales of Company Stock 18
i
<PAGE>
Northern Trust
Employee Stock Ownership Plan
(As Initially Adopted and Subsequently Amended
and Restated Effective January 1, 1989)
Contents
----------------------------------------------------------------------
Section Page
Article VI. Exempt Loans
6.1 Requirements 20
6.2 Payments on Loans 21
6.3 Crediting of Released Stock 21
6.4 Payments of Principal and Interest 21
6.5 Puts, Calls, and Other Options 22
Article VII. Allocations to Participants'
Accounts
7.1 Participants Entitled to Allocations 23
7.2 Allocations to Company Stock Accounts 23
7.3 Allocations to Other Investment Accounts 23
7.4 Allocations of Employer Contributions, Company Stock
Acquired With a Loan and Forfeitures 24
7.5 Maximum Allocation 26
7.6 Vesting 30
7.7 Net Income or Loss of the Trust 30
7.8 Accounting for Allocations 31
7.9 Diversification of Investments 32
Article VIII. Voting and Tender of Company
Stock
8.1 Procedures for Voting 34
8.2 Tender Offer 34
ii
<PAGE>
Northern Trust
Employee Stock Ownership Plan
(As Initially Adopted and Subsequently Amended
and Restated Effective January 1, 1989)
Contents
-----------------------------------------------------------------------
Section Page
Article IX. Benefits
9.1 Payments on Retirement 36
9.2 Payments on Death 36
9.3 Payments on Permanent Disability 38
9.4 Payments on Termination for Other Reasons 38
9.5 Deemed Cashout 39
9.6 Property Distributed 39
9.7 Methods of Payment 40
9.8 Direct Rollover of Eligible Rollover Distributions 43
Article X. Rights and Options on Distributed
Shares of Company Stock
10.1 Right of First Refusal 45
10.2 Put Option 45
Article XI. Pretermination Distributions and
Dividends
11.1 Pretermination Distributions 47
11.2 Dividends 47
Article XII. Plan Administration
12.1 Powers 48
12.2 Directions to Trustee 48
12.3 Uniform Rules 49
12.4 Reports 49
12.5 Compensation 49
12.6 Claims Procedure 49
12.7 Indemnity for Liability 50
iii
<PAGE>
Northern Trust
Employee Stock Ownership Plan
(As Initially Adopted and Subsequently Amended
and Restated Effective January 1, 1989)
Contents
-----------------------------------------------------------------------
Section Page
Article XIII. Amendment and Termination
13.1 Amendment 51
13.2 Termination 51
13.3 Merger, Sale 51
13.4 Distribution Upon Termination 52
Article XIV. Extension of Plan to Affiliates
14.1 Participation in the Plan 53
14.2 Withdrawal from the Plan 53
Article XV. Top-Heavy Provisions 55
Article XVI. Miscellaneous Provisions
16.1 Spendthrift Provisions 56
16.2 Incompetency 56
16.3 Unclaimed Funds 57
16.4 Rights Against the Company 57
16.5 Illegality of Particular Provision 58
16.6 Effect of Mistake 58
16.7 Compliance with Federal and State Securities Laws 58
16.8 No Discrimination 58
16.9 Exclusive Benefit of Employees 58
16.10 Governing Law 60
16.11 Change-in-Control 60
iv
<PAGE>
Article I. Nature of the Plan
1.1 Establishment and Amendment of the Plan
Effective January 1, 1989, The Northern Trust Company (the "Company")
established the Northern Trust Employee Stock Ownership Plan (the "Plan"). The
Plan is hereby amended and restated effective January 1, 1989, in order to
incorporate the requirements of the Tax Reform Act of 1986 and subsequent
legislation.
1.2 Purpose of the Plan
The purpose of the Plan is to enable Members and their Beneficiaries to share in
the growth and prosperity of the Company and its Affiliates, to provide Members
with an opportunity to accumulate capital for their future economic security,
and to furnish additional security to Members who become permanently disabled.
The primary purpose of the Plan is to enable Members to acquire ownership
interests in Company Stock. Consequently, the Plan will be invested primarily in
Company Stock.
1.3 Legal Qualification
The Plan is an employee stock ownership plan under section 4975(e)(7) of the
Code and section 407(d)(6) of ERISA. It is a stock bonus plan qualified under
section 401(a) of the Code.
1
<PAGE>
Article II. Definitions
2.1 Definitions
The following capitalized terms shall have the meanings stated below wherever
they appear in the text unless the context otherwise requires.
(a) "ACCOUNT" means one of several accounts maintained to record the interest
of a Member in the Plan.
(b) "AFFILIATE" means any corporation which is a member of the same controlled
group of corporations (within the meaning of Code Section 414(b)) as the
Company, or an unincorporated trade or business which is under common
control with the Company (within the meaning of Code Section 414(c)), any
organization which is a member of an affiliated service group (within the
meaning of Code Section 414(m)) of which the Company is also a member, and
any other entity required to be aggregated under Code Section 414(o). For
purposes of section 2.1(mm), this section 2.1(b) shall be as modified as
provided in section 415(h) of the Code.
(c) "ANNIVERSARY DATE" means January 31, 1989, and December 31 of each Plan
Year.
(d) "ANNUAL ADDITIONS" means the total of: (1) Company or Participating
Employer contributions allocated to a Participant's Accounts under this
Plan and any Related Plan during any Limitation Year; (2) the amount of
Employee contributions made by the Participant under any Related Plan; and
(3) Forfeitures allocated to a Participant's Accounts under this Plan and
any Related Plan.
(e) "BENEFICIARY" means the person or persons designated as such by the
Participant on a form supplied by the Committee, provided that, a married
Participant may designate a Beneficiary other than the Participant's Spouse
only if the requirements of section 9.2(c) are met. Upon the death of a
Participant, if there is no designated Beneficiary then living, or if the
designation is for any reason ineffective, as determined by the Committee,
the Participant's Beneficiary shall be the Participant's Spouse, or if
none, as directed in the Participant's will admitted to probate, or if
there is no will, to the Participant's estate to be distributed
as provided by the laws of descent of the state of Illinois in effect at
the time of the Participant's death.
2
<PAGE>
(f) "BOARD OF DIRECTORS" OR "BOARD" means the Board of Directors of the
Company.
(g) "BREAK IN SERVICE" means the event described in section 3.5.
(h) "CODE" means the Internal Revenue Code of 1986, as amended.
(i) "COMMITTEE" means the Employee Benefits Administrative Committee of the
Company, as constituted from time to time, which has the responsibility for
administering the Plan and which shall be deemed to be the Plan
Administrator and the Named Fiduciary for the purposes of ERISA.
(j) "COMPANY" means The Northern Trust Company, an Illinois state bank, and its
successors and assigns.
(k) "COMPANY STOCK" means any qualifying employer security within the meaning
of section 4975(e)(8) of the Code and 407(d)(1) of ERISA and regulations
thereunder.
(l) "COMPANY STOCK ACCOUNT" means an account of a Member that is credited with
the Member's allocable share of Company Stock purchased and paid for by the
Trust or contributed to the Trust.
(m) "COMPENSATION" means the base salary paid by the Company to a Participant,
including amounts which the Participant elects to have contributed to the
Participant's before-tax deposit account under The Northern Trust Company
Thrift-Incentive Plan and any amounts contributed by or on behalf of the
Participant to a plan designed to comply with section 125 of the Code, plus
any amounts paid as shift differential, but exclusive of severance pay or
any other types of compensation. Notwithstanding the preceding provisions
of this section, for purposes of sections 2.1(u) and 7.5 and Article XV,
"Compensation" shall have the meaning set forth in section 7.5(h)(4).
Notwithstanding any provision of this Plan to the contrary, a Participant's
Compensation for any calendar year prior to January 1, 1994, shall not
exceed $200,000 (or such other amount as established by the Secretary of
the Treasury pursuant to section 401(a)(17) of the Code).
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, effective
January 1, 1994, the Compensation of each Participant taken into account
3
<PAGE>
under the Plan shall not exceed the annual compensation limit under section
401(a)(17) of the Code. Effective January 1, 1994, the annual compensation
limit under section 401(a)(17) is $150,000, as adjusted by the Commissioner
of the Internal Revenue Service for increases in the cost of living in
accordance with Code section 401(a)(17)(B). The cost-of-living adjustment
in effect for a calendar year applies to any period, not exceeding 12
months, over which Compensation is determined (the "determination period")
beginning in that calendar year. If a determination period consists of
fewer than 12 months, the annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Code section 414(q)(6) shall apply, except that,
in applying such rules, the term "family" shall include only the Spouse of
the Participant and any lineal descendants of the Participant who have not
attained age 19 before the close of the Plan Year. If, as a result of the
application of these rules, the adjusted dollar limitation of Code section
401(a)(17) applicable to family members is exceeded, then the dollar
limitation shall be prorated among the affected individuals in proportion
to each such individual's Compensation as determined under this section
2.1(m) before applying the limitation.
(n) "EFFECTIVE DATE" means January 1, 1989.
(o) "ELIGIBLE EMPLOYEE" means any Employee of the Company or a Participating
Employer other than (1) an Employee employed by any office or branch of the
Company located in a foreign country who, as to the United States, is a
nonresident alien, and (2) an Employee who (A) as to the United States, is
a foreign national, (B) is working for the Company or a Participating
Employer at a location located in the United States, and (C) is covered by
a retirement plan sponsored by a non-U.S. Affiliate in the country in which
an Affiliate is located.
(p) "EMPLOYEE" shall mean an individual employed by the Company or an
Affiliate. A person who is considered a "leased employee" (as defined
below) of the Company or an Affiliate shall not be considered an
Employee for purposes of the Plan. If such a person subsequently becomes
an Employee, and thereafter participates in the Plan, that person shall
receive Vesting Service for employment as a leased employee except to the
extent that the requirements of Section 414(n)(5) of the Code were
satisfied with
4
<PAGE>
respect to such Employee while he or she was a leased employee. For
purposes of the Plan a leased employee is a person who is not employed by
the Company or an Affiliate but who performs services for the Company or an
Affiliate pursuant to an agreement between the Company or Affiliate and a
leasing organization, other than a person described in Code section
414(n)(5), if such person performed the services for a year and the
services are of a type historically performed by employees.
(q) "EMPLOYER CONTRIBUTIONS" means payments made to the Trust by the Company or
a Participating Employer.
(r) "ENTRY DATE" shall mean each January 1, April 1, July 1, and October 1 of
each Plan Year on and after the Effective Date of this Plan.
(s) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(t) "FORFEITURE" means the nonvested portion of a Participant's Accounts that
becomes forfeited pursuant to section 9.4.
(u) "HIGHLY COMPENSATED PARTICIPANT" means a Participant who, during the
current Plan Year or the preceding Plan Year (1) was at any time a 5-
percent owner of the Company, (2) received Compensation from the Company in
excess of $75,000 (or such adjusted amount provided under section 414(q)(1)
of the Code), (3) received Compensation from the Company in excess of
$50,000 (or such adjusted amount provided under section 414(q)(1) of the
Code) and was in the top-paid group of Employees for such year, or (4) was
at any time an officer of the Company and received Compensation from the
Company in excess of 50 percent of the amount in effect under section
415(b)(1)(A) of the Code for such Plan Year. The provisions of section
414(q) of the Code shall apply in determining whether a Participant is a
Highly Compensated Participant. Highly Compensated Participants shall be
identified based upon only the current Plan Year to the extent permitted by
Section 414(q) of the Code and regulations issued thereunder.
(v) "HOUR OF SERVICE" means each hour for which an Employee is paid or entitled
to payment for the performance of duties for the Company or an Affiliate.
5
<PAGE>
(w) "INACTIVE PARTICIPANT" means a person who was a Participant who is
transferred to and is in a position of employment either--
(1) as an Employee where he or she is not an Eligible Employee; or
(2) as an Employee of an Affiliate which has not adopted this Plan.
(x) "LIMITATION YEAR" means the 12-consecutive-month period to be used in
determining the Plan's compliance with section 415 of the Code and the
regulations thereunder. The Limitation Year shall be the calendar year
unless the Company elects to use another 12-month period.
(y) "LOAN" means any loan to the Trustee made or guaranteed by a disqualified
person (within the meaning of section 4975(e)(2) of the Code) including,
but not limited to, a direct loan of cash, a purchase money transaction, an
assumption of an obligation of the Trustee, an unsecured guarantee, or the
use of assets of a disqualified person (within the meaning of section
4975(e)(2) of the Code) as collateral for a loan.
(z) "MEMBER" means either a Participant, Inactive Participant, or a former
Participant.
(aa) "NORMAL RETIREMENT DATE" means (1) in the case of a Participant who
attained age 65 before the Effective Date, the Participant's 65th birthday
or (2) in the case of any other Participant, the later of (A) the date on
which a Participant attains 65 years of age, or (B) the fifth anniversary
of the date the Participant commenced participation in the Plan.
(bb) "ONE-YEAR BREAK IN SERVICE" means a period of time described in section
3.6.
(cc) "OTHER INVESTMENTS ACCOUNT" means an Account of a Participant that is
credited with the Participant's share of the net income or loss of the
Trust and Employer Contributions and Forfeitures in other than Company
Stock, and that is debited with payments made to pay for Company Stock.
(dd) "PARENTAL LEAVE" shall mean an absence from employment with the Company or
an Affiliate because of (1) the Employee's pregnancy, (2) the birth of the
Employee's child, (3) the placement of a child with the Employee in
connection with the Employee's adoption of the child, or (4) caring for
such child immediately following such birth or placement,
6
<PAGE>
provided that, the Employee furnishes to the Company or Affiliate such
timely information that the Company or Affiliate may reasonably require to
establish (A) that the absence from work is for one of the reasons
specified and (B) the number of days for which there was such an absence.
(ee) "PARTICIPANT" means an Eligible Employee who meets the requirements of
Section 3.1 and who is participating in the Plan.
(ff) "PARTICIPATING EMPLOYER" means any Affiliate which has adopted the Plan in
accordance with Article XIV.
(gg) "PENSION PLAN" means The Northern Trust Company Pension Plan.
(hh) "PERMANENT DISABILITY" means any physical or mental injury, illness or
incapacity which, in the sole judgment of the Committee based on the
medical reports of a physician selected by the Committee and other evidence
satisfactory to the Committee, currently and permanently prevents an
Employee from satisfactorily performing the Employee's usual duties for the
Company or an Affiliate or the duties of such other position or job which
the Company or an Affiliate makes available to him or her and for which
such Employee is qualified by reason of training, education or experience.
To the extent that a disability case manager determines whether an Employee
is permanently disabled under the Company's short or long-term disability
plan, such determination shall be binding with respect to the question of
whether the Employee has incurred a Permanent Disability hereunder.
(ii) "PLAN" means the Northern Trust Employee Stock Ownership Plan, as amended.
(jj) "PLAN YEAR" means the calendar year.
(kk) "QUALIFIED ELECTION PERIOD" means--
(1) prior to the date that section 2.1(ll)(2) becomes operative, the
period beginning with the Plan Year in which the Participant first
has attained age 55 and is 100 percent vested under section 7.6 and
ending with the earlier of (A) the fourth succeeding Plan Year
thereafter; (B) the Plan Year preceding the Plan Year during which
the Participant ceases being an Employee; or (C) the Plan Year
preceding the Plan Year
7
<PAGE>
during which the Participant becomes a Qualified Participant under
section 2.1(ll)(2), or
(2) on and after January 1, 1999 or such earlier date that any
Participant satisfies the requirements of section 401(a)(28)(B)(iii)
of the Code, the six-Plan Year period beginning with the Plan Year in
which the Participant first becomes a Qualified Participant under
section 2.1(ll)(1) or (2),
provided that, the Qualified Election Period of a Participant who would
have been a Qualified Participant in any year prior to 1989 shall begin
January 1, 1989.
(ll) "QUALIFIED PARTICIPANT" means--
(1) prior to the date that paragraph (2) below becomes operative, any
Participant who is age 55 or older and is 100 percent vested under
section 7.6; and
(2) on and after January 1, 1999 or such earlier date that any Participant
satisfies the requirements of section 401(a)(28)(B)(iii) of the Code,
any Participant who has attained age 55 and has been a Participant in
the Plan for at least ten years, or has otherwise satisfied such
requirements.
(mm) "RELATED PLAN" means any other defined contribution plan (as defined in
section 415(k) of the Code) maintained by the Company or an Affiliate.
(nn) "SEVERANCE ELIGIBLE PARTICIPANT" means, effective July 1, 1995, a
Participant whose employment has terminated in a manner entitling such
Participant to severance pay under any formal severance plan, program or
arrangement maintained by The Northern Trust Company providing severance
benefits to certain employees as a result of job elimination or
termination of employment due to the acquisition or disposition of a
business entity.
(oo) "SPOUSE" means the person to whom an Employee is married or, in the case of
a deceased Employee, the person to whom an Employee was married on the date
of such Employee's death.
8
<PAGE>
(pp) "SUSPENSE ACCOUNT" means an account to which securities purchased with any
Loans are allocated pending their release and allocation to Accounts as the
Loan is repaid.
(qq) "TRUST" means all money, securities, and other property held under the
Trust Agreement for purposes of the Plan.
(rr) "TRUST AGREEMENT" means the agreement between the Company and the Trustee
(or any successor Trustee) establishing the Trust and specifying the duties
of the Trustee.
(ss) "TRUST ASSETS" means the assets held in the Trust for the exclusive benefit
of Participants, Beneficiaries, and Spouses.
(tt) "TRUSTEE" means The Northern Trust Company as Trustee of the Trust.
(uu) "VALUATION DATE" means each March 31, June 30, September 30, and December
31 of the Plan Year; provided, however, that, effective July 1, 1993,
"Valuation Date" means the last business day of each calendar month.
(vv) "VESTED PORTION" means that percentage of a Participant's Account
constituting the Participant's irrevocable right to such Account, as
indicated in the following vesting schedule:
=====================================
PARTICIPANT'S YEARS
OF VESTING SERVICE VESTED
WITH THE COMPANY PERCENTAGE
-------------------------------------
Less than 2 years 0%
2 years but less than 3 20%
3 years but less than 4 40%
4 years but less than 5 60%
5 years but less than 6 80%
6 or more years 100%
UNVESTED PORTION means the remaining Account balance after subtracting the
Vested Portion.
(ww) "VESTING SERVICE" means the period of employment credited under section
3.4.
9
<PAGE>
Article III. Participation and Service
3.1 Participation
Each Eligible Employee shall become a Participant on the Entry Date on or next
following the later of the date the Eligible Employee completes one year of
Vesting Service and the date the Eligible Employee attains age 21, provided that
he or she is an Eligible Employee on such date.
3.2 Duration of Participation
An Eligible Employee who becomes a Participant shall continue to be a
Participant or Inactive Participant until he or she incurs a Break in Service,
and also shall continue to be a Member thereafter for as long as he or she is
entitled to receive any benefits hereunder. After receiving all benefits to
which he or she is entitled hereunder, he or she shall cease to be a Member
unless and until he or she thereafter becomes eligible to again become a
Participant.
3.3 Transferred or Rehired Employees
The following rules shall be applicable to Employees who (a) become Participants
because of transfer to a status qualifying for coverage under the Plan, (b)
become Inactive Participants, (c) transfer to a status not qualifying for
coverage after meeting the requirements of section 3.1 but before becoming
Participants, or (d) are rehired by the Company:
(a) An Employee who shall be transferred into employment where he or she
becomes an Eligible Employee hereunder shall be credited with Vesting
Service computed for all his or her employment with the Company and any
Affiliate, before and after such transfer.
(b) Any Participant who shall be transferred into employment as an Employee
where he or she becomes an Inactive Participant shall continue to receive
credit for Vesting Service under this Plan during the period he or she is
an Inactive Participant.
(c) Any Eligible Employee who shall meet the requirements of section 3.1 but
shall be transferred into employment as an Employee but not as an Eligible
Employee, before becoming a Participant, shall no longer be eligible to
elect to have contributions made on his or her behalf hereunder. Any such
Employee shall continue to accrue Vesting Service during the period
10
<PAGE>
computed for all of the Employee's employment with the
Company and any Affiliate.
(d) An Employee who has a Break in Service and is subsequently reemployed by
the Company or an Affiliate shall be considered a new Employee for purposes
of section 3.1, unless he or she was credited with at least one year of
Vesting Service prior to his or her Break in Service. In such case, the
Employee shall become eligible to have contributions hereunder made on his
or her behalf (i) before January 1, 1995, on the first day of the first
Valuation Period in which such person is so reemployed, and (ii) from and
after January 1, 1995, on the first day of the first payroll period
following such reemployment.
(1) By written notice to the Committee after his or her reemployment, an
Employee who has not had five consecutive One-Year Breaks in Service
may deposit with the Trustee an amount which shall be equal to the
aggregate value of the distributions from his or her Account at the
time of his or her previous Break in Service. All deposits must be
made in cash and in a single lump sum. The deposits must be made
within five years after the Employee is reemployed.
(2) In the case of a reemployed Employee who does not have five
consecutive One-Year Breaks in Service, the Company shall contribute
to the Account of such Employee the amount, if any, forfeited at the
time of the Employee's termination of service, if and only if the
Employee makes the deposits permitted under paragraph (1) above or the
Employee did not receive a distribution at or after the time of his or
her previous termination of service. The Company's contribution shall
be made concurrently with the Employee's repayment if applicable,
otherwise upon the date of his or her reemployment.
For each other reemployed Employee, his or her beginning balance in
each of his or her Accounts shall be zero, and his or her previous
Forfeiture, if any, shall not be restored.
3.4 Vesting
An Employee shall receive credit for Vesting Service for the period commencing
with the Employee's date of hire with the Company or an Affiliate and ending on
the date the Employee incurs a Break in Service. Vesting Service shall be
calculated in accordance with reasonable and uniform standards and policies
11
<PAGE>
adopted by the Company from time to time, which standards and policies shall be
consistently observed subject, however, to the following:
(a) Vesting Service shall be computed on the following basis: (i) prior to July
1, 1993, an Employee shall receive credit for each calendar quarter during
which the Employee earned at least one (1) Hour of Service or otherwise
would receive credit for Vesting Service pursuant to subsection (a) next
above; and (ii) from and after July 1, 1993, an Employee shall receive
credit for each calendar month during which the Employee earned at least
one (1) Hour of Service or otherwise would receive credit for Vesting
Service pursuant to subsection (b) below.
(b) An Employee shall earn Vesting Service for all periods of active employment
with the Company or an Affiliate, and for the following periods that are
not active employment but that precede a Break in Service:
(i) an approved unpaid leave of absence from the Company or an Affiliate
that is granted according to uniform and nondiscriminatory standards,
but only if the Employee returns to work with the Company or an
Affiliate upon the termination of such leave of absence;
(ii) effective August 5, 1993, an absence from work with the Company or an
Affiliate under the Family and Medical Leave Act of 1993, but only if
the Employee returns to work with the Company or an Affiliate upon
the termination of such period of absence;
(iii) a period of up to one (1) year during which an Employee is on a
Parental Leave;
(iv) an absence from work with the Company or an Affiliate on account of
military service with the armed forces of the United States, but only
if the Employee reports for work within the period required under law
pertaining to veteran's reemployment rights
(c) If an Employee incurs a Break in Service, but returns to employment with
the Company or an Affiliate prior to incurring a One-Year Break in Service
(as defined in Section 3.6), the period commencing on the date the Break
12
<PAGE>
in Service began and ending on the date such Employee is reemployed shall
be counted as Vesting Service. Notwithstanding the preceding sentence, if
the Break in Service occurs during a period of absence from active
employment, the Employee shall not receive Vesting Service under the
preceding sentence unless such Employee returns to employment before the
first (1st) anniversary of the first day of such absence. If an Employee
suffers a One-Year Break in Service and the Employee is thereafter
reemployed by the Company or an Affiliate, such Employee's Vesting Service
before such One-Year Break in Service shall be added to the Employee's
Vesting Service after reemployment.
(d) A Participant's Vesting Service shall not include periods of service with
an entity prior to the date it became an Affiliate, except as provided in
Schedule A hereto.
(e) A Severance Eligible Participant shall receive credit for one (1) year of
Vesting Service beyond that earned pursuant to the foregoing.
(f) All periods of Vesting Service shall be aggregated; provided, however, that
a Participant shall not receive multiple credit for Vesting Service with
respect to any single period.
3.5 Break in Service
(a) A "Break in Service" shall occur on earliest of:
(i) the date the Employee quits, is discharged, retires, or dies; or
(ii) the first anniversary of the date the Employee separates from service
with the Company or an Affiliate for any reason other than the reasons
set forth in paragraph (i) above, such as vacation, holiday, sickness,
disability, leave of absence or layoff.
(b) The fact that an Employee separates from service with the Company or an
Affiliate on account of military service with the armed forces of the
United States shall not constitute a Break in Service unless the Employee
fails to report to work within the period required under law pertaining to
veteran's reemployment rights, in which case the Break in Service shall
occur on the earlier of (i) the expiration of the period by which such
Employee was required by law to report back to work or (ii) the first
anniversary of the date the Employee separated from service.
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(c) A Break in Service shall end on the date on which an Employee again
performs an Hour of Service for the Company or an Affiliate.
(d) The fact that an Employee who is a Participant becomes an Inactive
Participant shall not constitute a Break in Service, but the foregoing
rules shall continue to apply to such an Employee during the period he or
she is an Inactive Participant.
(e) Effective August 5, 1993, the fact that an Employee is absent from work
under the Family and Medical Leave Act of 1993 shall not constitute a Break
in Service if the Employee returns to work with the Company or an Affiliate
after such period of absence.
3.6 One-Year Break in Service
(a) The term "One-Year Break in Service" means each 12-consecutive-month period
beginning on the date an Employee incurs a Break in Service under Section
3.5 and ending on each anniversary of such date, provided that such
Employee does not perform an Hour of Service for the Company or any
Affiliate during such period.
(b) Solely for purposes of determining whether a One-Year Break in Service has
occurred, but not for purposes of determining Vesting Service or Credited
Service, in the case of an Employee who is on Parental Leave, the
Employee's Break In Service shall be deemed to occur on the second (2nd)
anniversary of the first day of such absence, provided the Employee does
not perform an Hour of Service for the Company or any Affiliate during such
period of absence. The period of time between the first (1st) and second
(2nd) anniversaries of a Parental Leave shall not be counted as a Break in
Service, Vesting Service or Credited Service.
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Article IV. Employer Contributions
4.1 Contributions
Subject to section 4.2, for each Plan Year, Employer Contributions under the
Plan may be paid to the Trust in such amounts or under such a formula and at
such times as the Board may determine. Notwithstanding any provision in the
Plan or any law to the contrary, the Company shall also make Employer
Contributions to the extent necessary to satisfy the provisions of Section 4.5.
Employer Contributions for a Plan Year may be paid during the Plan Year and must
be paid no later than the due date for filing the Company's federal income tax
return for that year, including any extensions of the due date. Employer
Contributions for any Plan Year shall not be paid to the Trust in amounts that
would exceed the limitations of section 404 of the Code. Notwithstanding the
provisions of this section, no Employer Contributions in any Limitation Year
shall be in an amount that would cause (a) the Annual Additions to the Accounts
of any Participant to exceed the Maximum Permissible Amount (as defined in
section 7.5) for such Participant for that Year or (b) the sum of the defined
benefit plan fraction (as defined in section 7.5) and the defined contribution
plan fraction (as defined in section 7.5) to exceed one for such Participant for
such Limitation Year.
4.2 Medium of Payment
Employer Contributions may be paid to the Trust in cash or in shares of Company
Stock, as determined by the Board. Employer Contributions, however, shall be
paid in cash in such amounts (subject to the limitations described in section
7.5), and at such times as needed to provide the Trust with funds sufficient to
pay in full when due any principal and interest payments required by a Loan
incurred, pursuant to Committee direction, by the Trustee to finance
acquisitions of Company Stock, except to the extent such principal and interest
payments have been satisfied by the Trustee from cash dividends paid to it with
respect to Company Stock.
4.3 Allocation of Employer Contributions
All Employer Contributions for a Plan Year shall be allocated to Participants'
Accounts as provided in Article VII.
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4.4 No Participant Contributions
No Participant shall be required or permitted to make contributions to the Plan
or Trust.
4.5 Uniformed Services Employment and Reemployment Rights Act
Effective December 12, 1994, the Plan shall be administered consistent with the
provisions of Uniformed Services Employment and Reemployment Rights Act of 1994,
P.L. 103-353 ("USERRA"). As such, the Company and any Participating Employer
shall make special Employer Contributions as necessary to comply with USERRA and
other applicable laws.
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Article V. Investment of Trust Assets
5.1 Investments
Trust Assets under the Plan will be invested primarily in Company Stock.
Employer Contributions and other Trust assets may be used to acquire shares of
Company Stock from the stockholders (including former Participants) or issuer
thereof. The Trustee also may hold Trust assets in cash or invest them in
savings accounts, certificates of deposit, high grade short-term securities, any
kind of investment fund (open-end or otherwise), a common trust fund for the
investment of qualified employee benefit trusts, including any such fund
maintained by the Trustee, or in other investments desirable for the Trust.
5.2 Valuation of Company Stock
All purchases of Company Stock will be made at a price, or at prices, that do
not exceed the fair market value of such Company Stock. Except as otherwise
determined by the Trustee in accordance with ERISA, the fair market value of
Company Stock as of a given date shall be the closing price as of such date on
the NASDAQ Stock Market; provided, however, that before January 1, 1995, the
fair market value as of a given date shall be the median of the high and low
sale prices of Company Stock on the preceding trading day. If Company Stock is
not readily tradable on an established securities market, the determination of
the fair market value of Company Stock for all purposes of the Plan shall in all
cases be made by an independent appraiser appointed by the Committee. Any
independent appraiser appointed pursuant to this section shall meet the
requirements of section 401(a)(28)(C) of the Code.
5.3 Crediting of Stock
Company Stock purchased with the proceeds of a Loan shall be held in the
Suspense Account pending release and allocation to the Accounts of Participants
as the Loan is paid pursuant to Section 7.4. Company Stock purchased with
amounts allocated to Participants' Other Investment Accounts shall immediately
upon purchase be credited pro rata to the corresponding Company Stock Accounts.
Company Stock contributed to the Plan pursuant to Article IV shall be allocated
to the Company Stock Accounts of Participants pursuant to section 7.4.
5.4 Sales and Resales of Company Stock
The Committee may direct the Trustee to sell or resell shares of Company Stock
to any person. All such sales to any disqualified person must be made at
no less than the fair market value and no commission may be charged. Such sales
shall
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comply with section 408(e) of ERISA. All sales of Company Stock (except
Company Stock held in a Suspense Account) by the Trustee will be charged pro
rata to the Company Stock Accounts of Participants. Sales of Company Stock
pursuant to this section 5.4 may only be made to the extent not inconsistent
with section 1.3 of the Plan.
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Article VI. Exempt Loans
6.1 Requirements
(a) The Committee may direct the Trustee to obtain Loans. Any such Loan will
meet all requirements necessary to constitute an exempt loan within the
meaning of section 4975(d)(3) of the Code and Treasury regulations section
54.4975-7(b)(1)(iii) and shall be used primarily for the benefit of
Participants, Beneficiaries, and Spouses. The proceeds of any such Loan
shall be used, within a reasonable time after the Loan is obtained, only to
purchase Company Stock, repay the Loan, or repay any prior Loan. Any such
Loan shall provide for no more than a reasonable rate of interest (as
determined under Treasury regulations section 54.4975-7(b)(7)) and must be
without recourse against the Plan. The number of years to maturity under
the Loan must be definitely ascertainable at all times. The only assets of
the Plan that may be given as collateral on a Loan are shares of Company
Stock acquired with the proceeds of the Loan and shares of Company Stock
that were used as collateral on a prior Loan repaid with the proceeds of
the current Loan. No person entitled to payment under a Loan shall have
recourse against Trust Assets other than such collateral, Employer
Contributions (other than contributions of Company Stock) that are
available under the Plan to meet obligations under the Loan, and earnings
attributable to such collateral and the investment of such Employer
Contributions.
(b) All Employer Contributions paid during the Plan Year in which a Loan is
made (whether before or after the date the proceeds of the Loan are
received), all Employer Contributions paid thereafter until the Loan has
been repaid in full, and all earnings from investment of such Employer
Contributions, shall be used to meet obligations under the Loan as such
obligations accrue, or before such obligations accrue, unless otherwise
designated by the Committee at the time any such Employer Contribution is
made.
(c) Any Company Stock acquired with the proceeds of a Loan shall be placed in a
Suspense Account. The Company Stock in the Suspense Account must be
released from the Suspense Account upon the payment of any portion of the
Loan. The number of shares to be released from the Suspense Account for
each Plan Year during the duration of the Loan shall equal the number of
encumbered securities held immediately before release for the current Plan
Year multiplied by a fraction. The numerator of the fraction is the
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sum of principal and interest paid in such Plan Year. The denominator of
the fraction is the sum of the numerator and the principal and interest to
be paid for all future years. Such years will be determined without taking
into account any possible extension of renewal periods.
(d) If the collateral in the Suspense Account includes more than one class of
Company Stock, the number of shares of each class to be released from the
Suspense Account for a Plan Year must be determined by applying the same
fraction to each class. If interest on any Loan is variable, the interest
to be paid in future years under the Loan shall be computed by using the
interest rate applicable as of the end of the current Plan Year.
6.2 Payments on Loans
Payments of principal and interest on any Loan during a Plan Year shall be made
by the Trustee (as directed by the Committee) only from (a) Employer
Contributions to the Trust made to meet the Plan's obligation under a Loan and
from any earnings (including dividends) attributable to such Contributions or to
Company Stock held as collateral for a Loan (received either during or prior to
the Plan Year), less payment from such contributions and earnings in prior
Years; (b) the proceeds of a subsequent Loan made to repay a prior Loan; and (c)
the proceeds of the sale of any Company Stock held as collateral for a Loan.
Such Contributions and earnings must be accounted for separately by the Plan
until the Loan is repaid.
6.3 Crediting of Released Stock
Company Stock released by reason of the payment of principal or interest on a
Loan from Employer Contributions shall, on the Anniversary Date, be allocated to
Participants as set forth in section 7.4.
6.4 Payments of Principal and Interest
(a) The Company shall contribute to the Trust sufficient amounts to enable the
Trust to pay principal and interest on any Loans as they are due. If the
limitations of section 7.5 would result in Employer Contributions in an
amount insufficient to enable the Trust to pay principal and interest on
such Loan as it is due, then the Company may--
(1) make a Loan to the Trust (as described in Treasury regulation section
54.4975-7(b)(4)(iii)), in sufficient amounts to meet such principal
and interest payments. A new Loan must also meet all requirements of
an
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exempt loan within the meaning of Treasury regulation section
54.4975-7(b)(1)(iii) and shall be subordinated to the prior Loan.
Company Stock released from the pledge of the prior Loan shall be
pledged as collateral to secure the new Loan. Such Company Stock will
be released from this new pledge and allocated to the Accounts of the
Participants in accordance with applicable provisions of the Plan;
(2) purchase any Company Stock pledged as collateral in an amount
necessary to provide the Trustee with sufficient funds to meet the
principal and interest repayments. Any such sale by the Plan shall
meet the requirements of section 408(e) of ERISA; or
(3) any combination of paragraphs (1) and (2).
(b) Neither the Company nor any Affiliate, pursuant to this section, shall do,
fail to do, or cause to be done any act that would result in a
disqualification of the Plan as an employee stock ownership plan under the
Code or ERISA.
6.5 Puts, Calls, and Other Options
Except as provided in Article X and notwithstanding any amendment to or
termination of the Plan that causes it to cease to qualify as an employee stock
ownership plan within the meaning of section 4975(e)(7) of the Code, no shares
of Company Stock acquired with the proceeds of a Loan obtained by the Trust to
purchase Company Stock may be subject to a put, call, or other option, or buy-
sell or similar arrangement while such shares are held by and when distributed
from the Plan.
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Article VII. Allocations to Participants' Accounts
7.1 Participants Entitled to Allocations
As of each Anniversary Date, a Participant is entitled to the allocations
provided in this Article VII. A Participant must be an active Eligible Employee
on the Anniversary Date in order to share in the allocations relating to that
Anniversary Date; provided that, each Participant who is on an authorized leave
of absence or whose employment terminates by reason of early or normal
retirement under the terms of the Pension Plan, or by reason of Permanent
Disability or death, or whose employment terminated in circumstances under which
he or she is a Severance Eligible Participant, will share in allocations of
Employer Contributions which have not been used to make payments on a Loan,
Company Stock released from the Suspense Account according to section 6.1(c),
and Forfeitures, for any Anniversary Date other than January 31, 1989 occurring
with respect to the Plan Year in which the leave of absence begins or employment
terminates.
7.2 Allocations to Company Stock Accounts
A separate Company Stock Account will be established for each Participant. The
Company Stock Account will be credited with (a) the Participant's allocable
share (determined under section 7.4) of Company Stock (including fractional
shares) purchased and paid for by the Trust or contributed in kind to the Trust,
(b) Forfeitures of Company Stock, and (c) any stock dividends on Company Stock
allocated to the Participant's Company Stock Accounts as of the record date
therefor. Company Stock acquired by the Trust with the proceeds of a Loan
obtained pursuant to Article VI shall be allocated to the Company Stock Accounts
of Participants according to the method set forth in section 7.4 at the time the
Company Stock is released from Suspense Accounts as provided in section 6.1(c).
7.3 Allocations to Other Investment Accounts
A separate Other Investment Account will be established for each Participant.
The Other Investments Account will be credited or debited with (a) the
Participant's allocable share (as determined under section 7.7) of the net
income or loss of the Trust, (b) Employer Contributions that have not been used
to make principal and interest payments on a Loan or to purchase Company Stock,
and (c) Forfeitures in other than Company Stock. Each Other Investment Account
will be debited for its share of any cash payments for the acquisition of
Company Stock for the benefit of Company Stock Accounts.
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7.4 Allocations of Employer Contributions, Company Stock Acquired With a Loan
and Forfeitures
Subject to subsection (d) of this section and to section 7.5, Employer
Contributions which have not been used to make payments on a Loan, Company Stock
released from the Suspense Account according to section 6.1(c), and Forfeitures
incurred since the prior Anniversary Date shall be allocated among Participants
entitled to allocations under section 7.1 as follows:
(a) For the Anniversary Date on January 31, 1989, with respect to Employer
Contributions which have been made pursuant to a loan described in section
133(b)(1)(B) of the Code (as in effect on such date), in the proportion
that each such Participant's Compensation for January 1989 bears to the
total of such Compensation of all such Participants (considering in both
cases, with respect to each Participant, only Compensation not in excess of
$16,666.66);
(b) For the Anniversary Date on December 31, 1989, with respect to Employer
Contributions which have not been made to make payments on a Loan, Company
Stock released from the Suspense Account according to section 6.1(c), and
Forfeitures incurred on or before December 31, 1989, in accordance with the
following procedure:
(1) the number of shares released from the Suspense Account for the Plan
Year shall be added to the number of shares allocated on the January
31, 1989 Anniversary Date; and
(2) to preliminarily determine the number of shares to be allocated to
each Participant entitled to share in allocations under section 3.4,
the number determined under paragraph (1) above shall be multiplied by
a fraction, the numerator of which is the Participant's Compensation
for the 1989 Plan Year, and the denominator of which is the aggregate
Compensation for the 1989 Plan Year of all Participants entitled to
share in the allocation.
The product so determined for each such Participant shall be decreased by
the number of shares of Company Stock allocated to the Participant on the
January 31, 1989 Anniversary Date; provided that, for any Participant with
respect to whom the product of subsection (b)(2) is less than the number of
shares allocated on the January 31, 1989 Anniversary Date, no shares
allocated on such Anniversary Date shall be subtracted from the
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Participant's Account. To accomplish the foregoing, (A) the Participants
described in the foregoing proviso (the "Deficit Participants") will
receive no allocation for the December 31, 1989 Anniversary Date and (B)
for all other Participants entitled to share in such allocation, the
preliminary determination described in subsection (b)(2) shall be adjusted
by subtracting from the shares otherwise allocable to them a number of
shares equal to the shares that would have been subtracted from the
Accounts of the Deficit Participants if the foregoing proviso had not
applied. Such adjustment shall be accomplished pro rata based on the
relative Compensation of affected Participants as described in subsection
(b)(2), except that, if such adjustment would result in the subtraction of
shares allocated to any Participant on the January 31, 1989 Anniversary
Date, then to the extent such subtraction would occur, the adjustment will
not be made to such Participant's allocation and any additional adjustment
shall be made pro rata (on the same basis) among the other affected
Participants; and
(c) For each Anniversary Date after December 31, 1989, with respect to Employer
Contributions which have not been made to make payments on a Loan, Company
Stock released from the Suspense Account according to section 6.1(c), and
Forfeitures incurred since the prior Anniversary Date, in the proportion
that each such Participant's Compensation for the Plan Year bears to the
total Compensation of all such Participants; provided, however, that a
special allocation may be made pursuant to section 4.5.
(d) Effective December 12, 1994, the Company and any Participating Employer
shall make special allocations as necessary to comply with USERRA and other
applicable laws.
(e) Notwithstanding subsections (b) and (c), if for any Limitation Year more
than one-third of the Employer Contributions that are deductible as
principal or interest payments on a Loan pursuant to the provisions of
section 404(a)(9) of the Code would, but for the provisions of this
subsection (e), be allocated to Highly Compensated Participants, then such
Employer Contributions otherwise allocable to such Participants shall be
reduced. The reduction shall be made among all Highly Compensated
Participants in the same proportion as the amounts of such Contributions
otherwise allocable to them and shall be made only to the minimum extent
necessary so that no further reduction would be required to satisfy the
conditions of section 415(c)(6) of the Code.
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The allocations made pursuant to subsections (b), (c), and (d) shall be
consistent with the provisions of sections 9.1, 9.2, 9.3, and 9.4.
Notwithstanding the preceding provisions of this section, and subject to section
7.4(d), no allocation shall be made to the Accounts of any Participant in any
Limitation Year that would cause (A) the Annual Additions of the Participant to
exceed the Maximum Permissible Amount (as defined under section 7.5) for that
year (except as permitted in section 7.5) or (B) the sum of the defined benefit
plan fraction (as defined in section 7.5) and the defined contribution plan
fraction (as defined in section 7.5) to exceed one for that Participant for that
Limitation Year.
7.5 Maximum Allocation
(a) Notwithstanding anything to the contrary contained elsewhere in the Plan,
but subject to section 7.4(d), for each Limitation Year, the allocations to
the Accounts of any Participant shall be limited so that the Participant's
Annual Additions for such Year do not exceed the Maximum Permissible Amount
(as defined in subsection (h)(3) below).
(b) If the foregoing limitation on allocations would be exceeded in any
Limitation Year for any Participant as a result of the allocation of
Forfeitures, reasonable error in estimating a Participant's Compensation,
or under such other limited facts and circumstances as the Commissioner of
Internal Revenue, pursuant to Treasury regulation section 1.415-6(b)(6),
finds justify the availability of this subsection (b), the excess amount
shall be placed, unallocated to any Participant, in a Limitation Account.
If a Limitation Account is in existence at any time during a particular
Limitation Year, other than the Limitation Year described in the preceding
sentence, all amounts in the Limitation Account must be allocated to
Participants' Accounts (subject to the limits of this section 7.5) before
any contributions that would constitute Annual Additions may be made to the
Plan for that Limitation Year. The excess amounts allocated pursuant to
this subsection (c) shall be used to reduce Employer Contributions for the
next Limitation Year (and succeeding Limitation Years, as necessary) for
all of the Participants in the Plan. Excess amounts held in a Limitation
Account pursuant to this section 7.5 may not be distributed to Participants
or former Participants. The Limitation Account will not share in the
valuation of Participants' Accounts and the allocation of earnings set
forth in section 7.7 of the Plan, and the change in fair market value and
allocation of earnings attributable to the Limitation Account shall be
allocated to the remaining accounts hereunder as set forth in this section
7.5.
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(c) Upon termination of the Plan, any amounts in a Limitation Account at the
time of such termination shall revert to the Company or Participating
Employer that employs the Employees to whom such amounts are attributable.
(d) If any Participant under the Plan is also a Participant in a defined
benefit plan (as defined in section 415(k) of the Code) maintained by the
Company or an Affiliate, the sum of the defined benefit plan fraction (as
defined below) and the defined contribution plan fraction (as defined
below) for any Limitation Year with respect to such Participant shall not
exceed one. If a Participant is otherwise entitled to receive an allocation
under this Plan and accrue a benefit under a defined benefit plan
maintained by the Company or an Affiliate, and the combination thereof
would cause the limitations of this section to be exceeded, the allocation
under this Plan will only be reduced if the accrual under such defined
benefit plan is not decreased as necessary to cause such limitations not to
be exceeded.
(e) If a Participant is entitled to receive an allocation under this Plan and
any Related Plan and, in the absence of the limitations contained in this
section, the Company would contribute or allocate to the Accounts of that
Participant an amount for a Limitation Year that would cause the Annual
Additions to the Accounts of the Participant to exceed the annual Maximum
Permissible Amount for such Year, then the contributions and allocations
made with respect to the Participant under this Plan will only be reduced
if the contributions or allocations to the Participant's accounts under the
Related Plan are not decreased to the extent necessary so that the
Participant's Annual Additions do not exceed the Maximum Permissible
Amount.
(f) Any reduction in the contributions and allocations under this Plan made
with respect to a Participant's Accounts required pursuant to this section
and section 415 of the Code shall be effected, to the minimum extent
necessary, by reducing the Employer Contributions that would have been made
by the Company for the applicable Plan Year with respect to such
Participant.
(g) The provisions of this section shall be interpreted by the Committee, in
the administration of the Plan, to reduce contributions and allocations (as
required by this section) only to the minimum extent necessary to reflect
the requirements of section 415 of the Code, as amended and in force from
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time to time, and Treasury regulations promulgated pursuant to that
section, which are incorporated by reference herein.
(h) For purposes of this section 7.5--
(1) The "defined benefit plan fraction" for any Limitation Year for a
Participant means a fraction, the numerator of which is the projected
annual benefit of the Participant under all defined benefit plans
maintained by the Company or an Affiliate, determined as of the close
of the Limitation Year, and the denominator of which is the lesser of
(A) the product of 1.25, and the dollar limitation in effect under
section 415(b)(1)(A) of the Code for such year or (B) the product of
1.4 and the amount which may be taken into account under section
415(b)(1)(B) of the Code with respect to such Participant for such
Year.
(2) The "defined contribution plan fraction" for any Limitation Year for
any Participant means a fraction, the numerator of which is the sum of
the Annual Additions to the Participant's Account under the Plan and
to the Participant's accounts under all defined contribution plans
maintained by the Company or an Affiliate as of the close of the
Limitation Year, and the denominator of which is the sum of the lesser
of the following amounts determined for such Year and for each prior
year of Vesting Service with the Company or an Affiliate (A) the
product of 1.25 and the dollar limitation in effect under section
415(c)(1)(A) of the Code for such Year (determined without regard to
section 415(c)(6) of the Code) and (B) the product of 1.4 and the
amount which may be taken into account under section 415(c)(1)(B) of
the Code with respect to such Participant for such Year.
(3) "Maximum Permissible Amount" shall mean:
(A) the lesser of--
(i) $30,000 (or, if greater, one-fourth of the dollar limitation
in effect pursuant to section 415(b)(1)(A) of the Code); or
(ii) 25 percent of a Participant's Compensation (as defined in
paragraph (4) hereof).
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(B) Notwithstanding the provisions of paragraph (A), if no more than
one-third of the Employer Contributions for the Limitation Year
ending December 31, 1989 are allocated to Highly Compensated
Participants, then the Maximum Permissible Amount for that
Limitation Year shall mean the lesser of--
(i) 25 percent of a Participant's Compensation; or
(ii) the sum of (a) $30,000 (or, if greater, one-fourth of the
dollar limitation in effect under section 415(b)(1)(A) of the
Code) and (b) the lesser of the amount determined under
clause (a) above or the amount of employer securities (as
defined in sections 4975(e)(8) and 409(1) of the Code)
contributed to the Plan or purchased with cash contributions
to the Plan.
(C) If no more than one-third of the Employer Contributions for a
Limitation Year that are deductible as principal or interest
payments on a Loan pursuant to the provisions of section 404(a)(9)
of the Code are allocated to Highly Compensated Participants, then
the limitations imposed by paragraph (A) or (B), whichever is
applicable, shall not apply to--
(i) Forfeitures of Company Stock if the Company Stock was
acquired with the proceeds of a Loan; or
(ii) Employer Contributions that are deductible as interest
payments on a Loan under section 404(a)(9)(B) of the Code and
charged against a Participant's Account.
(4) For purposes of this section and sections 2.1(u) and Article XV,
"Compensation" shall mean wages, salaries, fees for professional
services, and other amounts received for personal services actually
rendered in the course of employment with the Company or an Affiliate
(including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits,
tips, and bonuses); shall include all compensation actually paid or
made available to a Participant for an entire Limitation Year; and
shall not include any other items or amounts paid to or for the
benefit of a Participant.
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(i) To the extent permitted, the limitations set forth in this section
7.5 shall be adjusted in connection with contributions made
pursuant to section 7.4(d).
7.6 Vesting
(a) Each Participant shall have a vested interest in the adjusted balance of
his or her Company Stock and Other Investments Accounts in accordance with
the vesting schedule set forth in 2.1(vv).
(b) On reaching the Normal Retirement Date, a Participant shall be 100 percent
vested in the adjusted balance of his or her Company Stock and Other
Investments Accounts if such Participant is an Employee on his or her
Normal Retirement Date.
(c) In the event a Participant dies or incurs a Permanent Disability within the
meaning of section 9.3, the Participant shall be 100 percent vested in the
adjusted balance of the Company Stock and Other Investments Accounts as of
the date of the Participant's death or Permanent Disability if such
Participant is an Employee on the date he or she dies or becomes disabled.
(d) In the event the Plan is terminated or upon the complete discontinuance of
Employer Contributions to the Plan, each Participant shall be 100 percent
vested in the adjusted balance of his or her Company Stock and Other
Investments Accounts.
7.7 Net Income or Loss of the Trust
(a) DIVIDENDS ON COMPANY STOCK. Any stock dividends received in respect of
Company Stock allocated to a Participant's Company Stock Account as of the
record date therefor shall be credited to the Participant's Company Stock
Account on the Valuation Date coincident with or succeeding the Trustee's
receipt of such dividends. Any stock dividends received in respect of
Company Stock held in the Suspense Account as of the record date shall be
allocated to such Account and released pursuant to Section 6.1(c). Any cash
dividends received on Company Stock held in the Suspense Account pursuant
to section 6.1(c), or any cash or stock dividends received on Company Stock
that has been forfeited pursuant to section 9.4(b) but not yet reallocated
pursuant to section 7.4(c), as of the record date, may be used to meet
obligations under the Loan, the proceeds of which were used to acquire such
Company Stock. Any dividends described in the preceding sentence shall, to
the extent such amounts are
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not used to pay principal or interest on a Loan, be considered net income
for the Trust for the Plan Year.
(b) OTHER INCOME OR LOSS. The net income or loss of the Trust shall be
determined as of each Valuation Date. Each Participant's share of the net
income or loss will be allocated to the Participant's Other Investments
Accounts in the ratio that the balance of all his or her Accounts on the
last Valuation Date, based on the fair market value thereof (reduced by the
amount of any distribution from such Accounts, including a distribution or
transfer pursuant to section 7.9, other than a distribution made in the
calendar quarter that the Participant ceases being an Employee), bears to
the sum of such balances for all Participants as of that date. The net
income or loss of the Trust includes the increase or decrease in the fair
market value of Trust Assets (other than Company Stock), interest income,
dividends, and other income or loss attributable to Trust Assets (other
than Company Stock, except as provided in subsection (a) above) since the
last Valuation Date. Net income or loss shall not include Employer
Contributions or Forfeitures. Any proceeds of sales of unallocated Company
Stock shall, to the extent such amounts are not used to pay principal or
interest on a Loan, be considered net income for the Trust. Net income or
loss attributable to any Limitation Account established under section 7.5
shall be allocated to the Other Investments Accounts of Participants in
accordance with the ratio described in the second sentence of this
subsection (b), and the Limitation Account shall not share in the
allocation of net income or loss of the Trust under this section.
7.8 Accounting for Allocations
The Committee shall adopt accounting procedures for the purpose of making the
allocations, valuations, and adjustments to Participants' Accounts provided for
in this section. Except as provided in Treasury regulation section 54.4975-11,
Company Stock acquired by the Plan shall be accounted for as provided under
Treasury regulation section 1.402(a)-l(b)(2)(ii); allocations of Company Stock
shall be made separately for each class of stock; and the Committee shall
maintain adequate records of the cost basis of all shares of Company Stock
allocated to each Participant's Company Stock Accounts. From time to time, the
Committee may modify the accounting procedures for the purpose of achieving
equitable and nondiscriminatory allocations among the Accounts of Participants
in accordance with the general concepts of the Plan and the provisions of this
section. Annual valuations of Trust Assets shall be made at fair market value.
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7.9 Diversification of Investments
(a) Prior to the date that section 2.1(ll)(2) becomes operative, a Participant
who is a Qualified Participant pursuant to section 2.1(ll)(1) may elect, on
or before the March 15 next succeeding the end of each Plan Year in the
Qualified Election Period described in section 2.1(kk)(1) to have the
Trustee dispose of a specified whole number of shares of Company Stock not
in excess of the Participant's "Applicable Amount" and transfer the
proceeds thereof to the Northern Trust Company Thrift Incentive Plan.
Participant elections shall be in such written, electronic, or other form
as the Committee shall determine. A Qualified Participant's Applicable
Amount for a Plan Year in the Qualified Election Period shall equal 25
percent of (1) the total number of shares of Company Stock ever acquired by
or contributed to the Plan and allocated to the Participant's Accounts in
the Plan as of the end of such Plan Year less (2) the number of shares to
which a prior election under this subsection applied; provided that, if
with respect to a Qualified Participant, such difference is not a whole
number of shares of Company Stock, it shall be rounded to the nearest whole
number of shares. In the case of the last year of a Qualified Election
Period, the preceding sentence shall be applied by substituting "50
percent" for "25 percent."
(b) On and after the date that section 2.1(ll)(2) becomes operative, a
Participant who is a Qualified Participant pursuant to section 2.1(ll)(2)
may elect, within 90 days after the close of each Plan Year in the
Qualified Election Period described in section 2.1(kk)(2) to receive a
distribution of the Applicable Amount (calculated in the manner described
in subsection (a) but considering only elections, if any, made during such
Qualified Election Period). Participant elections shall be in such written,
electronic, or other form as the Committee shall determine. The Committee
shall direct the Trustee to distribute the portion of the Participant's
Accounts that is covered by the election described in this subsection (b)
within 90 days after the last day of the period during which the election
can be made. Such a distribution shall not be subject to the requirements
of section 10.2 of the Plan.
(c) The provisions of this section shall apply notwithstanding any other
provisions of the Plan.
(d) If the Committee receives a Qualified Participant's election pursuant to
subsection (a) or (b), it shall direct the Trustee (1) to sell the required
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number of shares of Company Stock (and, if the Committee desires, the
manner in which such sale should be accomplished) as of the March 31 next
succeeding the end of the Plan Year with respect to which the election is
made and (2) to transfer to the Northern Trust Company Thrift Incentive
Plan or distribute to the Qualified Participant, as the case may be, an
amount of cash equal to the proceeds of the sale of the subject shares. Any
such transfer shall be made as of the next succeeding April 1, and any such
distribution shall be made within 90 days after the last day of the period
during which the election can be made. Notwithstanding any provision of the
Plan to the contrary, if the Trustee is unable to sell the required shares
as aforesaid in a timely manner, the Company shall buy such shares. If such
shares are sold to the Company or an Affiliate, the price paid therefor
shall be the greater of the fair market value of such shares as of March 31
or the fair market value of such shares on the date the sale actually
occurs; provided that, any amount the Plan receives in excess of the fair
market value as of March 31 shall be considered earnings of the Plan and
shall be allocated as provided in section 7.7(b).
(e) Notwithstanding the foregoing, a Qualified Participant shall not be
entitled to make an election hereunder for a Plan Year within a Qualified
Election Period if the fair market value of the total number of shares of
Company Stock ever acquired by or contributed to the Plan and allocated to
the Participant's Accounts in the Plan as of the last day of such Plan Year
is less than $500.
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Article VIII. Voting and Tender of Company Stock
8.1 Procedures for Voting
Each Member (or, in the event of the Member's death, the Member's Beneficiary)
shall have the right to direct the Trustee as to the manner in which whole and
partial shares of Company Stock allocated to the Member's Account as of the
record date are to be voted on each matter brought before an annual or special
stockholders' meeting. Before each such meeting of stockholders, the Trustee
shall furnish to each Member (or Beneficiary) a copy of the proxy solicitation
material, together with a form requesting directions on how such shares of
Company Stock allocated to such Member's Account shall be voted on each such
matter. Upon timely receipt of such directions, the Trustee shall on each such
matter vote as directed the number of shares (including fractional shares) of
Company Stock allocated to such Member's Account, and the Trustee shall have no
discretion in such matter. The directions received by the Trustee from Members
shall be held by the Trustee in confidence and shall not be divulged or released
to any person, including officers or employees of the Company or any Affiliate.
The Trustee shall vote allocated shares for which it has not received direction
and unallocated shares of Company Stock in the same proportion as directed
shares are voted, and shall have no discretion in such matter except as
otherwise provided in accordance with ERISA.
8.2 Tender Offer
If a tender or exchange offer is commenced for Company Stock--
(a) The Trustee shall distribute in a timely manner to each Member (or
Beneficiary) such information as is distributed to holders of the Company
Stock in connection with the tender or exchange offer.
(b) All Company Stock held by the Trustee in Accounts shall be tendered or not
tendered by the Trustee in accordance with directions it receives from
Members (or Beneficiaries). Each Member (or Beneficiary) shall be entitled
to direct the Trustee with respect to the tender of such Company Stock
allocated to the Member's Account. The instructions received by the Trustee
from Members (or Beneficiaries) shall be held by the Trustee in confidence
and shall not be divulged or released to any person, including officers or
employees of the Company or any Affiliate.
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(c) The Trustee shall not tender Company Stock allocated to Accounts with
respect to which directions by Members (or Beneficiaries) are not received
or Company Stock held by the Trustee that is not allocated to Accounts
except as otherwise provided in accordance with ERISA.
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Article IX. Benefits
9.1 Payments on Retirement
A Member who attains his or her Normal Retirement Date and continues to be an
Employee shall continue to share in the allocation of Employer Contributions and
Forfeitures under the Plan. Upon the retirement of a Member on or after his or
her Normal Retirement Date, the Committee shall notify the Trustee in writing of
the Member's retirement and shall direct the Trustee to make payment of the
adjusted balance of the Member's Accounts as of the Valuation Date coinciding
with or immediately preceding the date a distribution is made to the Member,
unless the Member agrees to a later date in a method provided in the Plan.
Notwithstanding the foregoing, if any such Member retires after December 31,
1989 and receives a distribution of the Member's Accounts before the Anniversary
Date next following his or her retirement, he or she shall be entitled to share
in the allocation of Employer Contributions which have not been used to make
payments on a Loan, Company Stock released from the Suspense Account according
to section 6.1(c), and Forfeitures, occurring on such Anniversary Date.
9.2 Payments on Death
(a) Upon the death of a Member, the Committee shall promptly notify the Trustee
in writing of the Member's death and the name of the Member's Beneficiary
(or Spouse if subsection (c) is applicable) and shall direct the Trustee to
make payment of the adjusted balances of the Member's Accounts (or the
Vested Portion thereof if section 7.6(c) is not applicable) as of the
Valuation Date coinciding with or immediately preceding the date a
distribution is made to the Member's Beneficiary, in a method provided in
the Plan. Notwithstanding the foregoing, if such Member dies after December
31, 1989 and the distribution of the Accounts of such Member is made before
the Anniversary Date next following his or her death, his or her
Beneficiary or Spouse, as the case may be, shall be entitled to share in
the allocation of Employer Contributions which have not been used to make
payments on a Loan, Company Stock released from the Suspense Account
according to section 6.1(c), and Forfeitures, occurring on such Anniversary
Date.
(b) Each unmarried Member and each married Member whose surviving Spouse has
consented to an alternate Beneficiary or an alternate method of payment as
provided in subsection (c) shall have the right to designate, by giving a
written designation to the Committee, a person or entity as
Beneficiary to receive the death benefit provided under this section.
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Successive designations may be made, and the last designation received by
the Committee prior to the death of the Member shall be effective and shall
revoke all prior designations. If a designated Beneficiary shall die before
the Member, his or her interest shall terminate, and, unless otherwise
provided in the Member's designation, if the designation included more than
one Beneficiary, such interest shall be paid in equal shares to those
Beneficiaries, if any, who survive the Member. A Member to whom this
subsection applies shall have the right to designate different
Beneficiaries to receive the adjusted balance in the Member's various
Accounts under the Plan.
(c) The Beneficiary of each Member who is married shall be the surviving Spouse
of such Member and the death benefits of any Member who is married shall be
paid in full to his or her surviving Spouse in a single payment.
Notwithstanding the preceding sentence, the death benefits provided
pursuant to subsection (a) shall be distributed to any other Beneficiary
designated by a married Member as provided in subsection (b) of this
section if the Member's surviving Spouse consented to such designation,
prior to the date of the Member's death, in writing. Such a consent must
acknowledge the effect of the election and designation and the identity of
any nonsurviving Spouse Beneficiary, including any class of Beneficiaries
or contingent Beneficiaries, and must be witnessed by a representative of
the Plan or a notary public. Consent of a Member's surviving Spouse shall
not be required if the Member establishes to the satisfaction of the
Committee that consent may not be obtained because there is no surviving
Spouse or the surviving Spouse cannot be located, or because of such other
circumstances as the Secretary of the Treasury may prescribe by
regulations. The Member may not subsequently change the designation of the
Beneficiary unless his or her surviving Spouse consents to the new
designation in accordance with the requirements set forth in the preceding
sentence, or unless the surviving Spouse's consent permits the Member to
change the designation of his or her Beneficiary without the Spouse's
further consent. A surviving Spouse's consent shall be irrevocable. Any
consent by a surviving Spouse, or establishment that the consent of the
surviving Spouse may not be obtained, shall be effective only with respect
to that surviving Spouse.
9.3 Payments on Permanent Disability
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Upon the termination of a Member's employment with the Company by reason of a
Permanent Disability, the Committee shall notify the Trustee in writing of the
Member's Permanent Disability termination and shall direct the Trustee to make
payment of the adjusted balances of the Member's Accounts as of the Valuation
Date coinciding with or immediately preceding the date a distribution is made to
the Member. Notwithstanding the foregoing, if such termination occurs after
December 31, 1989 and such Member receives a distribution of the Member's
Accounts before the Anniversary Date next following the Member's termination, he
or she shall be entitled to share in the allocation of Employer Contributions
which have not been used to make payments on a Loan, Company Stock released from
the Suspense Account according to section 6.1(c), and Forfeitures, occurring on
such Anniversary Date.
9.4 Payments on Termination for Other Reasons
(a) GENERAL. Upon the termination of a Member's employment with the Company for
any reason other than retirement on or after the Member's Normal Retirement
Date, death, or Permanent Disability, the Committee shall notify the
Trustee in writing of the termination and shall direct the Trustee to make
payment of the Vested Portion of the adjusted balances of the Member's
Accounts as of the Valuation Date coinciding with or next preceding the
date a distribution is made to the Member. Notwithstanding the foregoing,
if such termination occurs after December 31, 1989 and under circumstances
entitling the Member to early retirement benefits under the Pension Plan
and he or she receives a distribution of the Member's Accounts before the
Anniversary Date following the Member's termination, he or she shall be
entitled to share in the allocation of Employer Contributions which have
not been used to make payments on a Loan, Company Stock released from the
Suspense Account according to section 6.1(c), and Forfeitures, occurring on
such Anniversary Date. The Vested Portion of a Member's Accounts shall be
determined in accordance with section 7.6 of the Plan.
(b) FORFEITURE. The Unvested Portion of the adjusted balance of the Accounts of
a Member who terminates employment with the Company under this section
shall be forfeited as of the first Valuation Date following the date the
Member terminates employment with the Company and all Affiliates. The
amount forfeited shall be the entire Unvested Portion. If a Member's
Company Stock Account includes more than one class of Company Stock, the
Forfeiture will consist of the same proportion of each class of stock.
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(c) REINSTATEMENT. If a Member is reemployed by the Company or a Participating
Employer after incurring a Forfeiture, the Member shall be entitled to make
repayment to the Plan of the aggregate amount distributed to him, at any
time before the earlier of (1) five years after the Member is reemployed
and (2) the end of a Break in Service of five consecutive years incurred by
the Member. Upon making repayment in a single cash sum of the fair market
value (at the time of distribution) of the aggregate amount distributed to
him, the amount repaid shall be credited to the Member's Account and
invested by the Trustee in a cash equivalent short term investment fund.
The amount which was forfeited (also based on the fair market value at the
time of distribution) shall be reinstated to the Member's Account. The
amount required to restore such Member's Account shall be made up from
Forfeitures and, to the extent necessary, Employer Contributions prior to
their allocation pursuant to section 7.4.
9.5 Deemed Cashout
If a Member has no vested interest in his Account balance when his or her
employment with the Company and all Affiliates terminates, such Member will be
treated as having received a Deemed Cashout of the Member's Account balance as
of the last day of the Plan Year in which the Member's employment terminated and
the Member's Account balance will be treated as a Forfeiture on such date.
"Deemed Cashout" means a distribution of zero dollars representing the Member's
entire Account balance. If the Member is reemployed with the Company or any
Affiliate before such Member has incurred five (5) consecutive One-Year Breaks
in Service, the amount of the prior Forfeiture will be restored as the Member's
Account balance.
9.6 Property Distributed
Any distribution pursuant to section 9.1, 9.2, 9.3, or 9.4, from a Member's
Company Stock Account, shall be made in whole shares of Company Stock, and the
value of partial shares of Company Stock shall be paid in cash. Distribution
from a Member's Other Investments Account shall be made in cash unless the
Member requests a distribution in stock of the whole shares purchasable with
such balance and the balance attributable to fractional shares in the Member's
Company Stock Account, in which case the Trustee shall acquire the necessary
shares for distribution. If cash is to be distributed in connection with
fractional shares, the Trustee shall sell such shares as of the Valuation Date
with respect to which the distribution is being made and distribute the proceeds
of sale to the affected
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Member. Any such sale shall be subject to the last two sentences of section
7.9(d).
9.7 Methods of Payment
(a) Whenever the Committee shall direct the Trustee to make payment to a Member
upon termination of a Member's employment on or after the Member's Normal
Retirement Date, the Committee shall direct the Trustee to pay the adjusted
balances of the Member's Accounts to or for the benefit of the Member in a
single sum distribution. Whenever the Committee shall direct the Trustee to
make payment to a Member, the Member's Spouse, or other Beneficiary upon
termination of a Member's employment for any other reason, the Committee
shall direct the Trustee to pay the Vested Portion of the adjusted balances
of the Member's Accounts, if any, to or for the benefit of the Member, the
Member's Spouse, or the Member's Beneficiary, in a single payment
distribution.
(b) Payment under this section shall be made no more than 60 days after the
Valuation Date coincident with or following the date the Member ceases
being an Employee provided that (1) for purposes of the foregoing, any
Valuation Date occurring before December 31, 1989 shall be treated as
occurring on December 31, 1989, (2) any Member or Beneficiary or Spouse
described in section 9.1, 9.2, or 9.3, or who would be entitled to an
allocation at the next Anniversary Date under section 9.4, may elect to
defer distribution to such Anniversary Date, and (3) if the Member's
Accounts exceed $3,500, distribution shall not be made to the Member at any
time prior to the Member's Normal Retirement Date or death without the
Member's written consent. A Member described in paragraph (3) may elect to
receive distribution of the Member's Accounts as of any Valuation Date
following the Valuation Date next succeeding the Member's termination by
filing prescribed materials with the Trustee on or before such reasonable
deadline as established by the Trustee.
If a distribution is one to which sections 401(a)(11) and 417 of the Code
do not apply, such distribution may commence less than thirty (30) days
after the notice required under section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(i) the Committee clearly informs the Member that the Member has a right
to a period of at least thirty (30) days after receiving the notice to
consider the decision of whether to elect a distribution, and
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(ii) the Member, after receiving the notice, affirmatively elects a
distribution.
(c) Notwithstanding the provisions of subsection (b) above, distribution of
each Member's Accounts must commence not later than 60 days after the last
day of the Plan Year in which the last of the following events occurs:
(1) the date on which the Member reaches his or her Normal Retirement
Date;
(2) the tenth anniversary of the date on which the Member commenced
participation in the Plan; or
(3) the date on which the Member's employment with the Company and all
Affiliates terminates.
(d) Notwithstanding anything to the contrary contained elsewhere in the Plan--
(1) A Member's benefits under the Plan will--
(A) be distributed to him or her not later than the Required
Distribution Date (as defined in paragraph (3)), or
(B) be distributed commencing not later than the Required
Distribution Date in accordance with regulations prescribed by
the Secretary of the Treasury over a period not extending beyond
the life expectancy of the Member or the life expectancy of the
Member and the Member's Beneficiary.
(2) Payments on death--
(A) If the Member dies after distribution has commenced pursuant to
paragraph (1)(B) but before the Member's entire interest in the
Plan has been distributed to him, then the remaining portion of
that interest will be distributed at least as rapidly as under
the method of distribution being used under paragraph (1)(B) at
the date of the Member's death.
(B) If the Member dies before distribution has commenced pursuant to
paragraph (1)(B), then, except as provided in paragraphs (2)(C)
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and (2)(D), the Member's entire interest in the Plan will be
distributed within five years after the Member's death.
(C) Notwithstanding the provisions of paragraph (2)(B), if the Member dies
before distribution has commenced pursuant to paragraph (1)(B) and if
any portion of the Member's interest in the Plan is payable (i) to or
for the benefit of a Beneficiary, (ii) in accordance with regulations
prescribed by the Secretary of the Treasury over a period not
extending beyond the life expectancy of the Beneficiary, and (iii)
beginning not later than one year after the date of the Member's death
or such later date as the Secretary of the Treasury may prescribe by
regulations, then the portion referred to in this paragraph (2)(C)
shall be treated as distributed on the date on which such distribution
begins.
(D) Notwithstanding the provisions of paragraphs (2)(B) and (2)(C), if the
Beneficiary referred to in paragraph (2)(C) is the Spouse of the
Member, then--
(i) the date on which the distributions are required to begin under
paragraph (2)(C)(iii) of this section shall not be earlier than
the date on which the Member would have attained age 70-1/2, and
(ii) if the Spouse dies before the distributions to that Spouse begin,
then this paragraph (2)(D) shall be applied as if the surviving
Spouse were the Member.
(3) For purposes of subsection (d)(1), the Required Distribution Date
means April 1 of the calendar year following the calendar year in
which the Member attains age 70-1/2; provided, however, that in the
case of a Member who attained age 70-1/2 before January 1, 1988 such
Member's Required Distribution Date shall be April 1 following the
calendar year in which occurs the later of (A) the Member's attainment
of age seventy and one-half (70-1/2), or (B) the Member's termination
of employment, unless such Member is a Five-Percent Owner (as defined
in Section 416(i) of the Code) of the Company at any time during the
Plan Year ending with or within the calendar year in which such owner
attains age sixty-six and one-half (66-1/2) or any subsequent year, in
which case clause (B) shall not apply.
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(4) For purposes of subsection (d), once distribution has commenced
hereunder, the life expectancy of a Member and the Member's Spouse may
not be redetermined.
(5) A Member may not elect a form of distribution pursuant to paragraph
(1) providing payments to a Beneficiary who is other than the Member's
Spouse unless the actuarial value of the payments expected to be paid
to the Member is more than 50 percent of the actuarial value of the
total payments expected to be paid under such form of distribution.
9.8 Direct Rollover of Eligible Rollover Distributions
(a) This section 9.8 applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this section, a distributee
may elect, at the time and in the manner prescribed by the Committee, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
Any portion of an eligible rollover distribution that is not paid directly
to an eligible retirement plan in a direct rollover may be subject to 20%
Federal income tax withholding.
(b) DEFINITIONS.
(1) ELIGIBLE ROLLOVER DISTRIBUTION. An eligible rollover distribution is
any distribution of all or any portion of the balance to the credit of
the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint lives
(or joint life expectancies) of the distributee and the distributee's
designated Beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution is required
under section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(2) ELIGIBLE RETIREMENT PLAN. An eligible retirement plan is an individual
retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code,
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an annuity plan described in section 403(a) of the Code, or a
qualified trust described in section 401(a) of the Code, that accepts
the distributee's rollover distribution. However, in the case of an
eligible rollover distribution to the surviving Spouse, an eligible
retirement plan is an individual retirement account or individual
retirement annuity.
(3) DISTRIBUTEE. A distributee includes a Participant or former
Participant. In addition, the Participant's or former Participant's
surviving Spouse and the Participant's or former Participant's Spouse
or former Spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are
distributees with regard to the interest of the Spouse or former
Spouse.
(4) DIRECT ROLLOVER. A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
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Article X. Rights and Options on
Distributed Shares of Company Stock
10.1 Right of First Refusal
(a) Shares of Company Stock distributed by the Trustee may be subject to a
right of first refusal. Such a right shall provide that prior to any
subsequent transfer, the shares must first be offered in writing to the
Trust and then, if refused by the Trust, to the Company at a price equal to
the greater of (1) the then fair market value of such shares of Company
Stock as determined in good faith by the Committee, in accordance with
Treasury regulation section 54.4975-11(d)(5) or (2) the purchase price
offered by a buyer, other than the Company or Trustee, making an offer in
good faith (as determined by the Committee) to purchase such shares of
Company Stock.
(b) The Trust or the Company, as the case may be, may accept the offer as to
part or all of the Company Stock at any time during a period not exceeding
14 days after the Trust receives the offer, on terms and conditions no less
favorable to the Trust than those offered by the independent third-party
buyer. Any installment purchase shall be made pursuant to a note secured by
the shares purchased and shall bear a reasonable rate of interest as
determined by the Committee.
(c) If the offer is not accepted by the Trust, the Company, or both, then the
proposed transfer may be completed within a reasonable period following the
end of the 14-day period but only upon terms and conditions no less
favorable to the shareholder than the terms and conditions of the third-
party buyer's prior offer.
(d) Shares of Company Stock that are publicly traded within the meaning of
Treasury regulation section 54.4975-7(b)(1)(iv) at the time such right may
otherwise be exercised shall not be subject to this right of first refusal.
10.2 Put Option
(a) Shares of Company Stock acquired by the Trust shall be subject to a put
option at the time of distribution if at such time the shares are not
readily tradable on an established market within the meaning of section
409(h)(1)(B) of the Code. The put option shall be exercisable by the
Member, Beneficiary, Spouse, their donees, or by a person (including an
estate or its distributee) to whom the Company Stock passes by reason of
the death of the Member, Beneficiary, or Spouse. The put option shall
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provide that for a period of at least 60 days following the date of
distribution of the Company Stock, the holder of the option shall have the
right to cause the Company, by notifying it in writing, to purchase such
shares at their fair market value, as determined pursuant to section 5.2.
If the put option is not exercised within such 60-day period, the option
shall be exercisable for an additional period of 60 days in the following
Plan Year. The Committee may give the Trustee the option to assume the
rights and obligations of the Company at the time the put option is
exercised, insofar as the repurchase of Company Stock is concerned.
(b) If the entire adjusted balance of a Member's Accounts is distributed to the
Member within one taxable year, payment of the price of the Company Stock
purchased pursuant to an exercised put option shall be made in no more than
five substantially equal annual payments, and the first installment shall
be paid not later than 30 days after the Member exercises the put option.
The Plan shall provide adequate security and pay a reasonable rate of
interest on amounts not paid after 30 days. If the entire adjusted balance
of a Member's Accounts is not distributed to him or her within one taxable
year, payment of the price of the Company Stock purchased pursuant to an
exercised put option shall be made in a single sum not later than 30 days
after the Member exercises the put option.
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Article XI. Pretermination Distributions and Dividends
11.1 Pretermination Distributions
Except as provided in sections 11.2 and 7.9, a Member is not entitled to any
payment, withdrawal, or distribution under the Plan while he or she is a
Participant.
11.2 Dividends
Any cash dividend received by the Trustee on Company Stock allocated to the
Accounts of a Member, Beneficiary, or Spouse as of the record date for such
dividend shall be paid to such Member, Beneficiary, or Spouses. Any such payment
in cash must be made no later than 90 days after the end of the Plan Year in
which the dividend is received by the Trustee. Any such payment of cash
dividends on shares of Company Stock shall be accounted for as if the Member,
Beneficiary, or Spouse receiving such dividends were the direct owner of such
shares of Company Stock and such payment shall not be treated as a distribution
for purposes of Article X.
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Article XII. Plan Administration
12.1 Powers
The Committee shall have all powers necessary to discharge its duties in
administering the Plan including, but not by way of limitation, discretionary
authority with respect to the following powers:
(a) to construe and interpret the Plan;
(b) to determine all questions regarding the status and rights of Members and
Beneficiaries, including questions relating to age, Vesting Service,
eligibility, or Compensation;
(c) to make and enforce such rules and regulations as it shall deem necessary
or proper for efficient administration of the Plan; and
(d) to retain counsel, employ agents, and actuaries and provide for such
clerical, medical, accounting, auditing, and other services as it may
require in carrying out the provisions of the Plan;
provided, however, that no member of the Committee shall participate in any
action on any matter involving solely his or her own rights or benefits or those
of his or her Spouse or children, and such matters shall be determined by the
other members of the Committee. The Committee may delegate any or all of its
powers under this Article XII to an agent designated under section 12.1(d). Any
such designation shall be in writing, signed by the Secretary of the Committee.
12.2 Directions to Trustee
The Committee shall direct the Trustee concerning all payments which shall be
made out of the Trust pursuant to the provisions of the Plan. Any direction to
the Trustee, including but not limited to a direction concerning payments, shall
be in writing, signed by the Secretary of the Committee or any member thereof,
or any agent to whom authority has been delegated. The Trustee shall act in a
manner consistent with any such direction that is proper, made in accordance
with the Plan, and not contrary to ERISA.
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12.3 Uniform Rules
All rules adopted and all actions taken by the Committee shall be uniform in
nature as applied to all persons similarly situated and shall not discriminate
in favor of Employees who are officers, shareholders, or highly compensated
employees.
12.4 Reports
The Committee shall keep on file, in such form as it shall deem convenient and
proper, all reports of the Trust received from the Trustee. The Committee shall
give to each Member a written report of the amount of his or her Accounts at
annual or more frequent intervals. Additional reports may be given to a Member
by telephone.
12.5 Compensation
Members of the Committee shall not receive compensation for their services in
connection with the Plan, but the Company shall reimburse them for any necessary
expenses incurred in the discharge of their duties.
12.6 Claims Procedure
(a) Claims for benefits under the Plan shall be made in writing to the
Committee. If the Committee wholly or partially denies a claim for
benefits, the Committee shall, within a reasonable period of time, but no
later than 90 days after receipt of the claim, notify the claimant in
writing of the denial of the claim. Notice of a denial of a claim shall be
written in a manner calculated to be understood by the claimant and shall
contain (1) the specific reason or reasons for denial of the claim, (2) a
specific reference to the pertinent Plan provisions upon which the denial
is based, (3) a description of any additional material or information
necessary for the claimant to perfect the claim, together with an
explanation of why such material or information is necessary, and (4) an
explanation of the Plan's review procedure. If notice of the denial of a
claim is not furnished in accordance with this subsection (a) within 90
days after the Committee receives it, the claim shall be deemed denied and
the claimant shall be permitted to proceed to the review stage described in
subparagraph (b) below.
(b) Within 60 days after the claimant receives the written notice of denial of
the claim, or the date the claim is deemed denied pursuant to subsection
(a) above, or such later time as shall be deemed reasonable taking into
account
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<PAGE>
the nature of the benefit subject to the claim and other attendant
circumstances, or within 60 days after the claim is deemed denied as set
forth above, if applicable, the claimant may file a written request with
the Committee that it conduct a full and fair review of the denial of the
claimant's claim for benefits, including the holding of a hearing, if
deemed necessary by the Committee. In connection with the claimant's appeal
of the denial of the claimant's benefit, the claimant may review pertinent
documents and may submit issues and comments in writing. The Committee
shall render a decision on the appeal promptly, but not later than 60 days
after the receipt of the claimant's request for review, unless special
circumstances (such as the need to hold a hearing, if necessary) require an
extension of time for processing, in which case the 60-day period may be
extended to 120 days. The Committee shall notify the claimant in writing of
any such extension. Such decision shall (1) include specific reasons for
the decision, (2) be written in a manner calculated to be understood by the
claimant, and (3) contain specific references to the pertinent Plan
provisions upon which the decision is based.
12.7 Indemnity for Liability
The Company shall indemnify the Committee and each other fiduciary who is an
Employee of the Company, against any and all claims, losses, damages, expenses,
including counsel fees, incurred by said fiduciaries, and any liability,
including any amounts paid in settlement with such a fiduciary's approval,
arising from the fiduciary's action or failure to act, except when the same is
judicially determined to be attributable to the gross negligence or willful
misconduct of such fiduciary.
49
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Article XIII. Amendment and Termination
13.1 Amendment
The Company reserves the right at any time and from time to time to amend the
Plan in whole or in part either retroactively or prospectively by action of the
Board or action of the Executive Committee of the Board, but no such amendment
shall authorize or permit any part of the corpus or income of the Trust to be
used for or diverted to purposes other than for the exclusive benefit of Members
or their Beneficiaries, or to deprive any of them of any funds then held for his
or her Account.
13.2 Termination
It is the intention of the Company to continue the Plan and to make
contributions thereto, but the Company reserves the right to terminate the Plan
in whole or in part as of any Valuation Date by action of the Board or action of
the Executive Committee of the Board and for any reason satisfactory to the
Board. The Company, however, shall not terminate the Plan while any Loan
remains outstanding and unpaid in whole or in part, without the prior written
consent to any such termination by all holders and guarantors, if any, of the
Plan's obligations under such Loan. Where any holder or guarantor has a
representative on the Committee, prior written consent will not be required if
such representative approves the amendment. Upon partial or full termination,
all affected Participants shall become fully vested, and upon permanent
discontinuance of contributions by the Company, all Participants shall become
fully vested. After termination of the Plan, the Committee and the Trust will
continue until the Accounts of each Participant have been distributed in
accordance with the terms of the Plan.
13.3 Merger, Sale
In the event of any merger or consolidation of the Plan with, or transfer in
whole or in part of the assets and liabilities of the Trust to another trust
fund held under any other plan of deferred compensation maintained or to be
established for the benefit of all or some of the Participants, the Plan shall
be so merged or consolidated, or the assets of the Trust applicable to such
Participants shall be so transferred, only if--
(a) each Member would (if either the Plan or the other plan then terminated)
receive a benefit immediately after the merger, consolidation, or transfer
which is equal to or greater than the benefit he or she would have been
50
<PAGE>
entitled to receive immediately before the merger, consolidation, or
transfer (if the Plan had then terminated);
(b) resolutions of the Board of Directors or of any new or successor employer
of the affected Members, shall authorize such transfer of assets; and, in
the case of the new or successor employer of the affected Members, its
resolutions shall include an assumption of liabilities with respect to such
Members' inclusion in the new employer's plan; and
(c) such other plan and trust are qualified under section 401(a) and exempt
under section 501(a) of the Code.
In the event a portion of the business of the Company is sold or discontinued,
the Board of Directors in its discretion may direct that all Members who are
employed by the new owner of that portion of the business shall become fully
vested.
13.4 Distribution Upon Termination
In the event of the termination of the Plan, there shall be distributed to each
Member, or to his or her Beneficiary in the case of a deceased Member, a benefit
equal to the sum of the value of the Member's Account as of the Valuation Date
on which termination occurs. If such benefits shall not exhaust the assets of
the Trust, any remaining assets shall be allocated to the Accounts of the
Members as though they were additional Employer Contributions, and in no event
shall any such assets revert to the Company or any Participating Employer.
51
<PAGE>
Article XIV. Extension of Plan to Affiliates
14.1 Participation in the Plan
Any Affiliate which desires to become a Participating Employer under the Plan
may elect, with the consent of the Board of Directors, to become a party to the
Plan and the related Trust by adopting the Plan for the benefit of its Eligible
Employees, effective as of the date specified in such adoption. The adoption
resolution or decision may contain such specific changes and variations in Plan
or Trust Agreement terms and provisions applicable to such Participating
Employer and its Employees as may be acceptable to the Board and the Trustee.
However, the sole, exclusive right of any other amendment of whatever kind or
extent to the Plan is reserved to the Board of Directors. The Board of
Directors may amend specific changes and variations in the Plan or Trust terms
and provisions as adopted by the Participating Employer in its adoption
resolution without the consent of such Participating Employer. The adoption
resolution or decision shall become, as to such adopting organization and its
employees, a part of this Plan as then amended or thereafter amended and the
related Pension Trust. It shall not be necessary for the adopting organization
to sign or execute the original or then amended Plan and Trust. The coverage
date of the Plan for any such adopting organization shall be that stated in the
resolution or decision of adoption, and from and after such effective date, such
adopting organization shall assume all the rights, obligations, and liabilities
of an individual employer entity hereunder and under the Trust. The
administrative powers and control of the Company, as provided in the Plan and
Trust Agreement shall not be diminished by reason of the participation of any
such adopting organization in the Plan and Trust Agreement.
14.2 Withdrawal from the Plan
Any Participating Employer may withdraw from the Plan and Trust after giving
notice to the Board of Directors, provided the Board consents to such
withdrawal. In the event of such withdrawal, the Committee shall cause a
valuation of the Trust Fund to be made to ascertain the value of assets which
are attributable to Members who are Employees of the terminating Participating
Employer or their Beneficiaries in the case of deceased Members and shall direct
the Trustee to segregate assets which are deemed to be so attributable to such
Members from the Trust, and to make distribution to the Members or their
Beneficiaries as if the Plan had terminated with respect to the Members or their
Beneficiaries of such Participating Employer.
In the event such withdrawal constitutes a partial termination of this Plan,
only the affected Participants shall have fully vested and nonforfeitable rights
in the
52
<PAGE>
benefits to be provided by the allocations (unless they were already
fully vested prior to the partial termination). Distribution may be implemented
through continuation of the Trust, or transfer to another trust fund exempt from
tax under section 501 of the Code, or to a group annuity contract qualified
under Code section 401, or distribution may be made as an immediate cash
payment; provided, however, that no such action shall divert any part of such
fund to any purpose other than the exclusive benefit of the Employees of such
Participating Employer.
53
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Article XV. Top-Heavy Provisions
The following provisions shall become effective in any Plan Year in which the
Plan is determined to be a top-heavy plan.
(a) DETERMINATION OF TOP-HEAVY. The Plan will be considered a top-heavy plan
for the Plan Year if as of the last day of the preceding Plan Year (1) the
account balances of Participants who are key employees (as defined in
section 416(i) of the Code) exceeds 60 percent of the account balances of
all Participants (the "60 Percent Test") or (2) the Plan is part of a
required aggregation group and the required aggregation group is top-heavy.
However, and notwithstanding the results of the 60 Percent Test, the Plan
shall not be considered a top-heavy plan for any plan year in which the
Plan is a part of a required or permissive aggregation group which is not
top-heavy. The top-heavy ratio shall be computed pursuant to section
416(g) of the Code and the regulations issued thereunder. A "required
aggregation group" is each plan of the Company in which a key employee is a
participant and each other plan of the Company, if any, which enables such
plan to meet the requirements of Code section 401(a)(4) or 410. The
Company may treat any plan not required to be included in an aggregation
group as being part of a "permissive aggregation group" if such group would
continue to meet the requirements of Code sections 401(a)(4) and 410 with
such plan being taken into account.
(b) MINIMUM BENEFIT. The Company's contribution to a Participant's Matching
Contribution Account under section 5.1 shall be 3 percent of the
Participant's Compensation, except that this subsection (b) shall not apply
if--
(1) the Participant is also a participant in the Pension Plan,
(2) the Pension Plan is a top-heavy plan, and
(3) the Participant receives from the Pension Plan the defined benefit
minimum required under section 416(c)(1) of the Code.
54
<PAGE>
XVI. Miscellaneous Provisions
16.1 Spendthrift Provisions
The interests of Employees and their Beneficiaries in the Plan shall not be
subject to the claims of any creditor, any Spouse for alimony or support, or
others, or to legal process, and may not be voluntarily or involuntarily
alienated or encumbered.
Notwithstanding the foregoing, the Plan shall make all payments required by a
qualified domestic relations order within the meaning of Code section 414(p).
The Committee shall establish a procedure to determine the qualified status of a
domestic relations order and to administer distributions under a qualified
order. In no event shall a domestic relations order be determined to be a
qualified domestic relations order if it requires the Plan to make distributions
to an alternate payee prior to the date that a Member attains "earliest
retirement age." Notwithstanding the foregoing, the Plan may make a distribution
to an alternate payee prior to the date that a Member attains "earliest
retirement age" if the qualified domestic relations order provides that the Plan
and the alternate payee may agree in writing to the earlier distribution and the
distribution is made pursuant to such a written agreement. For purposes of a
qualified domestic relations order, "earliest retirement age" means the date on
which the earliest to occur of--
(a) the date the Member is entitled to a distribution under this Plan, or
terminates from employment,
(b) the later of (i) the date the Member attains age 50, or (ii) the earliest
date on which the Member could begin receiving benefits under this Plan if
the Member separated from service.
16.2 Incompetency
Every person receiving or claiming benefits under the Plan shall be presumed to
be mentally competent and of age until the Committee receives a written notice,
in a form and manner acceptable to it, that such person is incompetent or a
minor, and that a guardian, conservator, or other person legally vested with the
care of his estate has been appointed. In the event that the Committee finds
that any person to whom a benefit is payable under the Plan is unable to
properly care for his or her affairs, or is a minor, then any payment due
(unless a prior claim therefor shall have been made by a duly appointed legal
representative) may be paid to the Spouse, a child, a parent, or a brother or
sister, or to any person
55
<PAGE>
deemed by the Committee to be authorized to care for such person otherwise
entitled to payment.
In the event a guardian, executor, administrator, or conservator of the estate
of any person receiving or claiming benefits under the Plan shall be appointed
by a court of competent jurisdiction, payments shall be made to such guardian,
executor, administrator, or conservator provided that proper proof of
appointment is furnished in a form and manner suitable to the Committee. Any
payment made under the provisions of this section 16.2 shall be a complete
discharge of any liability therefor under the Plan.
16.3 Unclaimed Funds
Each Member shall keep the Committee informed of the Member's current address
and the current address of the Member's Spouse and Beneficiaries. Neither the
Company or any Affiliate, the Committee, nor the Trustee shall be obligated to
search for the whereabouts of any such person. If the then current location of a
Member is not made known to the Committee within three years after the date on
which the Committee directs the distribution to the Member of the Member's
Accounts, distribution may be made as though the Member had died at the end of
the three-year period. If, within one additional year after such three-year
period has elapsed, or within three years after the actual death of a Member,
the Committee is unable to locate any individual who would receive a
distribution upon the death of the Member pursuant to Article IX, the Member's
Accounts shall be deemed a Forfeiture; provided, however, that if the Member,
Beneficiary, or Spouse makes a claim for any amount that has been so forfeited,
the forfeited benefits shall be reinstated. The amount required to restore such
benefits shall be made up from Forfeitures and, to the extent necessary,
Employer Contributions prior to their allocation pursuant to section 7.4.
16.4 Rights Against the Company
Neither the establishment of the Plan, nor of the Trust, nor any modification
thereof, nor any distributions hereunder shall be construed as giving to any
person whomsoever any legal or equitable rights against the Committee, the
Company, or the officers, directors, or shareholders as such of the Company, or
as giving any Employee or Member the right to be retained in the employ of the
Company. All benefits payable under the Plan shall be paid or provided for
solely from the Trust, and the Company shall have no liability or responsibility
for benefit distributions other than to make contributions to the Trust as
herein provided.
16.5 Illegality of Particular Provision
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<PAGE>
The illegality of any particular provision of this Plan shall not affect the
other provisions thereof, but the Plan shall be construed in all respects as if
such invalid provision were omitted.
16.6 Effect of Mistake
In the event of a mistake or misstatement as to the age, eligibility,
compensation, service or participation of a Member or the amount of
distributions made or to be made to a Member or other person, the Committee
shall, to the extent it deems possible, cause to be withheld or accelerated, or
otherwise make adjustment of, such amounts as will in its judgment accord to
such Member or other person, or distribution to which he or she is properly
entitled under the Plan.
16.7 Compliance with Federal and State Securities Laws
(a) The Company will take all necessary steps to comply with any applicable
registration or other requirements of federal or state securities laws from
which no exemption is available.
(b) Stock certificates distributed to Members, Beneficiaries, or Spouses may
bear such legends concerning restrictions imposed by federal or state
securities laws, and concerning other restrictions and rights under the
Plan, as the Committee in its discretion may determine.
16.8 No Discrimination
Whenever in the administration of the Plan action by the Committee is required
with respect to eligibility or classification of Employees, contributions, or
benefits, such action shall be uniform in nature as applied to all persons
similarly situated, and no such action shall discriminate in favor of Employees
who are Highly Compensated Employees.
16.9 Exclusive Benefit of Employees
(a) All Employer Contributions made pursuant to the Plan shall be held by the
Trustee in accordance with the terms of the Trust Agreement for the
exclusive benefit of those Employees who are Members under the Plan,
including former Employees, Beneficiaries, and Spouses, and shall be
applied to provide benefits under the Plan and to pay expenses of
administration of the Plan and the Trust to the extent that such expenses
are not otherwise paid. At no time prior to the satisfaction of all
liabilities with respect to such Members, their Beneficiaries and Spouses
shall any part of the Trust Fund (other than such part as may be required
to pay
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<PAGE>
administration expenses) be used for, or diverted to, purposes other
than the exclusive benefit of such Members, their Beneficiaries and
Spouses.
(b) Notwithstanding section 16.8(a)--
(1) if an Employer Contribution under the Plan is conditioned on initial
qualification of the Plan under section 401(a) of the Code, and the
Plan receives an adverse determination with respect to its initial
qualification, the Trustee shall, upon written request of the Company,
or Participating Employer making the contribution, return to the
Company or Participating Employer the amount of the contribution
(increased by earnings attributable thereto and reduced by losses
attributable thereto) within one calendar year after the date that
qualification of the Plan is denied, provided that the application for
the determination is made by the time prescribed by law for filing the
employer's return for the taxable year in which the Plan is adopted,
or such later date as the Secretary of the Treasury may prescribe;
(2) if an Employer Contribution is conditioned upon the deductibility of
such contribution under section 404 of the Code, then, to the extent
the deduction is disallowed, the Trustee shall, upon written request
of the Company or Participating Employer making the contribution,
return the contribution to the extent disallowed to the Company or
Participating Employer within one year after the date the deduction is
disallowed;
(3) if an Employer Contribution or any portion thereof is made by the
Company or a Participating Employer by a mistake of fact, the Trustee
shall, upon written request of the Company or Participating Employer,
return the contribution or the portion to the Company or Participating
Employer within one year after the date of payment to the Trustee; and
(4) earnings attributable to amounts to be returned to the Company ro
Participating Employer pursuant to paragraph (2) or (3) shall not be
returned to the Company or Participating Employer, and losses
attributable to amounts to be returned pursuant to paragraph (2) or
(3) shall reduce the amount to be so returned.
16.10 Governing Law
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The provisions of the Plan shall be construed, administered, and enforced in
accordance with the laws of Illinois, to the extent such laws are not superseded
by laws of the United States. All Employer Contributions to the Trust shall be
deemed to be made in Illinois.
16.11 Change-in-Control
Notwithstanding any provision of the Plan to the contrary, if a Change-in-
Control (as defined below) occurs--
(a) each Participant who is an Employee on the date the Change-in-Control
occurs shall be 100 percent vested in the adjusted balance of the
Participant's Company Stock and Other Investments Accounts;
(b) no merger, transfer of assets, or other similar transactions involving the
Plan shall be permitted until all Loans outstanding at the time of the
Change-in-Control have been repaid and all shares of Company Stock held in
a Suspense Account in respect thereof have been released and allocated to
Participants' Company Stock Account of Participants employed as of the
Change-in-Control date;
(c) no other action may be taken pursuant to Article XIII that would have the
affect of diverting such shares to the Company Stock Accounts of
Participants who are not employees of the Company or a Participating
Employer as of the Change-in-Control date; or
(d) if, in connection with the Change-in-Control, Company Stock held by the
Plan has been sold for consideration other than securities constituting
Company Stock, then the date that the Change-in-Control occurs shall be a
special Valuation Date and each Participant with an Account under the Plan
as of the date the Change-in-Control occurs shall be entitled to share in
the proceeds of such sale in the manner described in section 7.7(b).
For purposes of this section, a "Change-in-Control" shall be deemed to occur on
the earliest of--
(1) the receipt by Northern Trust Corporation (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
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<PAGE>
percent of the outstanding capital stock of the Corporation entitled to
vote for the election of directors ("voting stock");
(2) 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 percent of the outstanding voting stock of
the Corporation;
(3) 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 percent 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 percent of the voting stock; or
(4) the election to the Board, without the recommendation or approval of the
incumbent Board, of the lesser of (A) three directors or (B) directors
constituting a majority of the number of Board members then in office.
* * * * * * * * * *
In Witness Whereof, the Company has caused this Plan to be executed on its
behalf by its duly authorized officer this _________ day of
_____________________ , 1995.
THE NORTHERN TRUST COMPANY
ATTEST:
By __________________________________
By ________________________________
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EXHIBIT NUMBER (10)(XX)(1)
TO 1994 FORM 10-K
FIRST
-----
AMENDMENT
---------
OF
--
THE NORTHERN TRUST CORPORATION 1992 INCENTIVE STOCK PLAN
--------------------------------------------------------
The Northern Trust Corporation 1992 Incentive Stock Plan (the "Plan") is
hereby amended, effective as of the date hereof, as follows:
1. By changing the name of the Plan in Section 1 to the "Northern
Trust Corporation Amended 1992 Incentive Stock Plan."
2. By substituting the following sentence in place of the third sentence
of Section 2 of the Plan:
"Notwithstanding anything to the contrary contained herein,
membership of the Committee shall be limited to Board
members who meet the "disinterested person" definition in
Rule 16b-3 under Section 16 of the Securities Exchange Act of
1934 and the "outside director" definition under Section 162(m)
of the Internal Revenue Code and the regulations thereunder."
3. By substituting the following sentence in place of the first sentence of
Section 5 of the Plan:
"There is hereby reserved for issuance under the Plan an
aggregate of 3,750,000 (reflecting an adjustment for the
November, 1992 three-for-two stock split) shares of Common
Stock, $1.66 2/3 par value, which may be authorized but unissued
or treasury shares."
4. By substituting the following for Section 12 of the Plan:
"12. NONTRANSFERABILITY. Except as provided below, each Award
granted under the Plan to an employee shall not be transferable by
him other than by will or the laws of descent and distribution and shall
be exercisable, during his lifetime, only by him. In the event of the
death of a participant during employment or prior to the termination,
expiration, cancellation or forfeiture of any Award held by him
hereunder, each Award theretofore granted to him shall be exercisable
or payable to the extent provided therein but no later than five years
after his death and then only:
<PAGE>
(a) by or to the executor or administrator of the estate of the
deceased participant or the person or persons to whom the
deceased participant's rights under the Award shall pass by
will or the laws of descent and distribution; and
(b) to the extent set forth in the benefit.
Notwithstanding the foregoing, a Stock Option Agreement for an
Award of Stock Options that are not Incentive Stock Options
(including a Stock Option Agreement for an Award made prior to the
January 1, 1995 effective date of the amendment to this Section
12), may permit the participant who received the Award, at any time
prior to his death, to assign all or any portion of the Stock
Option granted to him to: (i) his spouse or lineal descendants;
(ii) the trustee of a trust for the primary benefit of his spouse
or lineal descendants; or (iii) a partnership of which his spouse
and lineal descendants are the only partners. In such event, the
spouse, lineal descendant, trustee or partnership will be entitled
to all of the rights of the participant with respect to the
assigned portion of such Stock Option, and such portion of the
Stock Option will continue to be subject to all of the terms,
conditions and restrictions applicable to the Award, as set forth
herein and in the related Stock Option Agreement immediately prior
to the effective date of the assignment. Any such assignment will
be permitted only if: (i) the participant does not receive any
consideration therefore; and (ii) the assignment is expressly
permitted by the applicable Stock Option Agreement (as such Stock
Option Agreement may be amended) as approved by the Committee. Any
such assignment shall be evidenced by an appropriate written
document executed by the participant, and a copy thereof shall be
delivered to the Committee on or prior to the effective date of the
assignment."
5. By substituting the following in place of (ii) in the last
sentence of Section 14:
"(ii) if the election is made by a participant who is subject to
the restrictions of Section 16 of the Securities Exchange Act of
1934, then the election must be made in accordance with such
restrictions and the restrictions of Rule 16b-3."
<PAGE>
EXHIBIT NUMBER (10)(xxii)
TO 1994 FORM 10-K
NORTHERN TRUST CORPORATION
DAVID W. FOX
LIFE INSURANCE AGREEMENT
AGREEMENT is made this 5th day of January, 1995, between David W. Fox
(hereinafter referred to as the "Employee") and Northern Trust Corporation, a
Delaware corporation having its principal office at 50 South LaSalle Street,
Chicago, Illinois 60675 (hereinafter referred to as the "Corporation"):
WHEREAS, the Employee has rendered valuable services to the Corporation in the
past; and
WHEREAS, the Employee wishes to be assured that his family will be entitled to a
certain amount of additional compensation after his death; and
WHEREAS, the Corporation wishes to induce the Employee to remain employed
although he is now eligible to retire;
NOW, THEREFORE, in the consideration of these premises and the covenants and
agreements herein set forth, the parties hereto covenant and agree as follows:
DEATH BENEFIT
-------------
FIRST: The Corporation agrees that in the event of the Employee's death prior to
making an effective election to retire under the Corporation's Pension Plan, the
Corporation shall pay to the employee's designated beneficiary a lump sum of
$4,300,000 no later than 60 days following the death of the Employee. The
Employee hereby designates the Employee's wife, Mary Ann Evans Fox, or, if she
is not living at this death, divide and allocate per stirpes among his
descendants living at his death, and the amount allocated to each descendant
shall be paid to The Northern Trust Company, as trustee of the David Wayne Fox
Insurance Trust Dated November 24, 1965, to be added to the primary trust named
for such descendant under paragraph 5 of that trust.
FORFEITURE PROVISION
--------------------
SECOND: In the event the Employee has submitted an effective election to retire
under the Corporation's Pension Plan prior to his death, the Corporation shall
be under no obligation to the Employee or his beneficiaries regarding the
benefits provided by Paragraph FIRST hereof.
<PAGE>
UNFUNDED AGREEMENT
------------------
THIRD: This agreement is unfunded. The Corporation may, at its discretion,
purchase insurance on the life of the Employee in an amount equal to some or all
of the death benefit provided for in this agreement.
ASSIGNABILITY PROHIBITED
------------------------
FOURTH: None of the Employee, the Employee's wife, or any other beneficiary
under this agreement shall have any power or right to transfer, assign,
anticipate, hypothecate or otherwise encumber any part of all of the amounts
payable hereunder, and such amounts shall not be subject to seizure by any
creditor of any such beneficiary, by a proceeding at law or in equity, and no
such benefit shall be transferable by operation of law in the event of
bankruptcy, insolvency or death of the Employee, his wife, or any other
beneficiary hereunder.
AGREEMENT TO SURVIVE MERGER, CONSOLIDATION, ETC.
------------------------------------------------
FIFTH: The Corporation agrees that it will not merge or consolidate with any
other organization or permit its business activities to be taken over by any
other organization unless and until such succeeding or continuing organization
shall expressly assume the duties of the Corporation set forth in this
agreement.
GOVERNING LAW
-------------
SIXTH: This agreement shall be governed by the laws of the state of Illinois.
SEVERABILITY
------------
SEVENTH: In the event that any term or condition contained in the agreement
shall, for any reason, be held by a court of competent jurisdiction to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other term or condition of this agreement,
but this agreement shall be construed as if such invalid or illegal or
unenforceable term or condition had never been contained herein.
BINDING AGREEMENT
-----------------
EIGHTH: This agreement shall be binding upon the beneficiaries, heirs, executors
and administrators of the Employee and upon the successors and assigns of the
Corporation.
-2-
<PAGE>
ATTORNEY'S FEES AND COSTS
-------------------------
NINTH: If any action at law or in equity, or any arbitration proceeding, is
brought to enforce or interpret the terms of this agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which he may be entitled.
IN WITNESS WHEREOF, signed and sealed on the date first above written.
WITNESS: CORPORATE SEAL NORTHERN TRUST
CORPORATION
BY
/s/ William N. Setterstrom /s/ Peter L. Rossiter
---------------------------- ---------------------
William N. Setterstrom Peter L. Rossiter
TITLE: Executive
Vice President
WITNESS:
/s/ Annelies Hunt /s/ David W. Fox
-------------------------- ---------------------
Annelies Hunt David W. Fox
EMPLOYEE
- 3 -
<PAGE>
EXHIBIT NUMBER(10)(xxiii)
To 1994 FORM 10-K
NORTHERN TRUST CORPORATION
MANAGEMENT PERFORMANCE PLAN
I. PURPOSE OF PLAN
The purpose of the Management Performance Plan (the "Plan") is to promote
the achievement of superior Corporate financial and operating performance
of the Northern Trust Corporation (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, 1994 to December 31, 1994.
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
Participant awards are based on the Corporation's financial achievement
versus the Plan's Corporate Earnings Target, which is established by the
Committee at the beginning of the Plan year. The participant's target award
will be the amount which is awarded if the Corporation's financial
achievement is equal to the Plan's Corporate Earnings Target. The amount of
the award will either increase or decrease as calculated by the formula
detailed on Attachment I.
Attachment II provides an example of a participant's award calculation.
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 Section 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. PLAN ADMINISTRATION AND TERMINATION
The Plan is administered by the Compensation and Benefits 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 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 this 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 payments.
(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.
(g) Each participant shall designate a beneficiary (the "Designated
Beneficiary") to receive payments due hereunder 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.
<PAGE>
(h) Notwithstanding any other terms contained herein, in event of a Change in
Control of the Corporation, the participant's target award 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
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 of 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.
<PAGE>
ATTACHMENT I
MANAGEMENT PERFORMANCE PLAN
CORPORATE EARNINGS TARGET AND AWARD SCHEDULE
1994 CORPORATE EARNINGS TARGET
------------------------------
The 1994 Management Performance Plan Corporate Earnings Target is $195 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 target award that will be payable will be determined in
accordance with the following formula:
For each percent change in net income above/below the $195 million earnings
target, the percent of the award shall be 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 15.1-20%.
<TABLE>
<CAPTION>
% of Net Income Target % of Target Award Payable
---------------------- -------------------------
<S> <C>
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
</TABLE>
<PAGE>
ATTACHMENT II
MANAGEMENT PERFORMANCE PLAN
1994
AWARD CALCULATION EXAMPLES
Assumptions
-----------
. Participant Target Award - 20%
. Annual Salary Earned - $100,000
Target Award - 20% or $20,000 at achievement
------------ of the Corporate Earnings Target
Award levels at various levels of Corporate achievement versus the Corporate
Earnings Target:
Percentage of
Corporate Earnings Amount of
Target Achieved Award
------------------ ---------
110% $23,000
105% $21,000
103% $20,600
Corporate Earnings Target- 100% $20,000
97% $19,400
95% $19,000
90% $17,000
<PAGE>
EXHIBIT NUMBER (11)
TO 1994 FORM 10-K
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
For the Year Ended December 31,
--------------------------------------
1994 1993 1992
------------ ------------ ------------
Computations Required by
Regulation S-K
Primary Earnings Per Share
--------------------------
Net Income Applicable to
Common Shares $174,917,377 $161,572,474 $142,730,771
------------ ------------ ------------
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding
Common Shares 53,866,513 53,019,436 52,199,933
Diluted Effect of Common
Equivalent Shares (A)
Stock Options 863,506 1,177,972 1,436,772
Long Term Performance Stock Plan 405,626 391,025 395,224
Other 8,569 1,500 1,301
---------- ---------- ----------
55,144,214 54,589,933 54,033,230
========== ========== ==========
Net Income Per Common and
Common Equivalent Share $3.17 $2.96 $2.64
----- ----- -----
(A) Determined by application of the treasury stock method.
<PAGE>
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Computations Required by
Regulation S-K
Fully Diluted Earnings Per Share
--------------------------------
Net Income Applicable to
Common Shares $174,917,377 $161,572,474 $142,730,771
Add Back: Dividend on Series E Convertible
Preferred Stock 3,125,000 3,129,199 2,764,710
------------ ------------ ------------
$178,042,377 $164,701,673 $145,495,481
============ ============ ============
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding
Common Shares 53,866,513 53,019,436 52,199,933
Diluted Effect of Common
Equivalent Shares (A)
Stock Options 866,356 1,223,468 1,538,697
Long Term Performance Stock Plan 406,022 399,331 403,679
Other 8,664 1,754 1,580
Other Potentially Dilutive Securities
Equivalent Shares Assuming Conversion of
Series E Convertible Preferred Stock 1,204,820 1,204,820 1,066,562
------------ ------------ ------------
56,352,375 55,848,809 55,210,451
============ ============ ============
Net Income Per Common and
Common Equivalent Share $3.16 $2.95 $2.64
----- ----- -----
</TABLE>
(A) Determined by application of the treasury stock method.
<PAGE>
EXHIBIT NUMBER (13)
TO 1994 FORM 10-K
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Northern Trust Corporation (Corporation) is a
bank holding company organized in 1971 to hold all of the
outstanding capital stock of The Northern Trust Company
(Bank), an Illinois banking corporation located in the
Chicago financial district. Northern Trust Corporation also
owns three other banks in the Chicago metropolitan area, a
bank in each of Florida, Arizona, California and Texas, and
various other nonbank subsidiaries, including a securities
brokerage firm, a futures commission merchant and a
retirement benefit plan services company. Although the
operations of other subsidiaries will be of increasing
significance, it is expected that the Bank will continue to be
the major source of the consolidated assets, revenues and
net income in the foreseeable future.
All references to Northern Trust refer to Northern Trust
Corporation and its subsidiaries on a consolidated basis.
The following provides an understanding of the
consolidated financial statements and other statistical data
presented in this report.
RESULTS OF OPERATIONS
OVERVIEW. Net income for 1994 totaled a record $182.2
million, an 8.5% increase from the $167.9 million earned
in 1993 which in turn was 12% greater than the $149.5
million earned in 1992.
On a fully diluted basis, net income per common share
increased 7% to $3.16 in 1994, compared with net income
per common share of $2.95 in 1993 and $2.64 in 1992.
The record 1994 net income performance, together with
strong growth in equity, produced a return on average
common stockholders' equity of 16.6% compared with
17.9% in 1993 and 18.7% in 1992.
The return on average assets was 1.02% in 1994
compared with 1.07% in 1993 and 1.11% in 1992.
1994 marks the seventh consecutive year of record
earnings. Trust fees reached a new high surpassing $450
million, while trust assets under administration reached
$499 billion at December 31, 1994, up $22 billion from
1993. Record net interest income, strong foreign exchange
trading profits, a lower provision for credit losses and the
gain on the sale of the 21% interest in Banque Scandinave
en Suisse (BSS) also contributed to the year's performance.
Partially offsetting these positive factors was the impact of
several nonrecurring expenses. This revenue growth
combined with controlled increases in noninterest expenses
resulted in record profits.
Primarily through the retention of earnings, stockholders'
equity grew to $1.3 billion versus $1.2 billion at December
31, 1993 and $1.0 billion at December 31, 1992.
The Board of Directors increased the quarterly dividend
per common share 18.2% in November 1994, to $.26 from
$.22, for a new annual rate of $1.04. This is the eighth
consecutive year in which the dividend rate has been
increased, and reflects a policy of increasing the dividend
rate with increased profitability while retaining sufficient
earnings to allow for strategic expansion and the
maintenance of a strong balance sheet.
Northern Trust's strategy will focus on those businesses
with the greatest growth and profitability potential while
continuing to emphasize cost containment, quality, and the
maximization of the benefits derived from our technological
investments. Expense growth and capital expenditures will
also be closely monitored to ensure that short- and long-
term business strategies are effectively supported. Although
noninterest expenses are expected to grow in total to
support these strategies, Northern Trust has set the goal of
taking out approximately $15 million from base expenses in
each of the next three years.
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(In Millions Except Per
Share Amounts) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 338.2 $ 329.3 $ 311.2 $ 281.9 $ 249.3
Provision for Credit
Losses 6.0 19.5 29.5 31.0 14.0
Noninterest Income 629.8 552.4 509.4 412.8 369.3
Noninterest Expenses 700.5 628.2 584.6 500.1 464.9
Provision for Income
Taxes 79.3 66.1 57.0 36.2 24.3
---------------------------------------------------------------------------------
NET INCOME $ 182.2 $ 167.9 $ 149.5 $ 127.4 $ 115.4
---------------------------------------------------------------------------------
Net Income Applicable to
Common Stock $ 174.9 $ 161.6 $ 142.7 $ 121.4 $ 109.2
---------------------------------------------------------------------------------
PER COMMON SHARE
Net Income-Primary $ 3.17 $ 2.96 $ 2.64 $ 2.29 $ 2.06
-Fully Diluted 3.16 2.95 2.64 2.27 2.05
Dividends Declared .92 .77 1/2 .66 1/2 .58 .52
---------------------------------------------------------------------------------
Average Total Assets $17,885.8 $15,700.2 $13,418.0 $12,182.5 $11,682.1
Senior Medium-Term Notes
at Year-End 547.0 817.0 312.0 2.0 --
Notes Payable at Year-
End 244.8 326.8 233.2 264.1 171.6
---------------------------------------------------------------------------------
</TABLE>
26
NORTHERN TRUST CORPORATION
<PAGE>
NONINTEREST INCOME. The success of Northern
Trust's strategy of maintaining a diverse revenue base is
evidenced by the fact that noninterest income, exclusive of a
$28.5 million net gain on the BSS sale, represents 62% of
its total taxable equivalent revenue, compared with 60%
one year ago. Noninterest income totaled $629.8 million in
1994, $552.4 million in 1993 and $509.4 million in 1992.
TRUST FEES. Excluding the gain on the sale of BSS,
trust fees accounted for 75% of total noninterest income
and 47% of total taxable equivalent revenue in 1994. Trust
fees for 1994 increased 12% to $453.4 million from $404.8
million in 1993 which was up 10% from $368.4 million in
1992. Trust fees have increased at a compound growth rate
of 14% for the last five years. The April 1994 acquisition of
Hazlehurst & Associates, Inc., a privately-held retirement
benefit plan services company, contributed approximately
$10.6 million in trust fees in 1994. The increase in 1994
trust fees is principally the result of growth in business from
new and existing clients, particularly for investment
management, global custody and security lending services.
Contributing to the 1993 fee growth were new business
results coupled with higher stock and bond market levels.
Fees are based on the market value of assets managed and
administered, transaction fees and other services rendered.
Asset-based fees are typically determined on a sliding scale
so that as the value of a client portfolio grows in size,
Northern Trust receives a smaller percentage of the
increasing value as fee income. Therefore, market value or
other incremental changes in a portfolio's size do not
typically have a proportionate impact on the level of trust
fees. In addition to fees, certain trust-related activities result
in deposits, primarily interest-bearing, which are
maintained with the bank subsidiaries and foreign branches.
These deposits averaged $3.9 billion in 1994 and $2.8
billion in 1993.
Northern Trust's trust business encompasses Master
Trust, Master Custody, investment management and
retirement services for corporate and institutional asset
pools, as well as a complete range of estate planning,
fiduciary, and asset management services for individuals.
Fees from these highly focused services are fairly evenly
distributed between Northern Trust's two business units,
Corporate and Institutional Services (CIS) and Personal
Financial Services (PFS). A discussion of the trust activities
of each of these business units follows.
CORPORATE AND INSTITUTIONAL SERVICES. At December 31,
1994 trust assets under administration for CIS totaled
$447.2 billion, an increase of 5% from $426.5 billion a year
ago. Trust fees for CIS increased 18% in 1994 to $230.1
million from $195.0 million in 1993 which was up 12%
from $173.8 million in 1992.
Northern Trust continues to be a leading provider of
Master Trust and Master Custody services in various market
segments. These market segments are principally large U.S.
corporate, public funds, taxable and international asset
pools. The major products offered include custody,
investment management and securities lending services. CIS
also includes a correspondent trust market segment which
provides custody, systems and investment services to smaller
bank trust departments.
Large U.S. Corporate. Trust fees from the large U.S.
corporate market segment totaled $122.0 million in 1994.
Trust fees for this segment in 1993 and 1992 totaled $104.0
million and $93.6 million, respectively. Assets under
administration totaled $181.8 billion at December 31, 1994
compared with $179.6 billion a year ago.
Much of the new growth in retirement assets is expected
to be from defined contribution plans of U.S. corporations.
Northern Trust believes that it is well positioned to benefit
from this trend given its long-term relationships with
corporate sponsors and its family of institutional mutual
funds. To broaden its array of services and more effectively
address the needs of this segment of the retirement services
market, Hazlehurst & Associates, Inc. was acquired in April
1994. With offices in Atlanta and Seattle, Hazlehurst has
well established capabilities in retirement plan design,
participant recordkeeping, and actuarial and consulting
services that complement the existing custody, fiduciary and
investment management capabilities in the strategically
important retirement services market.
Public Funds. Growth in the public funds market segment
has been driven by increased funding of plans by state and
local public entities and the use of outside service providers
as reporting requirements have become more complex.
Although this market segment tends to be the most price
sensitive, investments in technology have allowed Northern
Trust to compete effectively on the basis of both cost and
quality of service to the client. In 1994 this market segment
contributed $31.6 million in trust fees, compared with
$28.9 million in 1993 and $25.9 million in 1992. At
December 31, 1994, $72.0 billion of assets were under
administration versus $77.3 billion at December 31, 1993.
27
NORTHERN TRUST CORPORATION
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Taxable. This market segment, which includes insurance
companies, foundations and endowments, provides
attractive growth opportunities for trust and banking
services. The insurance industry continues to consolidate its
relationships with providers who can meet their full range
of banking and custody needs. Northern Trust seeks to
maintain an array of products and services, a strong capital
position and systems capabilities that position it to increase
its share of this market. It is a leading provider of custody
services to foundations and endowments. Five of the largest
ten foundations are clients as are many of the largest
endowment funds in the United States. Trust fees from this
market segment in 1994, 1993 and 1992 totaled $32.9
million, $29.8 million and $26.1 million, respectively.
Assets under administration at December 31, 1994
increased to $81.2 billion from $80.2 billion at December
31, 1993.
International. This market segment handles the custody
needs of non-U.S. clients domiciled in nineteen countries,
and has had the highest rate of growth for the last three
years when measured in terms of assets under
administration and trust fees. At December 31, 1994 assets
under administration totaled $48.1 billion, up 51% from
$31.9 billion at year-end 1993, which in turn was up 37%
over the previous year-end. Trust fees for 1994 increased
56% to $28.8 million. This compares with $18.4 million in
1993 which was up 24% from $14.8 million in 1992.
Northern Trust maintains the required system capabilities
and sub-custodial network necessary to capitalize on the
growth opportunities presented by the development of
worldwide financial markets.
In terms of assets under administration, global custody is
one of the fastest growing products within CIS. This
product provides the necessary services for the growing
volume of foreign assets that are held by U.S. and non-U.S.
domiciled clients. Through its worldwide network of
subcustodians in 56 countries, Northern Trust has global
assets of $65.5 billion under administration at December
31, 1994 which is 29% greater than last year.
In addition to the increase in the volume of cross-border
investing, global custody fees were favorably impacted by
the successful transition of global assets from BSS to the
Chicago head office and the London Branch of The
Northern Trust Company during the second half of 1994.
With the development of tax lot accounting within the trust
systems, global custody clients are now directly provided
with this cost effective service. The absence of the fee
sharing arrangement with BSS will result in an increase in
global custody fees which will be partially offset by an
increase in noninterest expenses as a result of the London
Branch assuming this business. In addition, The Northern
Trust Company, Canada was granted full trust powers in
November 1994, making it the first non-Canadian financial
institution to have the right to operate in Canada as a trust
company. The attainment of trust powers will facilitate
expansion of the global custody business within Canada.
Correspondent Trust. Servicing this market segment is also
an element of trust strategy. As technology has become
more sophisticated and banks are forced to become more
cost conscious, Northern Trust has been able to leverage its
investment in technology by making its trust processing
services available to smaller banks. Trust fees from this
market totaled $14.8 million in 1994, $13.9 million in
1993 and $13.4 million in 1992. Assets under
administration at December 31, 1994 and 1993 totaled
$37.7 billion and $36.1 billion, respectively.
Securities Lending. Clients who utilize trust services may
elect to have their securities lent to generate revenues to
improve their portfolio's total return. The cash that has
been deposited by investment firms as collateral for
securities they have borrowed from trust clients under the
securities lending program is managed by Northern Trust
CONSOLIDATED TRUST ASSETS UNDER ADMINISTRATION
<TABLE>
<CAPTION>
Five-
Percent Year
December 31 Change Compound
------------------------------------------ Growth
($ In Billions) 1994 1993 1992 1991 1990 1994/93 Rate
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Corporate $ 51.5 $ 46.6 $ 41.7 $ 36.0 $ 38.7 11% 14%
Personal 30.8 30.5 27.9 22.7 19.2 1 11
-------------------------------------------------------------------------------
TOTAL MANAGED TRUST ASSETS $ 82.3 $ 77.1 $ 69.6 $ 58.7 $ 57.9 7% 13%
-------------------------------------------------------------------------------
Corporate $395.7 $379.9 $323.2 $287.8 $206.1 4% 15%
Personal 20.6 19.5 18.9 14.8 12.7 5 12
-------------------------------------------------------------------------------
TOTAL NON-MANAGED TRUST
ASSETS $416.3 $399.4 $342.1 $302.6 $218.8 4% 15%
-------------------------------------------------------------------------------
CONSOLIDATED TRUST ASSETS
UNDER ADMINISTRATION $498.6 $476.5 $411.7 $361.3 $276.7 5% 15%
-------------------------------------------------------------------------------
</TABLE>
28
NORTHERN TRUST CORPORATION
<PAGE>
and included in trust assets under administration. Income
from this activity is, likewise, included in the fees of each
market segment. Domestic and international lending fees,
up 31% over 1993, reflect a higher spread earned on the
cash collateral along with an 18% increase in the volume of
securities loaned. The increase in the spread is attributable
to the short-term nature of the cash collateral pools which
has allowed for favorable fund management during a period
of rising interest rates. The cash collateral totaled $26.4
billion and $21.4 billion at December 31, 1994 and 1993,
respectively. During the first quarter of 1995, Northern
Trust expects to commence operations in a new Hong Kong
subsidiary to better facilitate the lending of securities from
its clients' global portfolios. Also in 1995, additional
investment options will be available to those clients
participating in the securities lending program thereby
allowing clients to have more control over the degree of
investment risk which they assume.
Custody Services. With respect to basic custody services,
price competition has remained intense in all segments of
the corporate trust business. Northern Trust believes that it
is positioned to deal with these pressures and maintain
acceptable profitability because of its focus on providing
unrivaled service quality, developing deeper client
relationships that include services other than simple custody,
economies of scale and technological innovation. Increased
volumes from the growth in cross-border investing placed
pressure during 1994 on the ability to maintain the high
level of global custody service quality. Additional resources
have been dedicated to this area of operations to ensure that
Northern Trust continues to meet its strategic objective of
providing services that exceed client expectations.
PERSONAL FINANCIAL SERVICES. At December 31, 1994
trust assets under administration for PFS totaled $51.4
billion, an increase of 3% from $50.0 billion at December
31, 1993. Trust fees increased 7% in 1994 to $223.3
million while 1993 trust fees totaled $209.8 million, an
increase of 8% from $194.6 million in 1992. Although all
geographic markets contributed to the 1994 increase, the
strongest fee growth occurred in the Wealth Management
Group and the Florida, Arizona, Texas and suburban
Chicago markets.
Northern Trust has positioned itself in those states having
significant concentrations of wealth and growth potential.
Currently there is a national network of 45 office locations
in Arizona, California, Florida, Illinois and Texas. With an
established presence in these growing markets, Northern
Trust believes that it has the momentum to continue to
grow personal trust fees.
Illinois. Personal trust fees in Illinois increased 5% to
$114.7 million in 1994 from $109.8 million in 1993 which
was up 5% from $105.0 million in 1992. The moderate
rate of growth in trust fees is attributable, in part, to the
maturity of the trust business within the lead bank in
Chicago. As assets are distributed or liquidated from older
trust accounts, revenues from the existing book of business
decline and partially offset the effect of new business. Other
factors impacting the 1994 trust fee performance were a
decline in nonrecurring fees, including probate fees, lower
market values and the temporary absorption of certain costs
of the Northern Funds, a series of sixteen no-load
proprietary mutual funds introduced to the Illinois market
in April 1994. In 1994, Northern Trust's presence was
expanded within Illinois with the opening of a full service
trust and banking office in the suburb of Highland Park and
the opening of the Chicago South Financial Center to
facilitate banking by clients located on Chicago's south side
and in the southern suburbs. Northern Trust has the leading
market share in the Chicago area personal trust market with
$32.8 billion of assets under administration at December
31, 1994 compared with $31.6 billion a year ago. Over the
years clients have been attracted by both the quality of trust
services and the profile of financial strength and stability
which has consistently been achieved. These qualities,
combined with credit ratings that are top tier, have allowed
Northern Trust to enhance the growth of its personal trust
business. It is expected that the Chicago area market will
continue to be a significant contributor to personal trust
revenues.
Florida. The personal trust business in Florida continues
to be a significant contributor to the growth in personal
trust fees. Trust fees for 1994 totaled $57.2 million, up 9%
from $52.2 million in 1993 which was up 14% from $46.0
million in 1992. Trust assets under administration were
$10.3 billion at December 31, 1994, and $10.1 billion at
year-end 1993. The five-year compound growth rates for
trust fees and trust assets have been 15% and 11%,
respectively. With new offices in Fort Lauderdale and
Venice, there are now sixteen offices in the South and West
Florida markets. It is believed that there remains significant
opportunity for growth in the markets currently served in
Florida.
In December 1993, the Corporation entered into a
definitive agreement to acquire Beach One Financial
Services, Inc., parent of The Beach Bank of Vero Beach,
Florida, for $56.2 million in Northern Trust common
stock. The agreement is subject to the approval of Beach
One's shareholders and to various regulatory approvals and
other legal requirements. Northern Trust expects that a
decision by the Federal Reserve Board on its application to
acquire Beach One, which was deferred pending, among
29
NORTHERN TRUST CORPORATION
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
other matters, completion of the Bank's Community
Reinvestment Act examination, will be made soon. The
examination was completed in November 1994 and the
Bank was assigned a "satisfactory" rating.
California. Northern Trust of California was established
in 1988 as a de novo subsidiary to reach the California trust
market. The 1992 acquisition of $4 billion of trust assets
under administration from Trust Services of America (TSA)
has successfully increased the penetration of the California
market. A new Westwood office was opened during the
year in West Los Angeles. Trust fees for 1994 increased 5%
to $34.0 million. Reflecting a full year's contribution from
the TSA business, 1993 trust fees were up 9% to $32.3
million from $29.7 million in 1992. During 1994, the
impact from new business and a fee increase was partially
offset by the run-off of existing business. Trust assets under
administration totaled $5.3 billion at December 31, 1994
and $5.5 billion at December 31, 1993.
Arizona. Northern Trust Bank of Arizona N.A. is one
of the largest providers of personal trust services in the state.
As in other markets, the strategy in Arizona combines
private banking and trust services to targeted high net
worth individuals. Trust fees from this market were $12.8
million in 1994, $11.9 million in 1993 and $10.7 million in
1992. Assets under administration at December 31, 1994
and 1993 totaled $1.7 billion and $1.8 billion, respectively.
Texas. Northern Trust's presence in Texas is modest but
growing. With offices in Dallas and Houston, Northern
Trust Bank of Texas N.A. is located in the two most
important metropolitan markets in the state and has
expanded from one office to four offices since its entry into
the Texas market in 1989. Trust fees for 1994, 1993 and
1992 were $4.6 million, $3.6 million and $3.2 million,
respectively. Trust assets under administration were $1.3
billion at December 31, 1994 and $1.0 billion at December
31, 1993.
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. Tanglewood's assets totaled $229.9
million at December 31, 1994 and net income totaled $2.6
million in 1994. The agreement is subject to the approval of
Tanglewood shareholders, to final due diligence and to
various regulatory approvals and is expected to close in the
second half of 1995.
Investment Management. Northern Trust believes that its
expertise in investment management provides a competitive
advantage in executing its personal trust strategy. For
example, investment management performance for stock
and bond accounts for institutional clients ranks in the top
quartile for the five and ten year performance periods ended
December 31, 1994, as measured by SEI, a nationally
recognized performance measurement tracking service. The
same methodology used to achieve this top-ranked
institutional performance is also used in the management of
individual accounts. Northern's investment management
performance for international equities ranks in the top
quartile for the five and ten year performance periods ended
December 31, 1994, as measured by InterSec Research
Corporation. In 1994, Northern Trust leveraged its
investment expertise with the establishment of a second
mutual fund family, the Northern Funds. Assets in this
family of funds reached $2.3 billion at year-end. This
mutual fund family serves the investment needs of personal
clients while the Benchmark family of mutual funds
continues to serve the needs of institutional clients.
The national personal trust strategy will focus primarily
on increasing market share in present geographic locations
and the development of other selected upscale personal
markets. In Florida, expansion into five additional counties
is planned over the next three-to-five years. The expansion
will be achieved primarily de novo, but may include
selective acquisitions. The goal of this expansion is to
continue to grow Florida's net income and trust assets
significantly. In the newer growth areas around Phoenix and
Tucson, Arizona, there are plans to open new offices during
the course of the next several years. In Illinois, certain
suburban communities have been identified for new offices
and an additional inner city location is also contemplated.
SECURITY COMMISSIONS AND TRADING INCOME.
Security commissions and trading income totaled $18.4
million in 1994, compared with $19.9 million in 1993 and
1992. The decrease in 1994 reflected lower bond trading
activities. This income is primarily generated from securities
brokerage and futures contract services. Additional revenue
is provided from underwriting selected general obligation
tax-exempt securities, security trades and interest risk
management activities with clients.
OTHER OPERATING INCOME. Other operating
income in 1994 totaled $158.1 million compared with
$125.9 million in 1993 and $117.8 million in 1992. The
increase resulted primarily from a $28.5 million pretax gain
on the second quarter sale of BSS, which was net of
approximately $6.0 million in ancillary and other sale-
related transition costs associated with the transfer of
custody accounts from BSS to the London Branch. Other
operating income in 1994 included gains of $.1 million
from the sale of mortgage loans, compared with $3.9
million in 1993 and $1.2 million in 1992. Foreign exchange
trading profits totaled a record $35.9 million, up 11% from
30
NORTHERN TRUST CORPORATION
<PAGE>
the $32.4 million reported a year ago, which was up from
$21.9 million in 1992. A substantial component of foreign
exchange profit stems from transactions associated with the
growing global custody business. As custodian, Northern
Trust provides foreign exchange services in the normal
course of business. Currency positions, while permitted in
selected situations, constitute an ancillary component of
aggregate trading activity. The fee portion of treasury
management revenues totaled $46.3 million in 1994, a 5%
decline from the $49.0 million reported in 1993, as more
clients tended to pay for services with deposit balances.
Treasury management fees in 1992 totaled $49.7 million.
Total treasury management revenues, which, in addition to
fees, include the value of compensating deposit balances,
increased slightly to $73.4 million from $71.1 million in
1993 and $72.1 million in 1992. Other operating income in
1994 also benefited from higher fees on trust-related
overnight advances and revenues from operating other real
estate owned assets.
A significant portion of noninterest income is generated
through trust, treasury management, brokerage, check
processing, payment and security clearing, and other
banking-related services. In providing these services, which
are principally paid for in fees rather than compensating
balances, Northern Trust, in addition to safekeeping and
managing trust and corporate assets, processed cash and
security transactions exceeding $100 billion on average each
business day. Controls over such activities are closely
monitored to safeguard the assets of Northern Trust and
its clients.
INVESTMENT SECURITY GAINS AND LOSSES. Net
security losses totaling $.1 million were realized in 1994
from the sale of securities classified as "available for sale"
offset in part from securities that were called at a premium.
This compares with gains of $1.8 million realized in 1993
and $3.3 million in 1992.
Effective January 1, 1994, Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," was
adopted. Under SFAS No. 115 held to maturity investment
securities are accounted for at cost, adjusted for
amortization of premium and accretion of discount.
Available for sale investment securities are accounted for at
fair value, with both unrealized gains and losses credited or
charged, net of the related tax effect, directly to
stockholders' equity. This accounting method adds potential
volatility to stockholders' equity, but net income is not
impacted unless the securities are sold. At year-end,
Northern Trust's held to maturity security portfolio had a
fair value of $657.9 million which exceeded the book value
of the portfolio by $16.6 million. The available for sale
security portfolio had a fair value of $4.4 billion. Net
depreciation on this portfolio including the value of related
hedge contracts totaled $25.6 million, which resulted in a
$15.8 million, net of tax, reduction in stockholders' equity.
NET INTEREST INCOME. 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. Earning assets, which consist of securities,
loans and money market assets, are financed by a large base
of interest-bearing funds, including retail deposits,
wholesale deposits, short-term borrowings, senior medium-
term notes and long-term debt. Earning assets are also
funded by net noninterest-related funds. Net noninterest-
related funds consist of demand deposits, the reserve for
credit losses and stockholders' equity, reduced by
noninterest-bearing assets including cash and due from
banks, items in process of collection, buildings and
equipment and other net nonearning assets. Variations in the
level and mix of earning assets, interest-bearing funds and
net noninterest-related funds, and their relative sensitivity
to interest rate movements, are the dominant factors
affecting net interest income. In addition, net interest
income is impacted by the level of nonperforming loans and
OREO and client use of compensating balances to pay for
services.
Net interest income for 1994 was a record $338.2
million, up 3% from $329.3 million in 1993, which was up
6% from $311.2 million in 1992. When 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 a FTE basis for 1994 was a record
$371.6 million, an increase of $8.2 million or 2% from
$363.4 million in 1993 which in turn was up 6% from
$343.7 million in 1992. The growth in FTE net interest
income was essentially attributable to the growth in average
earning assets partially offset by a decline in the net interest
margin to 2.36% from 2.65% last year and 2.96% in 1992.
31
NORTHERN TRUST CORPORATION
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
ANALYSIS OF NET INTEREST INCOME
(FTE)
<TABLE>
<CAPTION>
Percent Change
----------------
($ In Millions) 1994 1993 1992 1994/93 1993/92
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 848.7 $ 706.4 $ 721.9 20.2% (2.1)%
Fully Taxable Equivalent Ad-
justment 33.4 34.1 32.5 (2.3) 5.1
-------------------------------------------------------------------------------
Total Interest Income--FTE 882.1 740.5 754.4 19.1 (1.8)
Total Interest Expense 510.5 377.1 410.7 35.4 (8.2)
-------------------------------------------------------------------------------
NET INTEREST INCOME--FTE 371.6 363.4 343.7 2.2 5.7
-------------------------------------------------------------------------------
AVERAGE VOLUME
Earning Assets 15,737.2 13,730.7 11,605.9 14.6 18.3
Interest-Related Funds 13,185.9 11,655.4 10,139.1 13.1 15.0
Noninterest-Related Funds 2,551.3 2,075.3 1,466.8 22.9 41.5
-------------------------------------------------------------------------------
Change in
Percentage
----------------
AVERAGE RATE
Earning Assets 5.61% 5.39% 6.50% 0.22 (1.11)
Interest-Related Funds 3.87 3.23 4.05 0.64 (0.82)
Interest Rate Spread 1.74 2.16 2.45 (0.42) (0.29)
Total Source of Funds 3.25 2.74 3.54 0.51 (0.80)
-------------------------------------------------------------------------------
NET INTEREST MARGIN 2.36 2.65 2.96 (0.29) (0.31)
-------------------------------------------------------------------------------
</TABLE>
Refer to page 74 for detailed analysis of net interest income.
Earning assets averaged $15.7 billion, up 15% or $2.0
billion from the $13.7 billion reported in 1993 which was
up from $11.6 billion in 1992. The growth in average
earning assets reflects a 14% or $1.0 billion increase in
loans, an 18% or $769 million increase in securities and a
10% or $219 million increase in money market assets. Loan
volume for the year averaged $8.3 billion reflecting an $853
million or 12% increase in domestic lending while
international loans increased $166 million. The domestic
growth came principally from residential mortgage
activities, up $541 million. Reflected in the total loan
growth are non-interest bearing domestic and international
overnight advances, related to processing certain trust client
investments, which averaged $568 million in 1994, up $199
million from a year ago, primarily from international
activity. Securities averaged $5.0 billion in 1994 versus $4.2
billion in 1993, due primarily to a $1.6 billion increase in
short-term federal agency and other marketable securities,
offset in part by an $867 million reduction in U.S.
Government securities. Money market assets averaged $2.4
billion in 1994 versus $2.2 billion in 1993, reflecting an
increase in international deposit placement activity.
The increase in average earning assets of $2.0 billion was
funded primarily by growth in interest-bearing time
deposits, other interest-related funds and noninterest-
related funds. Interest-bearing deposits averaged $8.3
billion, up $867 million. This growth is principally from
global custody deposit activity in London, up $447 million,
and an increase of $401 million in other foreign time
deposits. Other interest-related funds averaged $4.9 billion,
up $664 million, principally from securities sold under
agreements to repurchase (up $780 million) and senior
medium-term notes (up $228 million), and offset by federal
funds purchased and other borrowings which were down
$344 million. Average net noninterest-related funds
increased $476 million, mainly due to higher demand
deposits and stockholders' equity. The increase in average
demand deposits reflects higher levels of trust-related
deposits mainly from global custody activity. Stockholders'
equity for the year averaged $1.2 billion, an increase of $152
million or 14% from 1993, principally due to strong earnings
performance.
The net interest margin declined to 2.36% from 2.65%
last year due primarily to lower spreads on the higher
volume of short-term liquid U.S. federal agency securities
and money market assets, coupled with lower loan-related
fees resulting from a reduced volume of residential
mortgage refinancing activity. Also contributing to the
decline in the interest margin was the increase in the level
of nonearning trust-related overnight advances.
32
NORTHERN TRUST CORPORATION
<PAGE>
PROVISION FOR CREDIT LOSSES. Significant
improvement in asset quality resulted in the provision for
credit losses declining to $6.0 million, from $19.5 million
in 1993 and $29.5 million in 1992. For a discussion of the
reserve for credit losses, refer to pages 38 and 39.
NONINTEREST EXPENSES. Noninterest expenses for
1994 totaled $700.5 million, up $72.3 million or 12%
from $628.2 million in 1993, which was up 7% from
$584.6 million in 1992. Total expenses included several
nonrecurring items: a $9.6 million non-cash, pension
charge; $13.6 million in charges resulting from technology-
related decisions, including the trade-in and the sale and
leaseback of mainframe computer equipment and a write-
down of older trust-related software; $4.2 million of
overtime back pay obligations; and a $3.5 million charge
related to the cost of an agreement between the
Corporation and The Benchmark Funds, for which the Bank
is the investment adviser. Excluding these items, as well as
$9.2 million of expenses of Hazlehurst & Associates, Inc.,
which was acquired during 1994, noninterest expenses
increased 5% over the prior year. The majority of this
increase was the result of continued investment in
technology, expansion of the personal trust office network
and global custody business and other expenditures.
The productivity ratio, defined as noninterest income
plus net interest income on a taxable equivalent basis before
the provision for credit losses, divided by noninterest
expenses was 143% for 1994 compared with 146% in both
1993 and 1992.
SALARIES AND BENEFITS. Salaries and benefits,
which represent 56% of total noninterest expenses,
increased 8% to $391.4 million in 1994 from $361.5
million in 1993, which was up 10% from $328.5 million in
1992. Salary costs, the largest component of noninterest
expenses, totaled $316.6 million, up $23.2 million or 8%
from $293.4 million a year ago. Merit increases and the
effect of the Hazlehurst & Associates, Inc. acquisition were
the principal components of the increase. In addition, a
review of Northern Trust's overtime pay policy resulted in
a $4.2 million addition to salary expense for back pay
obligations. Staff on a full-time equivalent basis averaged
6,420 compared with 6,318 in 1993 and 6,102 in 1992.
Employee benefit costs for 1994 totaled $74.8 million,
up $6.7 million or 10% from $68.1 million in 1993 which
was up 17% from $58.4 million in 1992. The majority of
the 1994 increase in benefit costs was attributable to higher
payroll taxes, the Thrift Incentive and Employee Stock
Ownership Plans and pension benefits.
In 1994, Northern Trust adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits."
This statement requires employers to adopt accrual
accounting for workers compensation, disability, severance
and other benefits provided after employment but before
retirement. The requirements of this statement are
essentially the same as Northern Trust's previous policies,
and, therefore, this change had little impact on annual
postemployment expenses.
OCCUPANCY EXPENSE. Net occupancy expense
totaled $57.4 million, up 4% or $2.1 million from $55.3
million in 1993, which was up 3% from $53.8 million in
1992. The principal components of the 1994 increase were
higher building and leasehold improvement amortization
expenses, rental and operating costs primarily associated
with business expansion in Florida, Texas and Illinois.
EQUIPMENT EXPENSE. Equipment expense, which
includes depreciation, rental, and maintenance costs, totaled
$56.4 million in 1994, up 37% or $15.3 million from
$41.1 million in 1993, which was 14% higher than the
$36.2 million in 1992. Included in the 1994 expense is
$11.2 million of nonrecurring expense resulting from the
trade-in and the sale and leaseback of mainframe computer
equipment. These technology-related decisions, which will
reduce depreciation expenses over the next few years, are
designed to eliminate future residual value risk regarding
these assets and are expected to improve system flexibility
and efficiency and decrease ongoing maintenance costs, with
increased productivity as the end result. Excluding these
items, the expense levels in each of the three years
primarily reflect planned increases in equipment and
computer depreciation and related costs to support trust
business expansion.
OTHER OPERATING EXPENSES. Other operating
expenses for 1994 totaled $195.3 million, up 15% from
$170.3 million in 1993, which was up 3% from $166.1
million in 1992. Other operating expenses in 1994 included
the $9.6 million non-cash pension charge to recognize an
unusually large number of pension eligible retiring
employees who elected to receive lump-sum distributions
and a $3.5 million expense relating to an agreement
between the Corporation and The Benchmark Funds for
which the Bank is investment adviser. Under the agreement,
the funds may sell to the Corporation in June 1995, at the
higher of cost or market value, certain floating rate U.S.
Government agency securities whose returns have lagged
the sharp increase in short-term interest rates. The
agreement increases the net asset values of certain portfolios
of The Benchmark Funds and so preserves the investment
33
NORTHERN TRUST CORPORATION
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
flexibility necessary to maintain competitive yields in the
portfolios, which are used for cash management and
investment by the Bank's institutional clients. Also included
in other operating expenses is a $2.4 million write-down of
older trust-related software. Factors contributing to the
remaining expense increase, principally related to growth in
trust business activities, were computer software
amortization, transaction-based depository fees, technical
and consulting services, telephone and postage. These
expenses were partially offset by lower legal services.
Investments in technology are designed to support and
enhance the transaction processing and securities handling
capability of the trust and banking businesses. Higher levels
of capital expenditures for systems technology will result in
increasingly greater amounts of expense from future
depreciation of hardware and amortization of software
which are charged to equipment and other operating
expenses, respectively.
PROVISION FOR INCOME TAXES. The provision for
income taxes was $79.3 million in 1994 compared with
$66.1 million in 1993 and $57.0 million in 1992. The
effective tax rate was 30% for 1994 compared with 28% for
both 1993 and 1992. The higher tax provision in 1994
resulted from the growth in taxable earnings for both
federal and state income tax purposes while tax-exempt
income declined slightly. The impact of the tax rate increase
in 1993 mandated by the Revenue Reconciliation Act was
partially offset by a new provision in the Act which permits
a deduction for the amortization of certain intangible assets.
SFAS No. 109, "Accounting for Income Taxes" was adopted
on a prospective basis in 1993. Income tax accounting
under this new statement is not significantly different than
the accounting for income taxes under the previous method,
and therefore, did not have a material impact on the 1993
tax provisions.
CAPITAL EXPENDITURES
Northern Trust's Capital Expenditure Committee reviews
proposed capital expenditures which exceed $500,000 and
makes recommendations on the appropriateness of the
expenditures. This review assures that the major projects to
which Northern Trust commits its resources produce
benefits compatible with the strategic corporate goals.
During 1994, hardware and software capabilities
continued to improve, especially relating to trust activities.
Such improvements assure state-of-the-art technology which
enables clients to be provided with the highest level of
quality service while also maintaining a competitive cost
structure, a characteristic which helps distinguish Northern
Trust from its competitors. In this regard, through the
efforts of internal staff and outside consultants, development
of the new trust management system continued. The new
system is being implemented in several phases, and although
systems enhancements will continue to be an ongoing
process, all significant phases of this major project are
expected to be completed during 1995. The unamortized
capitalized cost of this project at December 31, 1994 was
$79 million.
Capital expenditures in 1994 also included the leasehold
improvements and furnishings associated with the opening
of two new offices in Florida, and two new offices in
Illinois, one of which is a temporary facility on Chicago's
south side, as well as expansion of the London Branch
operations.
Capital expenditures for 1994 totaled $90 million of
which $9 million was for building and leasehold
improvements, $4 million for furnishings, $31 million for
hardware and machinery and $46 million for software.
During 1995 Northern Trust will continue to invest in key
technology initiatives and in the expansion of the five-state
network of Personal Financial Service Offices.
ASSET QUALITY AND CREDIT RISK
SECURITIES. A high quality securities portfolio is
maintained as evidenced by the Standard and Poor's and/or
Moody's Investors Service ratings on obligations of states
and political subdivisions, preferred stock and other
securities in the portfolio. At December 31, 1994, 71% of
these securities were rated triple-A or double-A, 24% were
rated single-A and 5% were below A or not rated. Other
securities consist primarily of privately issued collateralized
mortgage obligations, backed by federal agency securities,
and asset-backed securities, collateralized by automobile
loans and credit card receivables.
Northern Trust is an active participant in the repurchase
agreement market. This market provides a relatively low
cost alternative for short-term funding. Securities sold
under repurchase agreements are held by the counterparty
until the repurchase transaction matures. Increases in the
fair value of these securities in excess of the repurchase
liability could subject Northern Trust to credit risk in the
event of default by the counterparty. To minimize this risk,
collateral values are continuously monitored and Northern
Trust sets limits on exposure with counterparties and
regularly assesses their financial condition.
LOANS AND OTHER EXTENSIONS OF CREDIT. A
certain degree of credit risk is inherent in various lending
activities. Credit risk is managed through the Credit Policy
function, which is designed to ensure adherence to a high
level of credit standards. Credit Policy provides a system of
34
NORTHERN TRUST CORPORATION
<PAGE>
checks and balances for Northern Trust's diverse credit-
related activities by establishing and monitoring all credit-
related policies and practices throughout Northern Trust
and ensuring their uniform application. These activities are
designed to ensure that credit exposure is diversified on
an industry and client basis, thus lessening the overall
credit risk.
A further way in which credit risk is managed is by
requiring collateral. Management's assessment of the
borrower's creditworthiness determines whether collateral
is obtained. The amount and type of collateral held varies
but may include deposits held in financial institutions, U.S.
Treasury securities, other marketable securities, income-
producing commercial properties, accounts receivable,
property, plant and equipment, and inventory. Collateral
values aremonitored on a regular basis to ensure that they
are maintained at an appropriate level.
The largest component of credit risk relates to the loan
portfolio. Although the credit exposure is well diversified,
there are certain significant groups which meet the
accounting definition under SFAS No. 105 of credit risk
concentrations. According to this statement, group
concentrations of credit risk exist if a number of borrowers
or other counterparties are engaged in similar activities and
have similar economic characteristics that would cause their
ability to meet contractual obligations to be similarly
affected by changes in economic or other conditions. The
fact that an extension of credit falls into one of these groups
does not indicate that the credit has a higher than normal
degree of credit risk. These groups are: middle market
companies and small businesses, broker-dealers of
securities, banks and bank holding companies, commercial
real estate, and residential real estate.
MIDDLE MARKET COMPANIES AND SMALL
BUSINESSES. Credit exposure to middle market
companies and small businesses is primarily in the form of
commercial loans. These loans are to a diversified group of
borrowers that are predominantly in the manufacturing,
wholesaling, distribution and services industries, with total
sales of less than $500 million. The largest component of
this group of borrowers is located in the greater Chicago
area. Middle market and small businesses have been an
important focus of business development, and it is part of
the strategic plan to continue to selectively grow the
portfolio with such entities. The credit risk associated with
middle market and small business lending is principally
influenced by general economic conditions and the resulting
impact on the borrower's operations.
Middle market and small business loans totaled
approximately $945.5 million at December 31, 1994 and
$1.0 billion at December 31, 1993. Nonperforming middle
market loans totaled $7.8 million and $8.8 million at
December 31, 1994 and 1993, respectively.
Credit exposure related to customer acceptance liabilities
with middle market companies and small businesses totaled
$20.3 million and $21.4 million as of December 31, 1994
and 1993, respectively. Off-balance sheet items related to
these entities in the form of legally binding commitments to
extend credit, standby letters of credit, and commercial
letters of credit totaled $917.8 million, $378.7 million, and
$17.8 million, respectively, as of December 31, 1994, and
$836.7 million, $313.0 million, and $18.4 million,
respectively, as of December 31, 1993.
BROKER-DEALERS OF SECURITIES. Broker loans
consist primarily of overnight funds loaned to broker-
dealers in the securities industry on both a secured and
unsecured basis. Broker loans averaged $355.7 million
during 1994 and $335.5 million during 1993, and totaled
$274.6 million at December 31, 1994 and $249.4 million
at December 31, 1993. There were no securities purchased
under agreements to resell at year-end compared with
$380.8 million at December 31, 1993. Standby letters of
credit issued on behalf of broker-dealers and legally binding
commitments to extend credit totaled $51.2 million and
$161.7 million, respectively, as of December 31, 1994, and
$141.1 million and $130.0 million, respectively, as of
December 31, 1993. Northern Trust may also have a
limited amount of potential credit exposure to brokers and
dealers in connection with securities lending activities.
BANKS AND BANK HOLDING COMPANIES. The
following table shows the credit exposure to banks and bank
holding companies at December 31, 1994 and December
31, 1993. Exposure to such entities is well diversified
geographically.
A significant portion of credit exposure to banks is in the
form of liquid, short-term money market assets. To
minimize the credit risk related to these transactions, the
Credit Policy Committee sets limits on the amount of credit
exposure with counterparties and regularly assesses their
financial condition. In connection with securities purchased
under agreements to resell, the value of collateral held is
continually monitored. Most of the domestic commercial
loans shown in the following table consisted of loans to U.S.
bank holding companies, primarily in the seventh Federal
Reserve District, for their acquisition purposes. Such
lending activity is limited to entities which have a substantial
business relationship with Northern Trust.
The international loan exposure represents transactions
with major international banks arising from trade finance
and dollar clearing activities.
35
NORTHERN TRUST CORPORATION
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
CREDIT EXPOSURE TO BANKS AND
BANK HOLDING COMPANIES
<TABLE>
<CAPTION>
December 31
------------------
(In Millions) 1994 1993
--------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEET AMOUNTS
Due From Banks $ 743.1 $ 762.9
Money Market Assets
Federal Funds Sold 687.0 63.0
Securities Purchased under
Agreements to Resell 90.0 134.0
Time Deposits with Banks
-Domestic .2 .2
-International 1,864.5 2,090.2
Other 8.8 71.9
Commercial Loans-Domestic 136.1 108.5
-International 77.0 160.1
Securities (primarily preferred stock) 34.9 34.9
Customers' Acceptance Liability 34.0 32.9
Foreign Exchange* 37.6 46.4
Interest Rate Management Instruments* 4.8 9.1
Other Assets 6.7 12.8
OFF-BALANCE SHEET AMOUNTS
Contract or Notional Amounts of:
Legally Binding Commitments to
Extend Credit 134.7 99.9
Standby Letters of Credit 32.9 45.6
Commercial Letters of Credit 14.2 17.5
--------------------------------------------------------------------
*Represents the amount of credit risk recorded in the consolidated balance sheet
associated with the potential failure of the counterparty to pay under the
instrument.
</TABLE>
COMMERCIAL REAL ESTATE. In managing its credit
exposure, management has defined a commercial real estate
loan as one where: (1) the borrower's principal business
activity is the acquisition of or the development of real
estate for commercial purposes; (2) the principal collateral
is real estate held for commercial purposes and loan
repayment is expected to flow from the operation of the
property; or (3) the loan repayment is expected to flow
from the sale or refinance of real estate as a normal and
ongoing part of business. Unsecured lines of credit to firms
or individuals engaged in commercial real estate endeavors
are included without regard to the use of loan proceeds.
The commercial real estate portfolio consists of interim
loans and commercial mortgages.
The interim loans are composed primarily of loans to
developers that are highly experienced and well-known to
Northern Trust. Short-term interim loans provide financing
for the initial phases of the acquisition or development of
commercial real estate, with the intent that the borrower
would refinance the loan through another financial
institution or sell the project upon its completion. The
interim loans included in the portfolio are primarily in the
Chicago market in which Northern Trust has a strong
presence and a thorough knowledge of the local economy.
Commercial mortgage financing is also provided for the
acquisition of income producing properties. Cash flows
from the properties generally are sufficient to amortize the
loan. These loans average less than $500,000 each and are
primarily located in market areas served by the subsidiary
banks in suburban Chicago and Florida.
Commercial real estate loans outstanding at December
31, 1994, are detailed in the next table.
COMMERCIAL REAL ESTATE LOANS
<TABLE>
<CAPTION>
Commercial
(In Millions) Interim Loans Mortgages Total
--------------------------------------------------------
<S> <C> <C> <C>
Apartments $ 11.3 $ 60.6 $ 71.9
Industrial 22.6 37.9 60.5
Office 69.1 60.0 129.1
Shopping Center/Retail 39.7 47.2 86.9
Land 9.4 16.4 25.8
Other 66.3 53.6 119.9
--------------------------------------------------------
Total $218.4 $275.7 $494.1
--------------------------------------------------------
</TABLE>
In comparison, commercial real estate loans at December
31, 1993 totaled $506.5 million. Nonperforming
commercial real estate loans totaled $9.1 million in 1994
and $4.8 million in 1993. At December 31, 1994
commercial real estate loans 90 days past due and still
accruing interest totaled $5.7 million. Not included in the
table above was OREO which totaled $2.2 million and $9.7
million at December 31, 1994 and 1993, respectively.
At December 31, 1994, off-balance sheet credit exposure
to commercial real estate developers in the form of legally
binding commitments to extend credit and standby letters
of credit totaled $25.5 million and $47.2 million,
respectively. At December 31, 1993, legally binding
commitments were $30.1 million and standby letters of
credit were $40.2 million.
RESIDENTIAL REAL ESTATE. Residential real estate
loans totaled $3.3 billion or 40% of total domestic loans at
December 31, 1994, compared with $2.9 billion or 40% at
December 31, 1993. Residential real estate loans consist of
conventional home mortgages, which generally require a
loan to collateral value of 75% to 80%, and equity credit
lines, which generally limit the loan to collateral value to no
more than 70% to 75%. Of the total $3.3 billion in
residential real estate loans, $2.2 billion were in the greater
Chicago area and the remainder almost entirely in the areas
served by the Florida, Arizona and Texas banking
subsidiaries. Legally binding commitments to extend credit,
which are primarily equity credit lines, totaled $377.0
million and $391.5 million as of December 31, 1994 and
1993, respectively.
36
NORTHERN TRUST CORPORATION
<PAGE>
FOREIGN OUTSTANDINGS. In recent years international
banking activities have been focused on financing U.S. trade
transactions and correspondent banking. Northern Trust has
extensive treasury activities involving short-term credit-
related business with foreign financial institutions. Interbank
time deposits with foreign banks represent the largest
category of foreign outstandings. The Chicago head office
and the London Branch actively participate in the interbank
market with U.S. and foreign banks. Growth in foreign
outstandings during 1994 primarily reflects increases in
interest-bearing deposit placements with banks as a result of
growth in deposits from Global Custody clients at the
London Branch.
As used in this discussion, foreign outstandings are cross-
border outstandings as defined by the Securities and
Exchange Commission. They consist of loans, acceptances,
interest-bearing deposits with financial institutions, accrued
interest and other monetary assets. Not included are letters
of credit, loan commitments, and foreign office local
currency claims on residents funded by local currency
liabilities. Foreign outstandings related to a specific country
are net of guarantees given by third parties resident outside
the country and the value of tangible, liquid collateral held
outside the country. However, transactions with branches of
foreign banks are included in these outstandings and are
classified according to the country location of the foreign
bank's head office.
Risk related to foreign outstandings is continually
monitored and internal limits are imposed on foreign
exposure. The table below provides information on foreign
outstandings by country that exceed 1.00% of Northern
Trust's total assets.
FOREIGN OUTSTANDINGS
<TABLE>
<CAPTION>
Commercial
(In Millions) Banks and Other Total
--------------------------------------------
<S> <C> <C> <C>
AT DECEMBER 31, 1994
Japan $551 $-- $551
United Kingdom 183 43 226
Canada 175 18 193
--------------------------------------------
At December 31, 1993
Japan $544 $-- $544
United Kingdom 230 35 265
France 173 -- 173
--------------------------------------------
At December 31, 1992
Japan $294 $-- $294
Germany 175 -- 175
United Kingdom 141 27 168
France 158 -- 158
Switzerland 157 -- 157
--------------------------------------------
</TABLE>
Aggregate foreign outstandings by country falling between 0.75% and 1.00% of
total assets at December 31, 1994 totaled $154 million to Germany. This
compares with $153 million to Canada in 1993 and $362 million to Italy,
Netherlands and Canada in 1992.
NONPERFORMING ASSETS AND 90 DAY PAST DUE LOANS
<TABLE>
<CAPTION>
December 31
-----------------------------
(In Millions) 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans
Domestic $26.5 $26.0 $66.4 $53.8 $54.5
International 1.3 1.3 1.9 -- .1
----------------------------------------------------------------------------------------------
Total 27.8 27.3 68.3 53.8 54.6
Other Real Estate Owned (Net of reserve) 2.2 9.7 22.9 40.4 19.1
----------------------------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS $30.0 $37.0 $91.2 $94.2 $73.7
----------------------------------------------------------------------------------------------
TOTAL DOMESTIC 90 DAY PAST DUE LOANS (Still accruing) $17.3 $22.8 $42.9 $23.6 $12.0
----------------------------------------------------------------------------------------------
</TABLE>
NONPERFORMING ASSETS AND 90 DAY PAST
DUE LOANS. Nonperforming assets consist of nonaccrual
loans and OREO. OREO is comprised of commercial and
residential properties acquired in partial or total satisfaction
of problem loans. Past due loans are loans that are
delinquent 90 days or more and still accruing interest. The
balance in this category at any reporting period can fluctuate
widely based on the timing of cash collections,
renegotiations and reversals.
Maintaining a low level of nonperforming assets is
important to the ongoing success of a financial institution.
Northern Trust's comprehensive credit review and approval
process is critical to the ability to minimize nonperforming
assets on a long-term basis. In addition to the negative
impact on both net interest income and credit losses,
nonperforming assets also increase operating costs due to
intense collection efforts.
The table above presents the nonperforming assets and
past due loans for the current year and the prior years. Of
the total loan portfolio of $8.6 billion at December 31,
1994, $27.8 million or .32% was nonperforming, an
increase of $.5 million from year-end 1993. Nonperforming
37
NORTHERN TRUST CORPORATION
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
loans at December 31, 1994 consisted principally of
commercial loans, including $9.1 million of commercial
real estate loans and $7.8 million to middle market and
small business companies. The net decrease of $7.0 million
in nonperforming assets resulted from additions during
1994 of $44.6 million in new nonaccrual loans partially
offset by total gross charge-offs of $10.7 million, payments
and loan sales of $34.9 million, property sales with a basis
of $5.0 million and $.3 million in write-downs of OREO
assets. While the carrying value of its OREO portfolio is
realizable, it is not possible to predict whether such
properties will continue to experience further declines in
value, especially in light of the continuation of depressed
conditions in the commercial real estate market.
Statements of Financial Accounting Standards (SFAS) No.
114 and No. 118, "Accounting by Creditors for Impairment
of a Loan," were adopted effective January 1, 1995. These
new statements require that an impaired loan that is within
the scope of this statement be measured based on the
present value of expected future cash flows discounted at
the loan's effective interest rate or at the loan's observable
market price or, if the loan is collateral dependent, based on
the fair value of the collateral. A loan is impaired when,
based on current information and events, it is probable that
a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement.
As of January 1, 1995, impaired loans totaled $25.2
million. No portion of the reserve for credit losses was
allocated to these impaired loans due to prior charge-offs
and interest collections which have been applied to
principal. Management believes that these standards will not
have a material effect on the consolidated financial position
or results of operations.
RESERVE FOR CREDIT LOSSES. In evaluating
the adequacy of the reserve for credit losses, management
relies predominantly on a disciplined credit review and
approval process which is applicable to the full range of the
credit exposures. The review process, directed by Credit
Policy, is intended to identify as early as possible clients who
might be facing financial difficulties. Once identified, the
extent of the client's financial difficulty is carefully
monitored by Credit Policy, which recommends to
management the portion of any credits that need a specific
reserve allocation or should be charged-off. Other factors
considered by management in evaluating the adequacy of the
reserve include: the relative size of the subsidiary banks'
single loan lending limits; loan volume; historical net loan
loss experience; the level and composition of nonaccrual,
past due and restructured loans; other extensions of credit;
the condition of industries in geographic areas experiencing
or expected to experience particular economic adversities;
international developments; current and anticipated
economic conditions; credit evaluations; and the liquidity
and volatility of the markets. From time to time specific
amounts of the reserve are designated for certain loans in
connection with management's analysis of the adequacy of
the reserve for credit losses.
While the largest portion of this reserve is typically
intended to cover loan and lease losses, it is considered a
general reserve that is available for all credit-related
purposes. The reserve balance is not a precise amount, but
is derived from judgements based on the above factors. It
represents management's best estimate of the reserve for
credit losses necessary to adequately cover probable losses
from current credit exposures. The provision for credit
losses is the charge against current earnings that is
determined by management as the amount needed to
maintain an adequate reserve.
The overall credit quality of the domestic portfolio has
remained good as evidenced by the relatively low level of
nonperforming loans and net charge-offs. Although the U.S.
economy is expanding, there continue to be significant
uncertainties in commercial real estate and certain other
industries. In addition, management's assessment of the
financial condition of specific clients facing financial
difficulties and portfolio growth were other primary factors
impacting management's decision to maintain the reserve
for credit losses at $144.8 million at December 31, 1994,
compared with $145.5 million last year. The slight decline
in the year-end reserve for credit losses as a percentage of
outstanding loans and leases from 1.91% to 1.69% at year-
end 1994 is primarily attributable to loan growth in low-
risk residential lending. The following table summarizes the
changes in the reserve for credit losses for the current year
and the prior years.
Northern Trust continues to monitor closely several
credits, but the overall quality of its loan portfolio remains
sound and the reserve for credit losses is adequate to cover
credit-related uncertainties as they exist today. Established
credit review procedures ensure that close attention is
given to commercial real estate-related loans and other
commercial loans, as well as other credit exposures that
38
NORTHERN TRUST CORPORATION
<PAGE>
ANALYSIS OF RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
($ In Millions) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $ 145.5 $ 145.5 $ 145.7 $ 148.0 $ 150.1
---------------------------------------------------------------------------------------------------------------------
Charge-offs
Commercial 9.4 19.5 21.2 34.1 17.9
Consumer 1.1 2.1 3.7 2.8 3.9
Other .2 1.2 1.5 1.6 .8
International -- .6 6.0 -- 1.1
---------------------------------------------------------------------------------------------------------------------
Total Charge-Offs 10.7 23.4 32.4 38.5 23.7
---------------------------------------------------------------------------------------------------------------------
Recoveries
Commercial 2.6 2.3 1.4 4.2 5.9
Consumer 1.3 .9 .8 .8 .3
Other .1 .5 .1 .1 .1
International -- .2 .4 .1 1.3
---------------------------------------------------------------------------------------------------------------------
Total Recoveries 4.0 3.9 2.7 5.2 7.6
---------------------------------------------------------------------------------------------------------------------
Net Charge-Offs 6.7 19.5 29.7 33.3 16.1
Provision for Credit Losses 6.0 19.5 29.5 31.0 14.0
---------------------------------------------------------------------------------------------------------------------
Net Change in Reserve (.7) -- (.2) (2.3) (2.1)
---------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 144.8 $ 145.5 $ 145.5 $ 145.7 $ 148.0
---------------------------------------------------------------------------------------------------------------------
Total Loans and Leases at Year-End $8,590.6 $7,623.0 $6,935.9 $6,279.7 $5,536.3
---------------------------------------------------------------------------------------------------------------------
Average Total Loans and Leases $8,316.1 $7,297.1 $6,452.9 $6,199.4 $5,847.7
---------------------------------------------------------------------------------------------------------------------
As a Percent of Year-End Loans and Leases
Net Loan Charge-Offs .08% .26% .43% .53% .29%
Provision for Credit Losses .07 .26 .43 .49 .25
Reserve Balance at Year-End 1.69 1.91 2.10 2.32 2.67
---------------------------------------------------------------------------------------------------------------------
As a Percent of Average Loans and Leases
Net Loan Charge-Offs .08% .27% .46% .54% .27%
Reserve Balance at Year-End 1.74 1.99 2.25 2.35 2.53
---------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
FINANCIAL CONDITION
Average earning assets in 1994 increased 15% to $15.7
billion due principally to increases in short-term U.S.
federal agency securities and residential mortgage loans. A
high quality and liquid balance sheet is maintained with
investment securities and money market assets averaging
$7.4 billion or 47% of total earning assets.
The management strategy for the investment securities
account is to maintain a very high quality portfolio with
generally short-term maturities. To maximize after-tax
income, investments in tax-exempt municipal securities are
utilized but with somewhat longer maturities. The average
balance of the securities portfolio, which includes both
securities held to maturity and available for sale, increased
18% from last year to $5.0 billion. U.S. Government
securities averaged $1.8 billion in 1994, down 33% from
1993 levels. U.S. Government securities had an average
maturity of ten months at December 31, 1994, compared
with eight months at the prior year-end. Average municipal
securities declined $37 million to $465 million and
provided a fully taxable equivalent yield of 11.35%. The
average maturity of municipal securities was 64 months,
down from 68 months a year ago. Federal agency securities
averaged $2.3 billion in 1994, up $1.6 billion from 1993.
Federal agencies had an average maturity at December 31,
1994 and 1993 of six months and 26 months, respectively.
Other securities, consisting primarily of preferred stock,
privately issued collateralized mortgage obligations and
asset-backed securities averaged $369 million, $89 million
higher than last year. Included in other securities were $81
million of triple-A rated collateralized mortgage obligations
(CMOs), $25 million of which were collateralized by
federal agency securities. Other asset-backed securities were
$65 million versus $30 million last year; these securities
had an average maturity of eleven months, unchanged from
a year ago. Approximately $738 million of federal agency,
asset-backed and other securities have variable rates that are
reset at least every six months to reflect the level of short-
term interest rates. At year-end 1994, the fair value of the
securities portfolio of $5.1 billion exceeded the book value
of these securities by $16.6 million.
39
NORTHERN TRUST CORPORATION
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
AVERAGE EARNING ASSETS AND SOURCE OF FUNDS
<TABLE>
<CAPTION>
Percent Change
-----------------
($ In Millions) 1994 1993 1992 1994/93 1993/92
-------------------------------------------------------------------------------------------------------------------
AVERAGE EARNING ASSETS
<S> <C> <C> <C> <C> <C>
Money Market Assets $ 2,420.2 $ 2,201.6 $ 1,962.7 9.9% 12.2%
Securities
U.S. Government 1,779.6 2,646.6 1,759.7 (32.8) 50.4
Obligations of States and Political Subdivisions 465.1 502.3 516.0 (7.4) (2.6)
Federal Agency 2,333.6 773.9 521.6 201.5 48.4
Other 368.8 279.7 376.8 31.9 (25.8)
Trading Account 53.8 29.5 16.2 82.2 83.0
-------------------------------------------------------------------------------------------------------------------
Total Securities 5,000.9 4,232.0 3,190.3 18.2 32.7
-------------------------------------------------------------------------------------------------------------------
Loans and Leases -- Domestic 7,870.6 7,017.2 6,165.3 12.2 13.8
-- International 445.5 279.9 287.6 59.2 (2.7)
-------------------------------------------------------------------------------------------------------------------
Total Loans and Leases 8,316.1 7,297.1 6,452.9 14.0 13.1
-------------------------------------------------------------------------------------------------------------------
Total Earning Assets $15,737.2 $13,730.7 $11,605.9 14.6% 18.3%
-------------------------------------------------------------------------------------------------------------------
AVERAGE SOURCE OF FUNDS
Deposits-Savings and Money Market Deposits $ 3,385.7 $ 3,432.1 $ 3,372.2 (1.3)% 1.8%
-Savings Certificates 1,229.6 1,172.9 1,370.8 4.8 (14.4)
-Other Time 412.8 404.7 493.9 2.0 (18.1)
-Foreign Offices Time 3,284.8 2,436.4 1,815.6 34.8 34.2
-------------------------------------------------------------------------------------------------------------------
Total Deposits 8,312.9 7,446.1 7,052.5 11.6 5.6
Federal Funds Purchased 1,350.7 1,692.5 1,540.2 (20.2) 9.9
Securities Sold under Agreements to Repurchase 1,444.3 664.4 542.9 117.4 22.4
Commercial Paper 138.1 131.5 132.9 5.0 (1.0)
Other Borrowings 864.5 868.9 526.6 (.5) 65.0
Senior Medium-Term Notes 781.8 554.1 85.2 41.1 N/M
Notes Payable 293.6 297.9 258.8 (1.5) 15.1
-------------------------------------------------------------------------------------------------------------------
Total Interest-Related Funds 13,185.9 11,655.4 10,139.1 13.1 15.0
Noninterest-Related Funds, net 2,551.3 2,075.3 1,466.8 22.9 41.5
-------------------------------------------------------------------------------------------------------------------
Total Source of Funds $15,737.2 $13,730.7 $11,605.9 14.6% 18.3%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
N/M Not meaningful
On January 1, 1994, in connection with the adoption
of SFAS No. 115, securities not intended to be held to
maturity and not held for trading were classified as
"available for sale."
Loans averaged $8.3 billion in 1994 and increased 14%
from the prior year. Average domestic loans increased 12%
to $7.9 billion for the year while the international portfolio
increased to $446 million from $280 million in 1993. The
increase in the average domestic loan portfolio reflects
substantial growth in residential mortgages which, net of
$97.7 million in loan sales, increased nearly $541 million
on average to total $3.3 billion at year-end. The growth in
residential mortgage loans was the result of increased
lending opportunities related to the banking strategy.
During the year commercial real estate loans declined
slightly and at December 31, 1994, were $494 million or
6% of domestic loans. The growth in the international
portfolio was primarily attributable to increased levels of
trust client overnight advances.
Money market assets averaged $2.4 billion, up 10% or
$219 million from last year.
Total interest-related funds averaged $13.2 billion in
1994, up $1.5 billion or 13% from 1993. Savings
certificates of deposit increased slightly to $1.2 billion,
offset in part by a $46 million decline in average savings and
money market deposits. Total federal funds purchased
decreased $342 million or 20% to $1.4 billion. Securities
sold under agreements to repurchase increased $780 million
on average to $1.4 billion. Foreign office time deposits
increased a significant $848 million or 35%, resulting
primarily from greater global custody activity. Deposits
related to trust activities in the domestic banking
subsidiaries, coupled with the rapid growth of the global
custody business, had a significant impact on the balance
sheet as these deposits in 1994 averaged $3.9 billion or 35%
of total deposits. Senior medium-term bank notes averaged
$782 million, up $228 million or 41% from last year.
40
NORTHERN TRUST CORPORATION
<PAGE>
FAIR VALUE DISCLOSURES
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the estimated fair value
of certain financial instruments. These disclosures are
presented in Note 16 on page 61. The fair value disclosures
should not be interpreted as an estimate of the fair value of
Northern Trust since the disclosures, in accordance with
SFAS No. 107, exclude the values of nonfinancial assets and
liabilities, as well as a wide range of franchise,relationship,
and intangible values, which are integral to a full assessment
of Northern Trust's financial position. In addition, it is
important to realize that SFAS No. 107 requires the fair
value of the demand, savings and money market deposits to
be recorded at their book value. Due to the interest rate
characteristics of these accounts--zero rate of interest or a
relatively low interest rate--the true values of these
accounts to Northern Trust are not accurately reflected in
the fair value disclosures. Additionally, the true values of
these accounts increase as the general level of interest rates
increases. In fact, over the past year as interest rates rose,
the increase in the true values of these accounts has
mitigated the fair value reduction in the fixed rate loans.
Considerable judgment is required to interpret the
market data when computing estimates of fair value.
Accordingly, the estimates presented in Note 16 are not
necessarily indicative of the amounts that could have been
realized in a market exchange. The use of different
assumptions and/or estimation methods may have a material
effect on the computation of estimated fair values.
Therefore, comparisons between Northern Trust's
disclosure and those of other banks may not be meaningful.
ASSET AND LIABILITY MANAGEMENT
The policies and guidelines for the management of
Northern Trust's balance sheet assets and liabilities are
established by the Corporate Asset and Liability Policy
Committee (ALCO). ALCO monitors and establishes limits
on the sensitivity of net interest income to changes in
interest rates caused by on-and-off balance sheet positions.
The goal of the ALCO process is to manage the balance
sheet to provide the maximum level of net interest income
while maintaining a high quality balance sheet, and
acceptable levels of interest rate sensitivity and liquidity
risk.
INTEREST RATE RISK. Sensitivity of net interest
income to interest rate changes arises when yields on assets
change in a different time period or in a different
proportion from that of interest costs on liabilities. To
mitigate this interest rate risk, the structure of the balance
sheet is managed so that movements of interest rates on
assets and liabilities (adjusted for off-balance sheet hedges)
are highly correlated and produce a reasonable level of net
interest income even in periods of volatile interest rates.
In the management of interest rate sensitivity, Northern
Trust utilizes the following measurement techniques: gap
reporting, model simulation, and duration analysis. These
three techniques are complementary and are used in concert
to provide a more complete picture of interest rate risk.
The calculation of the interest sensitivity gap is shown in
the following table, which measures the timing mismatch
between assets and liabilities. This interest sensitivity gap is
determined by subtracting the amount of liabilities from the
volume of assets that reprice in a particular time interval. A
liability sensitive position results when more liabilities than
assets reprice or mature within a given period. Under this
scenario, as interest rates decline, increased net interest
revenue will be generated. Conversely, an asset sensitive
position results when more assets than liabilities reprice
within a given period; in this instance, net interest revenue
would benefit from an increasing interest rate environment.
The economic impact of creating a liability or asset sensitive
position depends on the magnitude of actual changes in
interest rates relative to the current expectations of market
participants.
Model simulation is another important tool used to
measure the sensitivity of net interest income to interest
rate changes. Using computer modeling techniques,
Northern Trust is able to measure the potential impact on
net interest income, assuming the continuation of current
balance sheet trends, different patterns of rate movements,
and specific changes in the relationships between various
instruments on and off the balance sheet. Northern Trust
uses model simulation to measure its net interest income
sensitivity relative to management's most likely interest rate
scenario. At December 31, 1994, this scenario assumes a
gradual increase in interest rates during 1995. The interest
sensitivity is then tested by running alternative scenarios
above and below the most likely interest rate outcome. In
1994, this sensitivity calculation was always below 4% of
the annual net interest income, using alternative scenarios
based on a one percentage point deviation from the rates
41
NORTHERN TRUST CORPORATION
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
Year Ended December 31, 1994
------------------------------------------------------------
1-3 4-12 1-2 3-5 Over 5
(In Millions) months months years years years Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Money Market Assets $ 2,640.9 $ 10.3 $ -- $ -- $ -- $ 2,651.2
Securities -- Held to
Maturity 156.4 106.2 42.3 109.8 226.6 641.3
-- Available for Sale 3,533.6 421.1 377.6 75.5 -- 4,407.8
-- Trading Account 4.0 -- -- -- -- 4.0
Loans and Leases 3,772.0 952.0 635.8 1,339.8 1,891.0 8,590.6
--------------------------------------------------------------------------------------
Total Earning Assets $10,106.9 $1,489.6 $1,055.7 $1,525.1 $ 2,117.6 $16,294.9
--------------------------------------------------------------------------------------
SOURCE OF FUNDS
Savings and NOW Accounts $ 327.2 $ -- $ -- $ -- $ 914.7 $ 1,241.9
Money Market Deposit Ac-
counts and
Savings Certificates 2,396.3 891.4 200.4 301.5 11.5 3,801.1
Other Time 3,833.0 17.1 -- 4.5 6.7 3,861.3
Senior Medium-Term Notes
and Notes Payable 155.1 385.4 20.4 97.6 133.3 791.8
Other Borrowings 4,033.3 50.4 45.9 6.7 10.0 4,146.3
Noninterest-Related
Funds, net 160.8 -- -- -- 2,291.7 2,452.5
--------------------------------------------------------------------------------------
Total Source of Funds $10,905.7 $1,344.3 $ 266.7 $ 410.3 $ 3,367.9 $16,294.9
--------------------------------------------------------------------------------------
Interest Sensitive Gap $ (798.8) $ 145.3 $ 789.0 $1,114.8 $(1,250.3) $ --
Off-Balance Sheet Hedges 235.4 547.2 (183.2) (302.1) (297.3) --
--------------------------------------------------------------------------------------
Adjusted Interest Sensi-
tive Gap $ (563.4) $ 692.5 $ 605.8 $ 812.7 $(1,547.6) $ --
--------------------------------------------------------------------------------------
Cumulative Interest
Sensitive Gap $ (563.4) $ 129.1 $ 734.9 $1,547.6 $ -- $ --
--------------------------------------------------------------------------------------
</TABLE>
--Assets and liabilities whose rates are variable are reported based on their
repricing dates. Those with fixed rates are reported based on their scheduled
contractual maturity dates, except for certain investment securities and loans
secured by 1-4 family residential properties that are based on anticipated
prepayments.
--The interest rate sensitivity assumptions presented for demand deposits,
noninterest-bearing time deposits, savings accounts and NOW accounts are based
on historical and current experiences regarding product portfolio retention
and interest rate repricing behavior. The portion of these deposits which are
considered long-term and stable have been classified in the over 5 years
category; the remainder are classified in the 1-3 months category.
assumed over a one year horizon. The simulations do not
anticipate management's actions to moderate the negative
consequences of interest rate deviations. Therefore, the
simulations serve as conservative estimates of interest
rate risks.
The third technique that is used to measure interest rate
sensitivity is duration analysis. Duration analysis is a form of
average life calculation used to estimate the market risk
inherent in financial instruments. Market risk is the risk that
the value of on- and off-balance sheet positions will be
adversely affected by rate movements. Northern Trust strives
to limit aggregate market risk to an acceptable level in the
context of both risk-return and cost-benefit trade-offs.
A variety of actions are used to implement interest risk
management strategies, including:
. purchases of securities;
. sales of securities that are classified as
Available for Sale;
. issuance of medium-term notes;
. placing and taking Eurodollar time deposits; and
. hedging with various types of derivative financial
instruments.
Northern Trust strives to use the most effective
instrument for implementing its interest risk management
strategies, considering the costs, liquidity and capital
requirements of the various alternatives.
DERIVATIVE FINANCIAL INSTRUMENTS USED
FOR ASSET AND LIABILITY MANAGEMENT. A
derivative financial instrument is a contract or agreement
whose value is linked to or derived from changes in the
value of an underlying asset or underlying reference rate or
index. Various types of derivative financial instruments are
used as tools for managing the interest rate risk and option
risk of Northern Trust. Some of the principal uses of
derivative financial instruments together with the notional
amounts outstanding, are described as follows:
Reduce Interest Rate Risk From Fixed Rate Assets Funded with
Variable Rate Liabilities. Northern Trust pays a fixed rate and
receives a floating rate on interest rate swaps with a notional
amount of $835 million at December 31, 1994 to hedge the
interest rate risk from fixed rate assets. For accounting
purposes these swaps are designated to either convert the
fixed rate on the asset to an effective floating rate or to
convert floating rate funding to a fixed rate.
42
NORTHERN TRUST CORPORATION
<PAGE>
Swaps Combined with Note Issuance to Obtain Favorable
Funding Costs. Interest rate swaps with a notional amount of
$455 million at December 31, 1994, are used in
conjunction with the issuance of medium-term notes and
subordinated notes to obtain desired funding characteristics.
The use of swaps in combination with notes permits
Northern Trust to issue notes with rate and maturity
features that are most desired by investors while using swaps
to convert the rate characteristics to meet its needs.
Hedging Non-standard Risk in Securities. At December 31,
1994, interest rate swaps with a notional amount of $91
million, along with $95 million of forward foreign exchange
contracts, are used to convert $91 million of structured
agency notes (classified as available for sale securities) from
non-standard principal and interest payments to U.S. dollar
denominated floating rate payments indexed to London
Interbank Offered Rates (LIBOR). The swaps and foreign
exchange contracts were executed simultaneously with the
purchase of the notes.
Hedging Mortgages Held for Sale. Northern Trust hedges
the market risk of its portfolio of fixed rate commitments
and mortgages held for sale with a combination of derivative
financial instruments. At December 31, 1994 the portfolio
was hedged with $4.9 million of forward sales of mortgage-
backed securities, $1.2 million of short sales of Treasury
Note futures, and $.5 million of purchases of put options
on Treasury Note futures.
Hedging Foreign Currency Risk. Forward foreign exchange
contracts are used to reduce exposure to fluctuations in the
dollar value of capital investments in foreign subsidiaries and
from foreign currency obligations. The notional amount of
these contracts was $34.6 million at year-end 1994.
COLLATERALIZED MORTGAGE OBLIGATIONS.
Northern Trust invests in collateralized mortgage
obligations (CMOs), which are structured obligations that
are derived from a pool of mortgage loans or agency
mortgage-backed securities. CMOs have widely varying
degrees of risk, which derives from the prepayment risk on
the underlying mortgage loans, but Northern Trust invests
only in CMOs that have lesser degrees of prepayment risk.
CMOs are classified as available for sale securities, and are
used as part of normal securities portfolio activities.
Investments in LIBOR-indexed floating rate CMOs had
an amortized cost of $439.2 million and a fair value of
$436.4 million as of December 31, 1994, compared with
an amortized cost of $486.2 million and a fair value of
$484.5 million as of December 31, 1993. The average life
of these CMOs was 38 months based on an average of dealer
estimates of prepayment rates. Floating rate CMOs are
purchased to provide an attractive spread over short-term
funding costs. The primary risk with floating rate CMOs
comes from caps on the floating rate. Northern Trust's
CMOs have rate caps which range from 9% to 14%, with a
weighted average of approximately 10%. These caps will
affect the interest margin only if short-term LIBOR rates
rise by more than 250 basis points above the year-end 1994
levels. Early payments of principal have little effect on the
earnings risk of floating rate CMOs, but slower than
expected prepayment rates would extend the exposure to
the interest rate caps. A 300 basis point rise in mortgage
rates beyond those prevailing on December 31, 1994 would
cause an estimated increase in the average life of Northern
Trust's floating rate CMOs from 38 months to 45 months.
As of December 31, 1994 Northern Trust owned fixed
rate CMOs with an amortized cost of $68.7 million and a
fair value of $65.6 million, compared with an amortized
cost of $17.6 million and a fair value of $17.6 million as of
December 31, 1993. The average life of the fixed rate
CMOs was estimated to be 19 months as of December 31,
1994. A 300 basis point rise in rates is estimated to cause
the average life of the fixed rate CMOs to extend to
approximately 23 months.
LIQUIDITY RISK. The objective of liquidity management
is to ensure that Northern Trust can meet its cash flow
requirements and to capitalize on business opportunities on
a timely and cost-effective basis. Management monitors the
liquidity position on a daily basis to ensure that funds are
available at a minimum cost to meet loan and deposit cash
flows. The liquidity profile is also structured to ensure that
the capital needs of the Corporation and its banking
subsidiaries are met. Management maintains a detailed
liquidity contingency plan designed to adequately respond to
dramatic changes in market conditions.
Liquidity is secured by managing the mix of items on the
balance sheet and expanding potential sources of liquidity.
The balance sheet sources of liquidity include the short-
term money market portfolio, unpledged available for sale
securities, maturing loans, and the ability to securitize a
portion of the loan portfolio. Further, liquidity arises from
the diverse funding base and the fact that a significant
portion of funding comes from clients that have other
relationships with Northern Trust.
A significant source of liquidity is the ability to draw
funding from both domestic and international markets. The
Bank's senior long-term debt is rated AA- by Standard &
Poor's, Aa3 by Moody's Investor Services, and AA+ by
Thomson BankWatch. These ratings put The Northern
Trust Company in the top tier of United States banks.
43
NORTHERN TRUST CORPORATION
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Northern Trust maintains a liquid balance sheet with
loans representing less than 50% of total assets. Further, at
December 31, 1994, it had a significant liquidity reserve on
its balance sheet in the form of cash and due from banks,
securities available for sale, and money market assets, which
in aggregate totaled $8.3 billion or 44% of total assets.
CAPITAL
One of management's primary objectives is to maintain a
strong capital position to merit the confidence of clients,
the investing public, bank regulators and stockholders. A
strong capital position should help Northern Trust
withstand unforeseen adverse developments and take
advantage of profitable investment opportunities when they
arise. In 1994, common equity increased 13% or $129
million reaching a record $1.1 billion at year end, while
total risk-adjusted assets rose 19%. Total equity as of
December 31, 1994 was $1.3 billion including $50 million
of convertible preferred stock and $120 million of auction
rate preferred stock.
In February 1994, the Board of Directors increased the
Corporation's common stock buy-back authorization by
approximately 1.3 million shares, thus allowing the purchase
after that date, of up to an aggregate of 4 million shares of
the Corporation's common stock. During 1994 the
Corporation purchased 244,085 of its own shares as part of
the buy-back program and to facilitate the exercise of stock
options. No significant additional purchases are anticipated
until mid-1995.
The Board of Directors increased the quarterly dividend
by 18.2% to $.26 per common share in November 1994.
Over the last five years the common dividend has grown
105%.
At December 31, 1994, tier 1 capital was 9.0% and total
capital was 12.4% of risk-adjusted assets. These risk-based
capital ratios are well above the minimum requirements of
4% for tier 1 and 8% for total risk-based capital ratios.
Northern Trust's leverage ratio (tier 1 capital to fourth
quarter average assets) of 6.2% is also well above the
regulatory requirement of 3.0%. In addition, each of the
subsidiary banks had a ratio above 9.0% for tier 1 capital,
10.0% for total risk-based capital, and 5.9% for the
leverage ratio.
The $120 million of auction rate preferred stock was
affected by the increase in interest rates during 1994. The
average preferred rate declared during 1994 was 3.45%
versus 2.67% in 1993.
In December, 1993 a definitive agreement was reached to
acquire Beach One Financial Services, Inc., parent company
of The Beach Bank of Vero Beach, Florida, for $56.2
million in Corporation common stock up to a maximum of
1,701,515 shares. The Corporation expects to account for
this transaction as pooling-of-interests.
CAPITAL ADEQUACY
<TABLE>
<CAPTION>
December 31
---------------
($ In Millions) 1994 1993
-------------------------------------------------------------------
<S> <C> <C>
TIER 1 CAPITAL
Common Stockholders' Equity $ 1,111 $ 982
Convertible Preferred Stock 50 50
Goodwill (36) (39)
Net Unrealized Loss on Securities 15 --
-------------------------------------------------------------------
Total Tier 1 Capital 1,140 993
-------------------------------------------------------------------
TIER 2 CAPITAL
Auction Rate Preferred Stock 120 120
Reserve for Credit Losses* 145 134
Notes Payable** 169 183
-------------------------------------------------------------------
Total Tier 2 Capital 434 437
-------------------------------------------------------------------
TOTAL RISK-BASED CAPITAL 1,574 1,430
-------------------------------------------------------------------
Risk-Weighted Assets*** 12,736 10,659
-------------------------------------------------------------------
Total Assets
- End of Period (EOP) 18,562 16,903
- Average Fourth Quarter 18,377 15,954
Total Loans - End of Period 8,591 7,623
-------------------------------------------------------------------
RATIOS
Risk-Based Capital to Risk-Weighted Assets
- Tier 1 9.0% 9.3%
- Total (Tier 1 and 2) 12.4 13.4
Leverage (Tier 1 to Fourth Quarter Average Assets) 6.2 6.2
-------------------------------------------------------------------
Common Stockholders' Equity to
- Total Loans EOP 12.9% 12.9%
- Total Assets EOP 6.0 5.8
Stockholders' Equity to
- Total Loans EOP 14.9 15.1
- Total Assets EOP 6.9 6.8
-------------------------------------------------------------------
</TABLE>
Notes:
* The reserve for credit losses is restricted to 1.25% of risk-weighted
assets for the purpose of this calculation.
** Notes payable that qualify for risk-based capital amortize for the purpose
of inclusion in tier 2 capital during the five years before maturity.
*** Risk-weighted assets have been adjusted for goodwill, net unrealized loss
on securities and excess reserve for credit losses that have been excluded
from tier 1 and tier 2 capital.
44
NORTHERN TRUST CORPORATION
<PAGE>
LINES OF BUSINESS
The estimated results for the major business units are
presented in order to promote a greater understanding of
their financial performance and strategic direction. The
information, presented on an internal management
reporting basis, is derived from internal accounting systems
that support the strategic objectives and management
structure. Consequently, the results are not necessarily
comparable with similar information for other financial
institutions.
Management has developed accounting systems to
allocate revenue and expenses related to each line of
business, as well as certain corporate support services,
worldwide operations and systems development expenses.
The systems also incorporate processes for allocating assets,
liabilities and the applicable interest income and expense.
Equity is primarily allocated using the federal regulatory
risk-based capital guidelines, coupled with management's
judgment of the operational risks inherent in the business.
Allocations of capital and certain corporate expenses may
not be representative of the levels that would be required if
the businesses were independent entities.
CORPORATE AND INSTITUTIONAL SERVICES.
Corporate and Institutional Services includes corporate
trust, commercial banking and treasury management
services.
PERSONAL FINANCIAL SERVICES. Personal Financial
Services encompasses personal trust and investment
management services, estate administration, personal
banking and mortgage and other personal lending.
CORPORATE AND OTHER. Corporate and Other
includes the Bank's Treasury Department, Chicago based
foreign exchange activities, Northern Futures Corporation
and other corporate items, including the impact of long-
term debt, common and preferred equity, holding company
investments, operating expenses and other corporate items.
Noninterest income for 1994 includes a net gain of $28.5
million from the sale of the interest in Banque Scandinave
en Suisse. 1994 noninterest expenses include non-recurring
charges totaling $23.2 million. Of the $23.2 million,
approximately $13.6 million resulted from the trade-in and
the sale and leaseback of mainframe computer equipment
and the write-down of older trust-related software, and
$9.6 million from a non-cash accounting charge to
recognize the expense of an unusually large number of
pension eligible retiring employees.
<TABLE>
<CAPTION>
The following table reflects the earnings contribution of Northern Trust's lines of business for the years ended
December 31, 1994 and 1993 on the basis described above.
Corporate and Personal
Institutional Financial Corporate
Services Services and Other Total
--------------------------------------------------------------------
($ In Millions) 1994 1993 1994 1993 1994 1993 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income(1) $140.4 $125.7 $210.2 $204.3 $21.0 $33.4 $371.6 $363.4
Provision for Credit Losses 6.7 17.2 .5 3.3 (1.2) (1.0) 6.0 19.5
Noninterest Income:
Trust Fees 230.1 195.0 223.3 209.8 -- -- 453.4 404.8
Other 89.2 89.0 29.0 33.6 58.2 25.0 176.4 147.6
Noninterest Expenses 325.0 288.0 327.3 314.5 48.2 25.7 700.5 628.2
--------------------------------------------------------------------------------------------------------
Income before Taxes(1) 128.0 104.5 134.7 129.9 32.2 33.7 294.9 268.1
Provision for Income Taxes(1) 48.5 39.7 53.4 50.3 10.8 10.2 112.7 100.2
--------------------------------------------------------------------------------------------------------
NET INCOME $ 79.5 $ 64.8 $ 81.3 $ 79.6 $21.4 $23.5 $182.2 $167.9
--------------------------------------------------------------------------------------------------------
Percentage Contribution 44% 39% 44% 47% 12% 14% 100% 100%
--------------------------------------------------------------------------------------------------------
(1) On a fully taxable equivalent basis (FTE). Total includes $33.4 million and $34.1 million of FTE adjustment for 1994 and 1993,
respectively.
</TABLE>
45
NORTHERN TRUST CORPORATION
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31
--------------------
($ In Millions) 1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 1,192.5 $ 1,519.7
Money Market Assets
Federal Funds Sold and Securities Purchased under
Agreements to Resell 777.0 577.8
Time Deposits with Banks 1,864.7 2,090.4
Other 9.5 72.3
------------------------------------------------------------------------------
Total 2,651.2 2,740.5
------------------------------------------------------------------------------
Securities (Note 3) (Fair value $5,069.7 in 1994 and
$4,093.5 in 1993) 5,053.1 4,038.7
Loans and Leases (Note 4) (Net of unearned income $70.4
in 1994 and $69.4 in 1993) 8,590.6 7,623.0
Reserve for Credit Losses (Note 5) (144.8) (145.5)
Buildings and Equipment (Notes 6 and 7) 274.7 291.9
Customers' Acceptance Liability 56.3 56.9
Trust Security Settlement Receivables 305.7 293.1
Other Assets 582.3 484.3
------------------------------------------------------------------------------
Total Assets $18,561.6 $16,902.6
------------------------------------------------------------------------------
LIABILITIES
Deposits
Demand and Other Noninterest-Bearing $ 2,604.7 $ 2,464.7
Savings and Money Market Deposits 3,176.3 3,387.6
Savings Certificates 1,524.5 1,111.3
Other Time 342.2 333.4
Foreign Offices - Demand 225.4 297.1
- Time 3,861.3 2,739.3
------------------------------------------------------------------------------
Total Deposits 11,734.4 10,333.4
Federal Funds Purchased 972.0 1,215.8
Securities Sold under Agreements to Repurchase 2,216.9 602.2
Commercial Paper 123.8 124.1
Other Borrowings 833.6 2,001.2
Senior Medium-Term Notes (Note 8) 547.0 817.0
Notes Payable (Note 8) 244.8 326.8
Liability on Acceptances 56.3 56.9
Other Liabilities 552.1 273.5
------------------------------------------------------------------------------
Total Liabilities 17,280.9 15,750.9
------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock (Note 9) 170.0 170.0
Common Stock (Notes 9 and 11) - $1.66 2/3 Par Value 90.6 89.7
</TABLE>
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------
<S> <C> <C>
Shares authorized 140,000,000 140,000,000
Shares issued 54,360,374 53,826,261
Shares outstanding 54,089,259 53,292,967
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Capital Surplus 302.2 303.0
Retained Earnings 762.7 631.9
Net Unrealized Loss on Securities (Note 3) (15.8) (.4)
Translation Adjustments -- .6
Common Stock Issuable - Performance Plan (Note 20) 17.9 11.8
Deferred Compensation - ESOP and Other (38.8) (43.5)
Treasury Stock - (at cost, 271,115 shares in 1994 and
533,294 shares in 1993) (8.1) (11.4)
------------------------------------------------------------------------------
Total Stockholders' Equity 1,280.7 1,151.7
------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $18,561.6 $16,902.6
------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements on pages 50-69.
46
NORTHERN TRUST CORPORATION
<PAGE>
Consolidated Statement of Income
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------
($ In Millions Except Per Share Information) 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Money Market Assets
Federal Funds Sold and Securities Purchased
under Agreements to Resell $ 10.9 $ 5.5 $ 8.8
Time Deposits with Banks 97.8 86.5 95.6
Other 5.2 2.6 4.6
--------------------------------------------------------------------------------
Total 113.9 94.6 109.0
--------------------------------------------------------------------------------
Securities (Note 3) 235.2 176.3 169.2
Loans and Leases (Note 4) 499.6 435.5 443.7
--------------------------------------------------------------------------------
Total Interest Income 848.7 706.4 721.9
--------------------------------------------------------------------------------
Interest Expense
Deposits - Savings and Money Market Deposits 85.3 78.8 99.1
- Savings Certificates 56.9 50.5 69.9
- Other Time 18.6 15.7 25.4
- Foreign Offices 137.2 90.4 95.7
Federal Funds Purchased 55.5 51.1 53.5
Securities Sold under Agreements to Repurchase 61.9 20.0 19.8
Commercial Paper 5.9 4.3 5.2
Other Borrowings 32.4 24.6 18.1
Senior Medium-Term Notes (Note 8) 33.8 18.4 3.0
Notes Payable (Note 8) 23.0 23.3 21.0
--------------------------------------------------------------------------------
Total Interest Expense 510.5 377.1 410.7
--------------------------------------------------------------------------------
Net Interest Income 338.2 329.3 311.2
Provision for Credit Losses (Note 5) 6.0 19.5 29.5
--------------------------------------------------------------------------------
Net Interest Income after Provision for
Credit Losses 332.2 309.8 281.7
--------------------------------------------------------------------------------
Noninterest Income
Trust Fees 453.4 404.8 368.4
Security Commissions and Trading Income 18.4 19.9 19.9
Other Operating Income (Note 13) 158.1 125.9 117.8
Investment Security Gains (Losses) (Note 3) (.1) 1.8 3.3
--------------------------------------------------------------------------------
Total Noninterest Income 629.8 552.4 509.4
--------------------------------------------------------------------------------
Income before Noninterest Expenses 962.0 862.2 791.1
--------------------------------------------------------------------------------
Noninterest Expenses
Salaries 316.6 293.4 270.1
Pension and Other Employee Benefits (Notes
14 and 20) 74.8 68.1 58.4
Occupancy Expense (Notes 6 and 7) 57.4 55.3 53.8
Equipment Expense (Note 6) 56.4 41.1 36.2
Other Operating Expenses 195.3 170.3 166.1
--------------------------------------------------------------------------------
Total Noninterest Expenses 700.5 628.2 584.6
--------------------------------------------------------------------------------
Income before Income Taxes 261.5 234.0 206.5
Provision for Income Taxes (Note 10)
(Includes related investment security
transactions tax provision of none in 1994,
$.7 in 1993 and $1.1 in 1992) 79.3 66.1 57.0
--------------------------------------------------------------------------------
NET INCOME $182.2 $167.9 $149.5
--------------------------------------------------------------------------------
Net Income Applicable to Common Stock $174.9 $161.6 $142.7
--------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
(Note 11) - PRIMARY $ 3.17 $ 2.96 $ 2.64
- FULLY DILUTED 3.16 2.95 2.64
--------------------------------------------------------------------------------
Average Number of Common Shares
Outstanding - Primary 55,144,214 54,589,933 54,033,230
- Fully Diluted 56,352,375 55,848,809 55,210,451
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements on pages 50-69.
47
NORTHERN TRUST CORPORATION
<PAGE>
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
For the Year Ended
December 31
----------------------------
(In Millions) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Balance at January 1 $ 170.0 $ 170.0 $ 120.0
Preferred Stock Issuance, Series E -- -- 50.0
-------------------------------------------------------------------------------------------------------------
Balance at December 31 170.0 170.0 170.0
-------------------------------------------------------------------------------------------------------------
COMMON STOCK
Balance at January 1 89.7 89.7 59.8
Transfer from Capital Surplus - Three-for-Two Stock Split -- -- 29.9
Pooled Affiliate - Stock Issued .9 -- --
-------------------------------------------------------------------------------------------------------------
Balance at December 31 90.6 89.7 89.7
-------------------------------------------------------------------------------------------------------------
CAPITAL SURPLUS
Balance at January 1 303.0 300.0 326.4
Stock Issued - Incentive Plan and Awards (.4) 3.0 5.0
Pooled Affiliate (.4) -- --
Preferred Stock Issuance Cost -- -- (1.5)
Transfer to Common Stock - Three-for-Two Stock Split -- -- (29.9)
-------------------------------------------------------------------------------------------------------------
Balance at December 31 302.2 303.0 300.0
-------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at January 1 631.9 511.7 403.0
Net Income 182.2 167.9 149.5
Dividends Declared on Common Stock (49.6) (41.1) (34.8)
Dividends Declared on Preferred Stock (7.2) (6.6) (6.0)
Pooled Affiliate 5.4 -- --
-------------------------------------------------------------------------------------------------------------
Balance at December 31 762.7 631.9 511.7
-------------------------------------------------------------------------------------------------------------
NET UNREALIZED LOSS ON SECURITIES
Balance at January 1 (.4) (1.3) (4.4)
Unrealized Gain (Loss), net (15.4) .9 3.1
-------------------------------------------------------------------------------------------------------------
Balance at December 31 (15.8) (.4) (1.3)
-------------------------------------------------------------------------------------------------------------
TRANSLATION ADJUSTMENTS
Balance at January 1 .6 .6 .6
Sale of Foreign Investment (.6) -- --
-------------------------------------------------------------------------------------------------------------
Balance at December 31 -- .6 .6
-------------------------------------------------------------------------------------------------------------
COMMON STOCK ISSUABLE - PERFORMANCE PLAN
Balance at January 1 11.8 8.1 4.6
Stock Issuable, net of Stock Issued 6.1 3.7 3.5
-------------------------------------------------------------------------------------------------------------
Balance at December 31 17.9 11.8 8.1
-------------------------------------------------------------------------------------------------------------
DEFERRED COMPENSATION - ESOP AND OTHER
Balance at January 1 (43.5) (49.5) (54.1)
Compensation Deferred (4.5) (3.1) (2.2)
Compensation Amortized 10.1 8.6 7.1
Unfunded Pension Liability, net (.9) .5 (.3)
-------------------------------------------------------------------------------------------------------------
Balance at December 31 (38.8) (43.5) (49.5)
-------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Balance at January 1 (11.4) (18.8) (35.2)
Stock Options and Awards 12.0 10.6 21.5
Stock Purchased (8.7) (3.2) (5.1)
-------------------------------------------------------------------------------------------------------------
Balance at December 31 (8.1) (11.4) (18.8)
-------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY AT DECEMBER 31 $1,280.7 $1,151.7 $1,010.5
-------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements on pages 50-69.
48
NORTHERN TRUST CORPORATION
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------
(In Millions) 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 182.2 $ 167.9 $ 149.5
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Credit Losses 6.0 19.5 29.5
Depreciation and Amortization 41.4 39.3 34.0
(Increase) Decrease in Interest Receivable 22.9 (3.3) 20.2
Increase (Decrease) in Interest Payable 5.2 (9.8) (4.2)
Amortization and Accretion of Securities and
Unearned Income (27.7) 79.8 84.2
Deferred Income Tax 22.7 21.4 13.6
Gain on Sale of Foreign Investment (34.5) -- --
Net (Increase) Decrease in Trading Account Se-
curities 32.3 (34.7) 58.6
Other Noncash, net 137.2 34.8 (35.4)
--------------------------------------------------------------------------------
Net Cash Flows from Operating Activities 387.7 314.9 350.0
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Federal Funds Sold and Securi-
ties Purchased under Agreements to Resell (199.2) (121.3) (64.8)
Net (Increase) Decrease in Time Deposits with
Banks 225.7 (230.9) (601.3)
Net Decrease in Other Money Market Assets 66.5 10.0 53.2
Purchases of Securities--Held to Maturity (544.1) (277.7) (2,831.5)
Proceeds from Maturity and Redemption of Secu-
rities--Held to Maturity 515.8 297.5 2,324.9
Purchase of Securities--Available for Sale (12,838.3) (4,089.8) --
Proceeds from Sale of Securities--Available for
Sale 420.8 148.6 373.6
Proceeds from Maturity and Redemption of Secu-
rities--Available for Sale 11,402.4 3,023.3 --
Net Increase in Loans and Leases (979.2) (711.7) (696.8)
Purchase of Buildings and Equipment (44.8) (48.9) (56.5)
Proceeds from Sale of Buildings and Equipment 10.8 .9 1.7
Sale of Foreign Investment 58.1 -- --
Net (Increase) Decrease in Trust Security
Settlement Receivables (12.6) 269.0 (474.2)
Cash Used in Acquisitions -- -- (47.5)
Other, net 6.9 13.8 18.9
--------------------------------------------------------------------------------
Net Cash Flows from Investing Activities (1,911.2) (1,717.2) (2,000.3)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Demand and Other Noninterest-
Bearing Deposits 68.3 49.6 888.7
Net Increase (Decrease) in Savings and Money
Market Deposits (211.3) (223.9) 247.9
Net Increase in Certificates of Deposit and
Other Interest-Bearing Deposits 1,544.0 636.9 173.9
Net Increase (Decrease) in Federal Funds Pur-
chased and Short-Term Other Borrowings (30.9) 956.1 (71.9)
Proceeds from Other Borrowed Funds 3,918.4 1,663.8 1,638.7
Repayments of Other Borrowed Funds (3,684.2) (1,789.8) (1,547.1)
Net Decrease in Commercial Paper (.3) (2.9) (2.4)
Proceeds from Senior Medium-Term Notes and
Notes Payable 430.0 805.0 310.2
Repayments on Senior Medium-Term Notes and
Notes Payable (782.0) (206.4) (31.1)
Proceeds from Preferred Stock Issued -- -- 48.5
Treasury Stock Purchased (6.9) (2.2) (2.5)
Net Proceeds from Stock Options 4.5 4.0 11.7
Cash Dividends Paid on Common and Preferred
Stock (54.1) (45.8) (39.5)
Other, net .8 5.8 3.8
--------------------------------------------------------------------------------
Net Cash Flows from Financing Activities 1,196.3 1,850.2 1,628.9
--------------------------------------------------------------------------------
Increase (Decrease) in Cash and Due from Banks (327.2) 447.9 (21.4)
Cash and Due from Banks at Beginning of Year 1,519.7 1,071.8 1,093.2
--------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $1,192.5 $1,519.7 $1,071.8
--------------------------------------------------------------------------------
SCHEDULE OF NONCASH INVESTING AND FINANCING AC-
TIVITIES:
Acquisition of Affiliate for Stock, net $ 6.4 $ -- $ --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest Paid on Deposits and Short- and Long-
Term Borrowings $ 505.3 $ 386.9 $ 414.9
Income Taxes Paid 52.5 41.5 33.1
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements on pages 50-69.
49
NORTHERN TRUST CORPORATION
<PAGE>
Notes To Consolidated Financial Statements
1. ACCOUNTING POLICIES--The consolidated financial
statements have been prepared in conformity with generally
accepted accounting principles and reporting practices
prescribed for the banking industry. A description of the
significant accounting policies follows.
A. BASIS OF PRESENTATION. The consolidated
financial statements include the accounts of Northern Trust
Corporation (Corporation) and its wholly owned subsidiary
The Northern Trust Company (Bank) and their wholly
owned subsidiaries. Throughout the notes, the term
"Northern Trust" refers to Northern Trust Corporation
and subsidiaries. Significant intercompany balances and
transactions have been eliminated in consolidation. The
consolidated statement of income includes results of
acquired subsidiaries from the dates of acquisition.
B. FOREIGN CURRENCY TRANSLATION. Foreign
currency asset and liability accounts of overseas branches are
translated at current rates of exchange, except for buildings
and equipment which are translated at rates in effect at the
date of acquisition. Income and expense accounts are
translated at month-end rates of exchange.
Foreign exchange trading positions are valued daily at
prevailing market rates. Gains and losses on trading
positions and on positions entered into in order to hedge
foreign denominated investments are recognized currently
in other operating income. Consistent with industry
practice, prior to 1994, unrealized gains and losses on
trading positions were recorded in the consolidated balance
sheet on a net basis. Effective January 1, 1994, Northern
Trust adopted FASB Interpretation No. 39, "Offsetting of
Amounts Related to Certain Contracts," and began
recording these unrealized gains as other assets and
unrealized losses as other liabilities. Gains and losses on
foreign currency positions that were entered into in order
to hedge specific, firm foreign currency obligations are
deferred and recognized in income over the life of the
underlying asset or liability or as the underlying expense or
commitment is incurred.
C. SECURITIES. Securities Held to Maturity consist of debt
securities that management intends to, and Northern Trust
has the ability to, hold until maturity. Such securities are
stated at cost, adjusted for amortization of premium and
accretion of discount.
Securities Available for Sale consist of debt and equity
securities that are not intended to be held to maturity and
are not held for trading. Securities available for sale are
reported at fair value, with unrealized gains and losses
credited or charged, net of the tax effect, directly to
stockholders' equity. Realized gains and losses on securities
available for sale are determined on a specific identification
basis and are reported in the consolidated statement of
income as investment security gains and losses.
Securities Held for Trading are stated at fair value. Realized
and unrealized gains and losses on securities held for trading
are reported in the consolidated statement of income under
security commissions and trading income.
Effective January 1, 1994, Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" was
adopted. Prior to the adoption of SFAS No. 115, securities
available for sale were classified as held for sale and carried
at the lower of cost or fair value.
D. INTEREST RISK MANAGEMENT INSTRUMENTS.
Interest risk management instruments include interest rate
swap contracts, futures contracts, options and similar
contracts. Northern Trust is a party to various interest risk
management instruments to meet the interest risk
management needs of its clients, as part of its trading
activity for its own account and as part of its asset/liability
management activities. Consistent with industry practice,
prior to 1994 the carrying amounts related to interest risk
management instruments were reported in the consolidated
balance sheet on a net basis. Effective January 1, 1994,
Northern Trust adopted FASB Interpretation No. 39,
"Offsetting of Amounts Related to Certain Contracts," and
began reporting unrealized gains and receivables as other
assets and unrealized losses and payables as other liabilities
in the consolidated balance sheet.
Interest risk management instruments entered into to
meet clients' interest risk management needs or for trading
purposes are carried at fair value, with realized and
unrealized gains and losses included in security commissions
and trading income. Interest risk management instruments
are also entered into to hedge specifically identified existing
assets and liabilities or anticipated transactions. If specific
criteria are met, any gains or losses are deferred and
recognized as an adjustment to interest income or expense
over the life of the designated asset, liability, or anticipated
transaction. Interest accruals on interest rate swaps that are
used as hedges are recognized as adjustments to the interest
income or expense of the hedged item over the life of the
swap.
E. LOANS AND LEASES. Loans that are held to
maturity are reported at the principal amount outstanding,
net of unearned income. Residential real estate loans
classified as held for sale are reported at the lower of
aggregate cost or market value. Interest income on loans is
recorded on an accrual basis until, in the opinion of
management, there is a question as to the ability of the
debtor to meet the terms of the contract, or when interest
or principal is more than 90 days past due and the loan is
not well secured and in the process of collection. At the
time a loan is placed on a nonaccrual status, interest
50
NORTHERN TRUST CORPORATION
<PAGE>
accrued but not collected is reversed against interest
income of the current period. Loans are returned to an
accrual status when factors indicating doubtful collectibility
no longer exist.
Premiums and discounts on loans are recognized as an
adjustment of yield by the interest method based on the
contractual terms of the loan. Commitment fees that are
considered to be an adjustment to the loan yield, loan
origination fees and certain direct costs are deferred and
accounted for as an adjustment of the yield.
Unearned lease income from direct financing and
leveraged leases is recognized using the interest method.
This method provides a constant rate of return on the
unrecovered investment over the life of the lease.
F. RESERVE FOR CREDIT LOSSES. The reserve for
credit losses is established through provisions for credit
losses charged to income. Loans and other extensions of
credit deemed uncollectible are charged to the reserve.
Subsequent recoveries, if any, are credited to the reserve.
The loan portfolio and other extensions of credit are
regularly reviewed to evaluate the adequacy of the reserve
for credit losses. The impact of economic conditions on the
creditworthiness of borrowers is given major consideration
in determining the adequacy of the reserve. Credit loss
experience, changes in the character and size of the loan
portfolio and management's judgement are other factors
used in assessing the overall adequacy of the reserve for
credit losses and the resulting provision for credit losses.
Actual losses may vary from current estimates and the
amount of the provision may be either greater than or less
than actual net charge-offs. While the largest portion of this
reserve is intended to cover loan and lease losses, it is
considered a general reserve available for all credit-related
purposes.
G. FEES ON STANDBY LETTERS OF CREDIT AND
PARTICIPATIONS IN BANKERS ACCEPTANCES. Fees on
standby letters of credit are generally recognized in other
operating income on the straight-line method over the lives
of the underlying agreements. Commissions on bankers
acceptances are recognized in other operating income
when received.
H. BUILDINGS AND EQUIPMENT. Buildings and
equipment owned are carried at original cost less
accumulated depreciation. The charge for depreciation is
computed primarily on the straight-line method. Leased
properties meeting certain criteria are capitalized and
amortized using the straight-line method over the
lease period.
I. OTHER REAL ESTATE OWNED (OREO).
OREO is comprised of commercial and residential real
estate properties acquired in partial or total satisfaction of
problem loans.
OREO assets are carried at the lower of cost or fair
value. Losses identified at the time of acquisition of such
properties are charged against the reserve for credit losses.
Subsequent write-downs that may be required to the
carrying value of these assets and losses realized from asset
sales are charged to other operating expenses. Gains
realized from the sale of OREO are included in other
operating income.
J. INTANGIBLE ASSETS. Goodwill, arising from the
excess of purchase price over the fair value of net assets of
acquired subsidiaries, is being amortized using the straight-
line method over periods benefiting, ranging primarily from
fifteen to twenty-five years. Goodwill of approximately
$36.2 million and $39.4 million at December 31, 1994 and
1993, respectively, is included in other assets in the
consolidated balance sheet. At December 31, 1994, the
average remaining life of unamortized goodwill was
twelve years.
Other intangible assets are amortized using various
methods over the estimated life of the assets. At December
31, 1994 and 1993 other intangible assets totaled $31.2
million and $35.0 million, respectively.
K. TRUST ASSETS AND FEES. Assets held in fiduciary
or agency capacities are not included in the consolidated
balance sheet, since such items are not assets of Northern
Trust. Income from trust activities is reported on an
accrual basis.
L. TRUST SECURITY SETTLEMENT RECEIVABLES.
These receivables represent other items in the process of
collection presented on behalf of trust clients.
M. PENSION BENEFITS. A noncontributory qualified
pension plan covers substantially all employees. The plan
provides benefits for normal and early retirement, deferred
benefits for vested employees and, under certain
circumstances, survivor benefits in the event of death.
Benefits are based on the employees' years of service and
their five highest consecutive years of compensation. The
proportion of average compensation paid as a pension
benefit is determined by length of service. Contributions to
the plan satisfy or exceed the minimum funding
requirements of ERISA. Certain retiree death benefits are
funded through the Pension Plan and the related cost is
included as pension expense. Assets held by the plan consist
primarily of listed stocks and corporate bonds. Northern
Trust also maintains a noncontributory nonqualified pension
plan for participants whose retirement benefit payments
under the qualified plan are expected to exceed the limits
imposed by federal tax law.
Northern Trust has a nonqualified trust, referred to as a
"Rabbi" trust, to fund benefits in excess of those permitted
51
NORTHERN TRUST CORPORATION
<PAGE>
Notes to Consolidated Financial Statements (continued)
in certain of its qualified plans. The primary purpose of the
trust is to fund nonqualified pension benefits. This
arrangement offers certain officers a degree of assurance for
payment of benefits in excess of those permitted in the
related qualified plans. The assets remain subject to the
claims of creditors and are not the property of the
employees. Therefore, they are accounted for as corporate
assets and are included in other assets in the consolidated
balance sheet.
N. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP). A
leveraged Employee Stock Ownership Plan (ESOP) in
which substantially all employees of Northern Trust are
eligible to participate was established in 1989. The ESOP
shares not yet allocated to individual accounts are treated as
deferred compensation and accounted for as a reduction of
stockholders' equity. The original 4.5 million shares in the
ESOP Trust are being allocated to eligible employees over a
ten-year period. Dividends paid on unallocated shares held
in the ESOP Trust are used for debt service on the ESOP
notes. Compensation expense is accounted for based
primarily on the amount of cash paid by Northern Trust to
the ESOP for principal payments on the ESOP notes.
O. THRIFT INCENTIVE PLAN. The Corporation and its
subsidiaries have a defined contribution Thrift Incentive Plan
covering substantially all employees. The corporate
contribution is contingent upon the level of employee
contribution and meeting a predefined earnings target for
the year. The estimated contribution to this plan is charged
to pension and other employee benefit expenses.
P. INCENTIVE PLANS.
1992 INCENTIVE STOCK PLAN. The 1992 Incentive Stock
Plan (Plan) provides for the granting of both nonqualified
and incentive stock options. Stock appreciation rights may
also be granted in conjunction with stock options. The Plan
also permits stock awards and stock equivalents to be
granted. Key employees of the Corporation and its
subsidiaries are eligible to participate in the Plan. The Plan
is administered by the Compensation and Benefits
Committee (Committee) of the Board of Directors. The
total number of shares of the Corporation's common stock
authorized for distribution under the Plan is 3,750,000.
Stock options consist of options to purchase common
stock at purchase prices not less than 100% of the fair
market value thereof on the date the option is granted.
Options are exercisable not later than ten years after the
date of grant. In addition, the Plan provides that all options
will become exercisable upon a change of control as defined
in the Plan. All options terminate at such time as
determined by the Committee and as provided in the
option, but not later than three years after termination of
employment for any reason other than death.
Under the Plan, stock awards or equivalents can be
awarded by the Committee to participants which entitle
them to receive a payment in cash or Northern Trust
Corporation common stock based on such terms and
conditions as the Committee deems appropriate including
achievement of performance goals.
AMENDED INCENTIVE STOCK PLAN. The Amended
Incentive Stock Plan, adopted in 1986, was superseded by
the 1992 Incentive Stock Plan and terminated on December
31, 1994. Outstanding grants and awards under the
Amended Incentive Stock Plan will remain in effect in
accordance with their terms, but no further grants or
awards will be made.
LONG-TERM INCENTIVE PLAN. Performance shares have
been granted to executive officers under the provisions of
the 1992 and the Amended Incentive Stock Plans whereby
the executives will be entitled to have each award credited
to an account maintained for them if established
performance goals are achieved with distribution after
vesting. The value of shares earned but not yet distributed
under the plans is credited to performance share accounts
and is shown in stockholders' equity as common stock
issuable-performance plan.
OTHER INCENTIVE PLANS. Various incentive plans
provide for bonuses to selected employees based upon the
accomplishment of various corporate net income objectives,
business unit goals and individual performance.
The above incentive plans provide for acceleration of
benefits in certain circumstances including a change of
control.
Q. OTHER POSTRETIREMENT BENEFITS. Northern
Trust maintains an unfunded postretirement health care
plan. Employees retiring under the provisions of The
Northern Trust Pension Plan may be eligible for
postretirement health care coverage. These benefits may be
subject to deductibles, co-payment provisions and other
limitations. The provisions may be changed at the discretion
of Northern Trust, which also reserves the right to
terminate these benefits at any time.
Effective January 1, 1993, SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than
Pensions," was adopted. The statement requires that the
expected cost of providing postretirement benefits be
recognized in financial statements during the employees'
active service period. The previous practice was to expense
these benefits when paid.
R. INCOME TAXES. On January 1, 1993, SFAS No. 109,
"Accounting for Income Taxes," was adopted on a
prospective basis. Based on Northern Trust's existing tax
position, income tax accounting under this new statement is
52
NORTHERN TRUST CORPORATION
<PAGE>
not significantly different than the accounting required
under the prior method (SFAS No. 96).
An asset and liability approach to accounting for income
taxes is followed. The objective is to recognize the amount
of taxes payable or refundable for the current year, and to
recognize deferred tax assets and liabilities resulting from
temporary differences between the amounts reported in the
financial statements and the tax bases of assets and liabilities.
The measurement of tax assets and liabilities is based on
enacted tax laws and applicable tax rates.
S. CASH FLOW STATEMENTS. Cash and cash
equivalents has been defined as those amounts included in
the consolidated balance sheet as "Cash and Due from
Banks."
2. RECLASSIFICATIONS--Certain reclassifications have
been made to prior periods' consolidated financial
statements to place them on a basis comparable with the
current periods' consolidated financial statements.
3. SECURITIES--The following tables summarize the
book and fair values of securities.
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Book Fair
(In Millions) Value Value
------------------------------------------
<S> <C> <C>
Held to Maturity $ 641.3 $ 657.9
Available for Sale 4,407.8 4,407.8
Trading Account 4.0 4.0
------------------------------------------
Total $5,053.1 $5,069.7
------------------------------------------
<CAPTION>
December 31, 1993
-----------------
Book Fair
(In Millions) Value Value
------------------------------------------
<S> <C> <C>
Held to Maturity $3,790.8 $3,845.0
Available for Sale* 211.6 212.2
Trading Account 36.3 36.3
------------------------------------------
Total $4,038.7 $4,093.5
------------------------------------------
</TABLE>
*Prior to 1994, securities shown as available for sale were classified as held
for sale and carried at the lower of cost or fair value.
Income on obligations of states and political subdivisions
totaled $34.6 million, $38.3 million and $39.3 million in
1994, 1993 and 1992, respectively. Dividends on preferred
stock totaled $6.4 million, $3.8 million and $5.6 million
for 1994, 1993 and 1992, respectively.
SECURITIES HELD TO MATURITY. The following
tables summarize the book values, fair values and remaining
maturities of securities held to maturity.
RECONCILIATION OF BOOK VALUES TO FAIR
VALUES OF SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------
Gross Gross
Book Unrealized Unrealized Fair
(In Millions) Value Gains Losses Value
------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 137.2 $ -- $ .2 $ 137.0
Obligations of States and
Political Subdivisions 474.5 19.5 2.7 491.3
Other 29.6 -- -- 29.6
------------------------------------------------------------------
Total $ 641.3 $19.5 $2.9 $ 657.9
------------------------------------------------------------------
<CAPTION>
December 31, 1993
---------------------------------------
Gross Gross
Book Unrealized Unrealized Fair
(In Millions) Value Gains Losses Value
------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $2,343.7 $ 2.1 $ .2 $2,345.6
Obligations of States and
Political Subdivisions 493.5 53.5 .1 546.9
Federal Agency 833.1 .5 1.8 831.8
Other 120.5 .3 .1 120.7
------------------------------------------------------------------
Total $3,790.8 $56.4 $2.2 $3,845.0
------------------------------------------------------------------
</TABLE>
REMAINING MATURITY OF SECURITIES HELD TO
MATURITY
<TABLE>
<CAPTION>
December 31, 1994
-------------------
Book Fair
(In Millions) Value Value
------------------------------------------------------------------
<S> <C> <C>
Due in One Year or Less $248.8 $250.9
Due After One Year Through Five
Years 160.1 168.5
Due After Five Years Through Ten
Years 137.5 145.0
Due After Ten Years 94.9 93.5
------------------------------------------------------------------
Total $641.3 $657.9
------------------------------------------------------------------
</TABLE>
Asset-backed and mortgage-backed securities were included in the above table
taking into account anticipated future prepayments.
SECURITIES AVAILABLE FOR SALE. Realized gross
security gains and losses on securities available for sale,
which were included in the consolidated statement of
income, totaled $.2 million and $.3 million, respectively, in
1994. Realized gross security gains in 1993 totaled $1.8
million, including $1.6 million related to securities held for
sale. There were no realized gross security losses in 1993.
In 1992, realized gross gains and gross losses totaled $4.0
million and $.7 million, respectively.
53
NORTHERN TRUST CORPORATION
<PAGE>
Notes to Consolidated Financial Statements (continued)
The following tables summarize the amortized cost, fair
values and remaining maturities of securities available for
sale.
RECONCILIATION OF AMORTIZED COST TO FAIR
VALUES OF SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Millions) Cost Gains Losses Value
---------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 819.4 $ -- $18.1 $ 801.3
Federal Agency 3,263.6 1.4 13.5 3,251.5
Preferred Stock 197.2 -- .6 196.6
Other 163.0 .9 5.5 158.4
---------------------------------------------------------
Total $4,443.2 $2.3 $37.7 $4,407.8
---------------------------------------------------------
</TABLE>
Unrealized gains on off-balance sheet financial
instruments used to hedge available for sale securities
totaled $9.8 million as of December 31, 1994 and are
reported as other assets in the consolidated balance sheet.
As of December 31, 1994, stockholders' equity included a
charge of $15.8 million, net of tax, to recognize the
depreciation on securities available for sale and the related
hedges.
REMAINING MATURITY OF SECURITIES AVAILABLE
FOR SALE
<TABLE>
<CAPTION>
December 31, 1994
------------------
Amortized Fair
(In Millions) Cost Value
----------------------------------------------
<S> <C> <C>
Due in One Year or Less $3,420.5 $3,406.1
Due After One Year Through
Five Years 745.7 725.4
Due After Five Years
Through Ten Years 89.9 89.4
Due After Ten Years 187.1 186.9
----------------------------------------------
Total $4,443.2 $4,407.8
----------------------------------------------
</TABLE>
Asset-backed and mortgage-backed securities were included in the above table
taking into account anticipated future prepayments.
SECURITIES HELD FOR SALE. The following table
summarizes the amortized cost/book and fair values of
securities held for sale.
RECONCILIATION OF BOOK VALUES TO FAIR
VALUES OF SECURITIES HELD FOR SALE
<TABLE>
<CAPTION>
December 31, 1993
--------------------------------------
Amortized Gross Gross
Cost/Book Unrealized Unrealized Fair
(In Millions) Value Gains Losses Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Agency $ 77.7 $.7 $.2 $ 78.2
Preferred Stock 129.2 -- -- 129.2
Other 4.7 .1 -- 4.8
-------------------------------------------------------
Total $211.6 $.8 $.2 $212.2
-------------------------------------------------------
</TABLE>
4. LOANS AND LEASES--Amounts outstanding in
selected loan categories are shown below.
<TABLE>
<CAPTION>
December 31
-----------------
(In Millions) 1994 1993
------------------------------------------
<S> <C> <C>
Domestic
Commercial $2,672.0 $2,421.1
Broker 274.6 249.4
Residential Real Estate 3,299.1 2,883.3
Commercial Real Estate 494.1 506.5
Consumer 662.1 617.5
Other 642.1 453.5
Lease Financing 159.9 138.4
------------------------------------------
Total Domestic 8,203.9 7,269.7
International 386.7 353.3
------------------------------------------
Total Loans and Leases $8,590.6 $7,623.0
------------------------------------------
</TABLE>
Residential real estate loans held for sale totaled $4.4
million and $19.3 million at December 31, 1994 and 1993,
respectively. Other domestic and international loans include
$716.5 million at December 31, 1994, and $465.5 million
at December 31, 1993 of overnight trust-related advances
in connection with next day security settlements. Lease
financing includes leveraged leases of $59.8 million at
December 31, 1994, and $48.3 million at December 31,
1993.
NONPERFORMING ASSETS. Presented below are
outstanding amounts of nonaccrual loans and OREO.
<TABLE>
<CAPTION>
December 31
-----------
(In Millions) 1994 1993
----------------------------------------------
<S> <C> <C>
Nonaccrual Loans
Domestic -- Commercial Real
Estate $ 9.1 $ 4.8
-- Other 17.4 21.2
International 1.3 1.3
----------------------------------------------
Total Nonaccrual Loans 27.8 27.3
Other Real Estate Owned, net of
reserve 2.2 9.7
----------------------------------------------
Total Nonperforming Assets $30.0 $37.0
----------------------------------------------
</TABLE>
Unfunded loan commitments and standby letters of
credit issued to borrowers whose loans were classified as
nonaccrual totaled $.1 million at December 31, 1994, and
$1.0 million at December 31, 1993.
Interest income that would have been recorded on
domestic nonaccrual loans in accordance with their original
terms amounted to $3.1 million in 1994, $3.5 million in
1993 and $5.4 million in 1992, compared with amounts
that were actually recorded of $.2 million, $1.6 million and
zero, respectively. Interest income that would have been
recorded on international nonaccrual loans in accordance
with their original terms amounted to $.1 million in 1994,
1993 and 1992, compared with amounts that were actually
recorded at zero in all three years.
54
NORTHERN TRUST CORPORATION
<PAGE>
Writedowns and realized losses on OREO of $.3 million
in 1994, $2.1 million in 1993 and $14.3 million in 1992
were charged to other operating expenses.
Statements of Financial Accounting Standards (SFAS) No.
114 and No. 118, "Accounting by Creditors for Impairment
of a Loan," were adopted effective January 1, 1995. A loan
is impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan
agreement. These new statements require that an impaired
loan that is within the scope of the statements be measured
based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at
the loan's observable market price, or, if the loan is collateral
dependent, based on the fair value of the collateral.
At January 1, 1995, impaired loans totaled $25.2
million, and the portion of the reserve for credit losses
allocated to these impaired loans was zero, due to prior
charge-offs and interest collections which have been applied
to principal. Management believes this new standard will
not have a material effect on the consolidated financial
position and results of operations.
5. RESERVE FOR CREDIT LOSSES--Changes in the
reserve for credit losses were as follows.
<TABLE>
<CAPTION>
(In Millions) 1994 1993 1992
-----------------------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year $145.5 $145.5 $145.7
-----------------------------------------------------
Charge-offs
Domestic
Commercial Real Estate (4.0) (7.8) (4.6)
Other (6.7) (15.0) (21.8)
International -- (.6) (6.0)
-----------------------------------------------------
Total Charge-offs (10.7) (23.4) (32.4)
Recoveries 4.0 3.9 2.7
-----------------------------------------------------
Net Charge-offs (6.7) (19.5) (29.7)
Provision for Credit
Losses 6.0 19.5 29.5
-----------------------------------------------------
Balance at End of Year $144.8 $145.5 $145.5
-----------------------------------------------------
</TABLE>
6. BUILDINGS AND EQUIPMENT--Summary of
buildings and equipment is presented below.
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------
Accumulated Net
(In Millions) Original Cost Depreciation Book Value
--------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 23.0 $ -- $ 23.0
Buildings 77.3 35.8 41.5
Equipment 198.6 88.9 109.7
Leasehold Improvements 56.3 20.3 36.0
Building Leased under
Capital Lease (Note 7) 72.6 8.1 64.5
--------------------------------------------------------------------
Total Buildings and Equipment $427.8 $153.1 $274.7
--------------------------------------------------------------------
<CAPTION>
December 31, 1993
-------------------------------------
Accumulated Net
(In Millions) Original Cost Depreciation Book Value
--------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 23.4 $ -- $ 23.4
Buildings 79.0 35.5 43.5
Equipment 215.3 91.2 124.1
Leasehold Improvements 51.0 16.3 34.7
Building Leased under
Capital Lease (Note 7) 72.6 6.4 66.2
--------------------------------------------------------------------
Total Buildings and Equipment $441.3 $149.4 $291.9
--------------------------------------------------------------------
</TABLE>
The charge for depreciation amounted to $41.4 million
in 1994, $39.3 million in 1993 and $34.0 million in 1992.
Occupancy expense has been reduced by $2.0 million in
1994, $1.7 million in 1993 and $1.0 million in 1992 for
rental income from leased premises.
7. LEASE COMMITMENTS--At December 31, 1994,
Northern Trust was obligated under a number of
noncancellable operating leases for premises and equipment.
Certain leases contain rent escalation clauses for real estate
taxes and other operating expenses and renewal option
clauses calling for increased rentals. There are no
restrictions imposed by any lease agreement regarding the
payment of dividends, debt financing or Northern Trust
entering into further lease agreements. Minimum annual
lease commitments as of December 31, 1994, for all
noncancellable operating leases are as follows.
<TABLE>
<CAPTION>
Future Minimum
(In Millions) Lease Payments
--------------------------------------------
<S> <C>
1995 $ 28.2
1996 27.3
1997 26.4
1998 23.2
1999 18.7
Later Years 123.3
--------------------------------------------
Total Minimum Lease Payments $247.1
--------------------------------------------
</TABLE>
55
NORTHERN TRUST CORPORATION
<PAGE>
Notes to Consolidated Financial Statements (continued)
Rental expense for all operating leases is included in
occupancy expense and amounted to $24.5 million in 1994,
$23.5 million in 1993 and $22.8 million in 1992.
The building and land utilized at the Chicago operations
center has been leased under an agreement which qualifies
as a capital lease. The long-term financing for the property
was provided by the Corporation and the Bank. In the event
of sale or refinancing, the Bank will receive all proceeds
except for 58% of any proceeds in excess of the original
project costs which will be paid to the lessor.
The table below reflects the future minimum lease
payments required under this lease, net of payments
received on the long-term financing, and the present value
of the net capital lease obligation at December 31, 1994
(refer to Note 8).
<TABLE>
<CAPTION>
Future Minimum
(In Millions) Lease Payments, net
-----------------------------------------------
<S> <C>
1995 $ 1.1
1996 1.1
1997 1.1
1998 1.1
1999 1.3
Later Years 15.7
-----------------------------------------------
Total Minimum Lease Pay-
ments, net 21.4
Less: Amount Representing
Interest 11.0
-----------------------------------------------
Net Present Value under
Capital Lease Obligation $10.4
-----------------------------------------------
</TABLE>
8. SENIOR MEDIUM-TERM NOTES, NOTES
PAYABLE AND LINES OF CREDIT--
SENIOR MEDIUM-TERM NOTES. Summary of senior
medium-term notes outstanding at December 31 is
presented below.
<TABLE>
<CAPTION>
($ In Millions) Rate 1994 1993
--------------------------------------------------------
<S> <C> <C> <C>
Corporation
Due 1996 (a) 8.65% $ 2.0 $ 2.0
Bank
Due 1994 (a) (b) 3.40-4.51 -- 700.0
Due 1995 (a) (b)
Fixed 4.95-6.60 375.0 100.0
Floating 155.0 --
Due 1996 (a) (b) 4.63-5.38 10.0 10.0
Due 1998 (a) (b) 6.29 5.0 5.0
--------------------------------------------------------
Total Senior Medium-Term Notes $547.0 $817.0
--------------------------------------------------------
</TABLE>
Refer to bottom of next table for applicable notes.
NOTES PAYABLE. Summary of notes payable outstanding
at December 31 is presented below.
<TABLE>
<CAPTION>
($ In Millions) 1994 1993
----------------------------------------------
<S> <C> <C>
Corporation--Subordinated
Notes
9.15% Notes due March 1998
(a) $ 10.0 $ 10.0
9.20% Notes due March 1998
(a) 13.0 13.0
9.00% Notes due May 1998
(a) 50.0 50.0
9.20% Notes due May 2001
(a) 25.0 25.0
Bank--Subordinated Notes
6.50% Notes due May 2003
(a) (b) 100.0 100.0
----------------------------------------------
Subordinated Notes Payable $198.0 $198.0
----------------------------------------------
Corporation--Notes Payable
9 1/8% Notes due August
1994 (a) $ -- $ 75.0
8.25% ESOP Notes due
December 1995 (a) (c) 2.7 2.7
8.23% ESOP Installment
Notes with Final Payment
due December 1998 (d) 33.7 40.6
Bank--Capital Lease Obliga-
tion (e) 10.4 10.5
----------------------------------------------
Notes Payable $ 46.8 $128.8
----------------------------------------------
Total Notes Payable $244.8 $326.8
----------------------------------------------
Notes Payable Qualifying as
Risk-Based Capital $168.8 $183.4
----------------------------------------------
</TABLE>
(a) Not redeemable prior to maturity.
(b) Under the terms of its current offering circular, the Bank has the ability
to offer from time to time its senior medium-term bank notes in an
aggregate principal amount of up to $1.5 billion at any one time
outstanding. Each senior note will mature from nine months to fifteen
years, following its date of original issuance, as selected by the initial
purchaser and agreed to by the Bank.
(c) Notes are related to the contribution of 180,000 common shares to the ESOP
trust.
(d) Notes were issued directly by the ESOP trust in order to finance the
purchase of 4,320,000 common shares. The Corporation unconditionally
guarantees the payment of principal, premium, if any, and interest. The
interest rate is subject to adjustment in the event of certain tax law
changes affecting ESOP plans.
(e) Refer to Note 7.
LINES OF CREDIT. The Corporation currently maintains
commercial paper back-up facility lines of credit with four
unaffiliated banks totaling $50 million. The facility is
renewable every six months and requires the payment of an
annual commitment fee equal to 1/8 of 1% of the
commitment. There were no borrowings under commercial
paper back-up facilities during 1994 or 1993.
56
NORTHERN TRUST CORPORATION
<PAGE>
9. STOCKHOLDERS' EQUITY--
PREFERRED STOCK. The Corporation is authorized to
issue 10,000,000 shares of preferred stock without par
value. The Board of Directors of the Corporation is
authorized to fix the particular preferences, rights,
qualifications and restrictions for each series of preferred
stock issued. Summary of preferred stock outstanding is
presented below.
<TABLE>
<CAPTION>
December 31
-------------
(In Millions) 1994 1993
-----------------------------------------------
<S> <C> <C>
Auction Rate Preferred Stock
Series C
600 shares @ $100,000 per share $ 60.0 $ 60.0
Flexible Auction Rate Cumulative
Preferred Stock Series D
600 shares @ $100,000 per share 60.0 60.0
6.25% Cumulative Convertible
Preferred Stock Series E
50,000 shares @ $1,000 per
share 50.0 50.0
-----------------------------------------------
Total Preferred Stock $170.0 $170.0
-----------------------------------------------
</TABLE>
SERIES C--In 1987, 600 shares of Auction Rate
Preferred Stock (APS) Series C were issued, with a
$100,000 per share stated value. Dividends on the shares of
APS are cumulative. Rates are determined every 49 days by
Dutch auction unless the Corporation fails to pay a dividend
or redeem any shares for which it has given notice of
redemption, in which case the dividend rate will be set at
175% of the 60-day "AA" Composite Commercial Paper
Rate. The dividend rate in any auction will not exceed a
percentage determined by the prevailing credit rating of the
APS. The current maximum dividend rate is 120% of the
60-day "AA" Composite Commercial Paper Rate. The
average rate for this issue as declared during 1994 was
3.43%. The shares of APS are redeemable at the option of
the Corporation, in whole or in part, on any Dividend
Payment Date at $100,000 per share, plus accrued and
unpaid dividends.
SERIES D--In 1990, 600 shares of Flexible Auction
Rate Cumulative Preferred Stock, Series D (FAPS) were
issued with a $100,000 per share stated value. Each
dividend period shall contain 49 days (the "Short-Term
Dividend Period") or a number of days greater than 49 days
(as selected by the Term Selection Agent) which is divisible
by seven (the "Long-Term Dividend Period"). Rates for
each dividend period are determined by Dutch auction
unless the Corporation fails to pay the full amount of any
dividend or redemption. The dividend rate in any auction
will not exceed a percentage (currently 125%), determined
by the prevailing credit rating of the FAPS, of the 60-day
"AA" Composite Commercial Paper Rate or the Reference
Rate, which rate is the Composite Commercial Paper Rate
or the Treasury Rate, as appropriate for the length of each
short-term or long-term dividend period, respectively. If
the Corporation fails to pay the full amount of any dividend
or redemption, each dividend period thereafter (until
auctions are resumed) will be a Short-Term Dividend Period
and the dividend rate will be 250% of the 60-day "AA"
Composite Commercial Paper Rate; additional dividends
will accrue for the balance of any Long-Term Dividend
Period in which such a failure to pay occurs. No dividends
other than dividends payable in junior stock, such as
Common Stock, may be paid on Common Stock until full
cumulative dividends on the FAPS have been paid. The
average rate for this issue as declared during 1994 was
3.47%. The shares of FAPS are redeemable at the option of
Northern Trust, in whole or in part, at $100,000 per share
plus accrued and unpaid dividends.
SERIES E--$50 million of 6.25% Cumulative
Convertible Preferred Stock, Series E was issued, sold to
the public in the form of 1,000,000 Depositary Shares, each
representing one-twentieth of a share of the Series E
Preferred Stock (equal to 50,000 preferred shares). The
stated value of the Preferred Stock is $1,000 per share
and the proportionate liquidation preference of each
Depositary Share is $50. The Preferred Stock has no
preemptive rights; is not subject to any sinking fund or
other obligation of the Corporation to repurchase or retire
the Stock; and except in certain specified cases has no
voting rights. The Preferred Stock has priority over
common stock as to dividends and liquidation rights.
The preferred stock is convertible at any time into shares
of common at a conversion price of $41.50 (equivalent to
approximately 1.2048 shares of common stock per
Depositary Share), subject to adjustment in certain events.
The Preferred Stock is not redeemable prior to February
15, 1995. Thereafter, the Preferred Stock may be
redeemed, subject to the approval of the Federal Reserve
Board, at specified redemption prices beginning with
$52.1875 on February 15, 1995 and decreasing on a pro
rata basis each February 15 to $50.00 per Depositary Share
on or after February 15, 2002, plus accrued and unpaid
dividends.
PREFERRED STOCK PURCHASE RIGHTS. In 1989,
the Board of Directors of the Corporation declared a
dividend distribution of one Preferred Stock Purchase Right
on each outstanding share of the Corporation's common
stock to the stockholders of record on October 31, 1989.
The Rights are subject to anti- dilution provisions, and each
Right is now exercisable for one-third of one-hundredth of a
share of Series A Junior Participating Preferred Stock at an
exercise price of $83.33 for each such fractional share. The
Rights are evidenced by the common stock certificates and
57
NORTHERN TRUST CORPORATION
<PAGE>
Notes to Consolidated Financial Statements (continued)
are not exercisable or transferable apart from the common
stock until twenty days after a person or group acquires 15
percent or more of the Corporation's voting power or
announces a tender or exchange offer which could result in
ownership of 25 percent or more of the voting power.
Shares of the Participating Preferred Stock purchasable upon
exercise of the Rights will not be redeemable.
In the event that a person or group acquires 25 percent
or more of the Corporation voting power or if the
Corporation merges or engages in certain self-dealing
transactions with a 15 percent or more stockholder, each
Right will entitle the holder, other than such person or
group in certain circumstances, to purchase that number of
shares of surviving company common stock which at the
time of the transaction would have a market value of twice
the exercise price of the Right.
The Rights do not have voting rights and are redeemable
at the option of the Corporation at a price of one cent per
Right at any time prior to the close of business on the 20th
day following publication of the acquisition of 15 percent or
more of the voting power by a person or group. Unless
earlier redeemed, the Rights will expire on October 31, 1999.
COMMON STOCK. In November 1992 a three-for-two
split of the common stock was declared to be effected by
means of a 50% stock distribution. One share for each two
shares held by shareholders of record on November 30,
1992, was distributed on December 9, 1992.
In February 1994, the Corporation's common stock buy-
back authorization was increased by approximately 1.3
million shares, thus allowing the purchase after that date up
to an aggregate of 4 million shares of the common stock.
The Corporation may repurchase the shares from time to
time via open market purchases, and the shares would be
used for general corporate purposes.
Analysis of changes in the number of shares of common
stock outstanding follows.
COMMON STOCK OUTSTANDING
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------
<S> <C> <C> <C>
Balance at
January 1 53,292,967 52,831,844 34,497,869
Distribution of
Three-for-Two
Stock Split -- -- 17,248,935
Employee Benefit
Plans:
Incentive Plan
and Awards 44,525 149,300 133,350
Stock Options Exercised 461,739 388,298 1,092,964
Pooled
Affiliate 534,113 -- --
Treasury Stock
Purchases (244,085) (76,475) (141,274)
------------------------------------------------------------
Balance at
December 31 54,089,259 53,292,967 52,831,844
------------------------------------------------------------
</TABLE>
10. INCOME TAXES--The table below reconciles the
total provision for income taxes recorded in the
consolidated statement of income with the amount
computed at the statutory federal tax rates of 35% in 1994
and 1993, and 34% in 1992.
<TABLE>
<CAPTION>
Income Tax Provision
----------------------
(In Millions) 1994 1993 1992
------------------------------------------------
<S> <C> <C> <C>
Tax at Statutory Rate $ 91.5 $ 81.9 $ 70.2
Tax-Exempt Income (15.2) (15.8) (16.4)
State Taxes, net 4.2 1.1 3.7
Other (1.2) (1.1) (.5)
------------------------------------------------
Provision for Income
Taxes $ 79.3 $ 66.1 $ 57.0
------------------------------------------------
</TABLE>
The components of the consolidated provision for income
taxes for each of the three years ended December 31, are as
follows.
<TABLE>
<CAPTION>
(In Millions) 1994 1993 1992
--------------------------------------------
<S> <C> <C> <C>
Current Tax Provision
(Benefit)
Federal $47.4 $42.4 $38.8
State 3.6 (.6) 4.2
Foreign 5.6 2.9 .4
--------------------------------------------
Total 56.6 44.7 43.4
--------------------------------------------
Deferred Tax Provision
Federal 19.8 19.2 12.2
State 2.9 2.2 1.4
--------------------------------------------
Total 22.7 21.4 13.6
--------------------------------------------
Provision for Income
Taxes $79.3 $66.1 $57.0
--------------------------------------------
</TABLE>
Not included in the above tables, but charged or
(credited) directly to stockholders' equity are the tax effects
of the following transactions.
<TABLE>
<CAPTION>
(In Millions) 1994 1993
-----------------------------------------------------------
<S> <C> <C>
Current Tax Benefit for Employee
Stock Options and Other
Employee Benefit Plans $(3.7) $(4.5)
Deferred Tax Liability (Benefit) Related to:
Unrealized Loss on Securities (9.5) .5
Other (.1) --
-----------------------------------------------------------
</TABLE>
58
NORTHERN TRUST CORPORATION
<PAGE>
Deferred taxes result from temporary differences
between the amounts reported in the consolidated financial
statements and the tax bases of assets and liabilities.
Deferred tax liabilities and assets have been computed based
on the statutory federal tax rates of 35% at December 31,
1994 and 1993, as follows.
<TABLE>
<CAPTION>
December 31
---------------
(In Millions) 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Deferred Tax Liabilities
Lease Financing $48.8 $39.2
Software Development 37.8 27.6
Accumulated Depreciation 1.0 8.3
Other Liabilities 8.4 7.3
---------------------------------------------
Gross Deferred Tax
Liabilities $96.0 $82.4
---------------------------------------------
Deferred Tax Assets
Reserve for Credit Losses $50.7 $50.9
Loan Fees 3.2 5.5
Leased Facilities 6.7 6.3
Other Assets 6.4 3.8
---------------------------------------------
Gross Deferred Tax Assets $67.0 $66.5
Valuation Reserve -- --
---------------------------------------------
Deferred Tax Assets, net of
Valuation Reserve $67.0 $66.5
---------------------------------------------
Net Deferred Tax Liabilities $29.0 $15.9
---------------------------------------------
</TABLE>
11. NET INCOME PER COMMON SHARE
COMPUTATIONS--Primary net income per common
share is computed by dividing net income, after deduction
of the preferred stock dividends, by the daily average
number of common and common equivalent shares
outstanding. Common equivalent shares are based on
outstanding stock options and common stock awards under
the 1992 and the Amended Incentive Stock Plans. Fully
diluted net income per common share assumes, in addition
to the above, the conversion of the Series E Cumulative
Convertible Preferred Stock.
12. RESTRICTIONS ON SUBSIDIARY DIVIDENDS
AND LOANS OR ADVANCES--Provisions of state and
federal banking laws restrict the amount of dividends that
can be paid to the Corporation by its banking subsidiaries.
Under applicable state and federal laws, no dividends may be
paid in an amount greater than the net profits then on
hand, reduced by certain loan losses (as defined in the
applicable statute). In addition, for each of the
Corporation's Federal Reserve member banking
subsidiaries, prior approval of federal banking authorities is
required if dividends declared by a subsidiary bank in any
calendar year will exceed its net profits (as defined) for that
year, combined with its retained profits for the preceding
two years.
Based on these regulations, the Corporation's banking
subsidiaries, without regulatory approval, could declare
dividends during 1995 equal to their 1995 eligible net
profits (as defined) plus $190.1 million. The ability of each
banking subsidiary to pay dividends to the Corporation may
be further restricted as a result of regulatory policies and
guidelines relating to dividend payments and capital
adequacy.
State and federal laws limit the transfer of funds by a
banking subsidiary to the Corporation and certain of its
affiliates in the form of loans or extensions of credit,
investments or purchases of assets. Transfers of this kind to
the Corporation or a nonbanking subsidiary by a banking
subsidiary are each limited to 10% of the banking
subsidiary's capital and surplus with respect to each affiliate
and to 20% in the aggregate, and are also subject to certain
collateral requirements. These transactions, as well as other
transactions between a banking subsidiary and the
Corporation or its affiliates, must also be on terms
substantially the same as, or at least as favorable as, those
prevailing at the time for comparable transactions with non-
affiliated companies or, in the absence of comparable
transactions, on terms, or under circumstances, including
credit standards, that would be offered to, or would apply
to, non-affiliated companies.
13. OTHER OPERATING INCOME--Included in 1994 is
a $28.5 million pretax gain on the sale of an investment in
Banque Scandinave en Suisse (BSS), net of approximately
$6.0 million in ancillary and other sale-related transition
costs associated with the transfer of custody accounts from
BSS to the Bank's London Branch.
The fee portion of treasury management revenues totaled
$46.3 million in 1994, $49.0 million in 1993 and $49.7
million in 1992. Net foreign exchange revenues including
trading, hedge and translation gains or losses were $36.0
million in 1994, $32.1 million in 1993 and $21.8 million in
1992, and included foreign exchange trading profits of
$35.9 million, $32.4 million and $21.9 million in 1994,
1993 and 1992, respectively.
59
NORTHERN TRUST CORPORATION
<PAGE>
Notes to Consolidated Financial Statements (continued)
14. PENSION AND OTHER EMPLOYEE BENEFITS--
PENSION. The following tables set forth the status and
the net periodic pension cost of the domestic qualified and
nonqualified pension benefit plans for 1994 and 1993. Prior
service costs and unrecognized net assets established at
January 1, 1986 are being amortized on a straight-line basis
over 13.2 years.
PLAN STATUS
<TABLE>
<CAPTION>
Qualified Plan Nonqualified Plan
------------------------------------
September 30
------------------------------------
($ In Millions) 1994 1993 1994 1993
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial
Present Value
of Benefit
Obligation:
Vested Benefit
Obligation $104.2 $108.7 $ 14.5 $ 11.7
-----------------------------------------------------------------------
Accumulated
Benefit
Obligation $124.7 $127.3 $ 15.7 $ 13.3
-----------------------------------------------------------------------
Projected Benefit Obligation for
Service Rendered to Date $175.7 $168.9 $ 23.5 $ 20.1
Plan Assets at
Fair Value 178.4 168.3 -- --
-----------------------------------------------------------------------
Plan Assets In
Excess of
(Less Than)
Projected
Benefit
Obligation 2.7 (.6) (23.5) (20.1)
Unrecognized Net
Asset
(Effective January 1, 1986) (7.6) (9.3) (.3) (.4)
Unrecognized Net
Loss 46.2 34.8 10.3 7.4
Unrecognized Prior Service Cost 1.2 1.4 4.5 5.0
Valuation
Adjustment (.4) (.5) -- --
-----------------------------------------------------------------------
Prepaid
(Accrued)
Pension Cost at
September 30 42.1 25.8 (9.0) (8.1)
-----------------------------------------------------------------------
Net (Expense)
Funding October
to December (7.8) 2.6 2.5 .7
Additional
Minimum
Liability at
December 31 -- -- (5.9) (4.5)
-----------------------------------------------------------------------
Prepaid
(Accrued)
Pension Cost at
December 31 $ 34.3 $ 28.4 $ (12.4) $(11.9)
-----------------------------------------------------------------------
Assumptions:
Discount Rates 7.50% 7.00% 7.25% 6.75%
Rate of
Increase in
Compensation
Level 5.00 5.00 5.00 5.00
Expected Long-
Term Rate of
Return on
Assets 9.00 9.50 N/A N/A
-----------------------------------------------------------------------
</TABLE>
NET PERIODIC PENSION COST
<TABLE>
<CAPTION>
Qualified Plan Nonqualified Plan
----------------------------------
(In Millions) 1994 1993 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C>
Service Cost $11.1 $10.2 $ .9 $1.0
Interest Cost 11.5 11.0 1.3 1.1
Actual Return on
Plan Assets (15.7) (20.4) -- --
Net Amortization .8 6.4 .9 .6
----------------------------------------------------
Net Periodic
Pension Cost $ 7.7 $ 7.2 $3.1 $2.7
----------------------------------------------------
</TABLE>
Pension expense for 1992 was $6.4 million and $2.7
million for the qualified and nonqualified plans, respectively.
Due to the large number of retirements in 1994 a
substantial number of lump-sum payments were made from
both the qualified and nonqualified plans which resulted in a
total settlement loss of $9.6 million. In 1993 a settlement
loss of $1.7 million was recognized due to payments from
the Nonqualified Plan. Settlement losses are included in
other operating expenses in the consolidated statement of
income.
Total assets in the "Rabbi" Trust primarily related to the
nonqualified pension plan at December 31, 1994, 1993 and
1992, amounted to $9.3 million, $9.4 million and $12.8
million, respectively.
A pension plan is also maintained for the London Branch
employees. At December 31, 1994, the fair value of assets
and the projected benefit obligation totaled approximately
$6.0 million and $6.0 million, respectively. At December
31, 1993, the fair value of assets and the projected benefit
obligation were $5.5 million and $6.0 million, respectively.
Pension expense for 1994 and 1993 was $.7 million and $.7
million, respectively.
THRIFT INCENTIVE PLAN. Total expenses associated
with the Thrift Incentive Plan amounted to $10.6 million in
1994, $9.9 million in 1993 and $8.7 million in 1992.
ESOP. The following table presents information related to
the ESOP.
<TABLE>
<CAPTION>
(In Millions) 1994 1993
-------------------------------------------------
<S> <C> <C>
Total ESOP Compensation Expense $5.1 $4.3
Interest Incurred on ESOP-Related
Debt 3.4 3.9
Amount Contributed to ESOP-Related
Debt 8.2 8.2
Dividends and Interest on Unallo-
cated ESOP Shares Used for Debt
Service 2.1 2.1
-------------------------------------------------
</TABLE>
60
NORTHERN TRUST CORPORATION
<PAGE>
OTHER POSTRETIREMENT BENEFITS. The following
tables set forth the funded status at December 31 and the net
periodic postretirement benefit cost of the postretirement
health care plan for 1994 and 1993. The transition obligation
at January 1, 1993 will be amortized to expense over a
twenty year period.
PLAN STATUS
<TABLE>
<CAPTION>
(In Millions) 1994 1993
-----------------------------------------------
<S> <C> <C>
Accumulated Postretirement
Benefit
Obligation (APBO) Measured at
September 30
Retirees and Dependents $(16.7) $(15.3)
Actives Eligible for Benefits (5.0) (4.5)
Actives Not Yet Eligible (17.1) (15.1)
-----------------------------------------------
Total APBO (38.8) (34.9)
Unamortized Transition Obli-
gation 25.2 26.6
Unrecognized Net Loss 10.1 5.1
Unrecognized Prior Service
Costs (2.8) --
-----------------------------------------------
Net Postretirement Benefit Li-
ability $ (6.3) $ (3.2)
-----------------------------------------------
</TABLE>
NET PERIODIC POSTRETIREMENT BENEFIT COST
<TABLE>
<CAPTION>
(In Millions) 1994 1993
-----------------------------------------------
<S> <C> <C>
Service Cost $1.4 $1.2
Interest Cost 2.3 2.2
Amortization of Transition Ob-
ligation 1.4 1.4
-----------------------------------------------
Net Periodic Postretirement
Benefit Cost $5.1 $4.8
-----------------------------------------------
</TABLE>
Postretirement health care expense for 1992 under the
previous method of accounting was $2.0 million.
For measurement purposes, a 10.4 percent annual
increase in the cost of covered health care benefits was
assumed for 1995. This rate is assumed to decrease
gradually to 5.6 percent in 2021 and remain at that level
thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example,
increasing the assumed health care trend rate by one
percentage point in each year would increase the
accumulated postretirement benefit obligation for the
postretirement health care plan as of December 31, 1994 by
approximately $5.1 million, and the aggregate of the service
and interest cost components of the 1994 net periodic
postretirement benefit cost by $.7 million. The weighted
average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75 percent at
December 31, 1994 and 7.25 percent at December 31, 1993.
POSTEMPLOYMENT BENEFITS. In 1994, SFAS No.
112, "Employers' Accounting for Postemployment Benefits"
was adopted. The statement requires employers to adopt
accrual accounting for workers compensation, disability,
severance and other benefits provided after employment but
before retirement. The accounting under the new statement
is essentially the same as Northern Trust's previous policy.
15. CONTINGENT LIABILITIES--Because of the nature
of its activities, Northern Trust is subject to pending and
threatened legal actions that arise in the normal course of
business. In the judgment of management, after consultation
with counsel, none of the litigation to which the
Corporation or any of its subsidiaries is a party will have a
material effect, either individually or in the aggregate, on
the consolidated financial position or results of operations.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS--
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the estimated fair value
of certain financial instruments. Considerable judgment is
required to interpret market data when computing estimates
of fair value. Accordingly, the estimates presented are not
necessarily indicative of the amounts Northern Trust could
have realized in a market exchange.
The information provided below should not be
interpreted as an estimate of the fair value of Northern
Trust since the disclosures, in accordance with SFAS No.
107, exclude the values of nonfinancial assets and liabilities,
as well as a wide range of franchise, relationship, and
intangible values, which are integral to a full assessment of
the consolidated financial position.
The use of different assumptions and/or estimation
methods may have a material effect on the computation of
estimated fair values. Therefore, comparisons between
Northern Trust's disclosures and those of other financial
institutions may not be meaningful. The following methods
and assumptions were used in estimating the fair values of
the financial instruments:
Securities. Fair values of securities were based on quoted
market values, when available. If quoted market values were
not available, fair values were based on quoted market
values for comparable instruments.
Loans (not including lease financing receivables). The fair
values of one-to-four family residential mortgages were
based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for
differences in loan characteristics. The fair values of the
remainder of the loan portfolio were estimated using a
discounted cash flow method in which the discount rate
used was the rate at which Northern Trust would have
originated the loan had it been originated as of the financial
statement date, giving effect to current economic conditions
on loan collectibility.
Savings Certificates, Other Time and Foreign Offices Time
Deposits, and Senior Medium-Term Notes. The fair values of
these instruments were estimated using a discounted cash
flow method that incorporated market interest rates.
61
NORTHERN TRUST CORPORATION
<PAGE>
Notes to Consolidated Financial Statements (continued)
Notes Payable. Fair values were based on quoted market
prices, when available. If quoted market prices were not
available, fair values were based on quoted market prices for
comparable instruments.
Off-Balance Sheet Financial Instruments. The fair values of
commitments and letters of credit represent the amount of
unamortized fees on these instruments. The fair values of all
other off-balance sheet financial instruments were estimated
using market prices, pricing models, or quoted market
prices of financial instruments with similar characteristics.
Financial Instruments Valued at Carrying Value. Due to
their short maturity, the respective carrying values of
certain on-balance-sheet financial instruments approximated
their fair values. These financial instruments include cash
and due from banks; money market assets; customers'
acceptance liability; trust security settlement receivables;
federal funds purchased; securities sold under agreements to
repurchase; commercial paper; other borrowings; and
liability on acceptances.
The fair values required to be disclosed for demand,
savings, and money market deposits pursuant to SFAS No.
107 must equal the amounts disclosed in the consolidated
balance sheet.
Fair Values of On-Balance Sheet Financial Instruments. The
following table summarizes the fair values of on-balance
sheet financial instruments.
<TABLE>
<CAPTION>
December 31
-----------------------------------
1994 1993
-----------------------------------
Book Fair Book Fair
(In Millions) Value Value Value Value
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from
Banks $1,192.5 $1,192.5 $1,519.7 $1,519.7
Money Market Assets 2,651.2 2,651.2 2,740.5 2,740.5
Securities:
Held to Maturity 641.3 657.9 3,790.8 3,845.0
Available for Sale 4,407.8 4,407.8 211.6 212.2
Trading Account 4.0 4.0 36.3 36.3
Loans (excluding
leases), net of
credit loss reserve:
Held to Maturity 8,281.5 7,993.2 7,319.8 7,337.0
Held for Sale 4.4 4.4 19.3 19.3
Acceptance Liability 56.3 56.3 56.9 56.9
Trust Security Settle-
ment Receivables 305.7 305.7 293.1 293.1
LIABILITIES
Deposits:
Demand, Savings
and Money
Market 6,006.4 6,006.4 6,149.4 6,149.4
Savings Certifi-
cates, Other
Time and
Foreign Offices
Time 5,728.0 5,716.0 4,184.0 4,196.0
Federal Funds
Purchased 972.0 972.0 1,215.8 1,215.8
Repurchase
Agreements 2,216.9 2,216.9 602.2 602.2
Commercial Paper 123.8 123.8 124.1 124.1
Other Borrowings 833.6 833.6 2,001.2 2,001.2
Senior Medium-Term
Notes 547.0 544.2 817.0 818.1
Notes Payable 244.8 236.1 326.8 349.8
Liability on
Acceptances 56.3 56.3 56.9 56.9
-------------------------------------------------------------------------
</TABLE>
62
NORTHERN TRUST CORPORATION
<PAGE>
Fair Values of Off-Balance Sheet Financial Instruments. The
following tables summarize the fair values of off-balance
sheet financial instruments at December 31.
<TABLE>
<CAPTION>
1994 1993
------------------------
Book Fair Book Fair
(In Millions) Value Value Value Value
--------------------------------------------------
<S> <C> <C> <C> <C>
Commitments and Let-
ters of Credit
Loan Commitments $ 2.2 $ 2.2 $ 2.6 $ 2.6
Letters of Credit .7 .7 .2 .2
Asset/Liability Man-
agement
Foreign Exchange
Contracts
Assets 4.3 4.8 7.3 7.3
Liabilities -- .4 .1 .4
Interest Rate Swap
Contracts
Assets 11.7 58.8 10.9 15.3
Liabilities 6.6 16.3 32.3 44.9
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fair Value
-----------
(In Millions) 1994 1993
--------------------------------------------------
<S> <C> <C>
Client-Related and Trading*
Foreign Exchange Contracts
Assets $78.1 $89.3
Liabilities 78.7 90.4
Interest Rate Swap Contracts
Assets 3.0 9.1
Liabilities 3.8 9.7
Interest Rate Protection Contracts
Assets .5 .4
Liabilities .6 .4
Option Contract with Benchmark
Funds 3.5 N/A
--------------------------------------------------
</TABLE>
*Assets and liabilities associated with foreign exchange contracts averaged
$101.7 million and $96.5 million, respectively, during 1994. Assets and
liabilities associated with other client-related and trading account
instruments averaged $6.1 million and $9.0 million, respectively, during 1994.
17. OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS--
A. COMMITMENTS AND LETTERS OF CREDIT.
Northern Trust, in the normal course of business, enters
into various types of commitments and issues letters of
credit in order to meet the liquidity and credit enhancement
needs of its clients. Credit risk is the principal risk
associated with these instruments. The contractual amounts
of these instruments represent the credit risk should the
instrument be fully drawn upon and the client default. In
order to control the credit risk associated with entering into
commitments and issuing letters of credit, Northern Trust
subjects such activity to the same credit quality and
monitoring controls as its lending activities.
Commitments and letters of credit consist of the
following:
Legally Binding Commitments to Extend Credit generally
have fixed expiration dates or other termination clauses.
Since a significant portion of the commitments are expected
to expire without being drawn upon, the total commitment
amount does not necessarily represent future loans or
liquidity requirements.
Participations in Bankers Acceptances obligate Northern
Trust, in the event of default by the counterparty, to
reimburse the holder of the acceptance an amount equal to
its participation in the acceptance.
Commercial Letters of Credit are instruments issued by
Northern Trust on behalf of its clients that authorize a third
party (the beneficiary) to draw drafts up to a stipulated
amount under the specified terms and conditions of the
agreement. Commercial letters of credit are issued
primarily to facilitate international trade.
Standby Letters of Credit obligate Northern Trust to meet
certain financial obligations of its clients, if, under the
contractual terms of the agreement, the clients are unable
to do so. These instruments are primarily issued to support
public and private financial commitments, including
commercial paper, bond financing, initial margin
requirements on futures exchanges and similar transactions.
63
NORTHERN TRUST CORPORATION
<PAGE>
Notes To Consolidated Financial Statements (continued)
The following table shows the contractual amounts of
commitments and letters of credit.
COMMITMENTS AND LETTERS OF CREDIT
<TABLE>
<CAPTION>
December 31
-----------------
(In Millions) 1994 1993
-------------------------------------------------------------------------
<S> <C> <C>
Legally Binding Commitments to
Extend Credit $7,397.7 $6,184.8
Participations in Bankers Acceptances 6.3 7.5
Commercial Letters of Credit 227.2 205.3
Standby Letters of Credit:
Corporate $ 372.6 $ 376.0
Industrial Revenue 318.7 239.6
Other 128.6 211.8
-------------------------------------------------------------------------
Total Standby Letters of Credit* $ 819.9 $ 827.4
-------------------------------------------------------------------------
</TABLE>
*These amounts include $75.8 million and $85.4 million of standby letters of
credit secured by cash deposits or participated to others as of December 31,
1994 and 1993, respectively. The weighted average maturity of standby letters
of credit was 19 months at December 31, 1994 and 16 months at December 31,
1993.
B. RISK MANAGEMENT INSTRUMENTS. These
instruments include foreign exchange contracts and various
interest risk management instruments.
Northern Trust is a party to various risk management
instruments that are used in the normal course of business
to meet the risk management needs of its clients; as part of
its trading activity for its own account; and as part of
its asset/liability management activities. The major risk
associated with these instruments is that interest or foreign
exchange rates could change in an unanticipated manner,
resulting in higher interest costs or a loss in the underlying
value of the instrument. These risks are mitigated by
establishing limits for risk management positions,
monitoring the level of actual positions taken against such
established limits, monitoring the level of any interest rate
sensitivity gaps created by such positions, and by using
hedging techniques. When establishing position limits,
market liquidity and volatility, as well as experience in each
market are all taken into account.
The estimated credit risk associated with these
instruments relates to the failure of the counterparty to pay
based on the contractual terms of the agreement, and is
generally limited to the gross unrealized market value gains
on these instruments. The amount of credit risk will
increase or decrease during the life of the instruments as
interest and foreign exchange rates fluctuate. This risk is
controlled by limiting such activity to an approved list of
counterparties and by subjecting such activity to the same
credit and quality controls as are followed in lending and
investment activities.
Risk management instruments include:
Foreign Exchange Contracts are agreements to exchange
specific amounts of currencies at a future date, at a specified
rate of exchange. Foreign exchange contracts are entered
into primarily to meet the foreign exchange risk
management needs of clients. Foreign exchange contracts
are also used for trading purposes and asset and liability
management.
Interest Rate Futures Contracts are agreements for delayed
delivery of securities or money market instruments in which
the buyer agrees to take delivery at a specified future date of
a specified instrument, at a specified price or yield. All of
Northern Trust's interest rate futures contracts are traded
on organized exchanges that require the daily settlement of
margin payments. Interest rate futures contracts are utilized
in trading activities and asset/liability management to
protect Northern Trust's exposure to unfavorable
fluctuations in interest rates.
Interest Rate Protection Contracts are agreements which
enable clients to transfer, modify or reduce their interest
rate risk. As a seller of interest rate protection, Northern
Trust receives a fee at the outset of the agreement and then
assumes the risk of an unfavorable change in interest rates.
Interest Rate Swap Contracts involve the exchange of fixed
and floating rate interest payment obligations without the
exchange of the underlying principal amounts; these types
of transactions constitute the majority of the interest rate
swap portfolio. Northern Trust has also entered into a
limited number of more complex interest rate swap
transactions that were executed concurrently with the
purchase of $91 million of structured agency notes. The
structured notes are included in the available for sale
portion of the security portfolio. The interest rate swap
contracts are used to hedge the nonstandard features of the
structured notes thereby converting them to U.S. dollar
denominated floating rate notes indexed to LIBOR.
Exchange-Traded Option Contracts grant the buyer the
right, but not the obligation, to purchase or sell at a
specified price, a stated number of units of an underlying
financial instrument, at a future date.
Forward Sale Contracts represent commitments to sell a
specified amount of securities at an agreed upon date and
price. Northern Trust utilizes forward sale contracts
principally in connection with its sale of mortgage loans.
64
NORTHERN TRUST CORPORATION
<PAGE>
The following table shows the contractual/notional
amounts of risk management instruments. The notional
amounts of risk management instruments do not represent
credit risk, and are not recorded in the consolidated balance
sheet. They are used merely to express the volume of this
activity.
RISK MANAGEMENT INSTRUMENTS
<TABLE>
<CAPTION>
Contractual/Notional Amounts
December 31
-----------------------------
(In Millions) 1994 1993
---------------------------------------------------------------------
<S> <C> <C>
Asset/Liability Management:
Foreign Exchange Contracts $ 129.7 $ 157.3
Interest Rate Futures Contracts Sold 1.2 --
Interest Rate Swap Contracts 1,381.2 1,352.3
Forward Sale Contracts 4.9 --
Exchange - Traded Option Contracts
Purchased .5 --
Client-Related and Trading:
Foreign Exchange Contracts 9,398.4 10,033.2
Interest Rate Futures Contracts
Purchased -- 3.0
Sold 16.0 312.0
Interest Rate Protection Contracts
Purchased 87.5 51.2
Sold 85.9 51.8
Interest Rate Swap Contracts 308.8 357.8
---------------------------------------------------------------------
</TABLE>
Information about Northern Trust's strategies and
objectives related to derivative financial instruments used
for asset and liability management can be found on pages 42
and 43 and is incorporated by reference. No deferred gains
or losses related to derivative financial instruments used for
asset and liability management were included in the
consolidated balance sheet at year-end 1994 or 1993.
Net revenue associated with client-related and trading
interest risk management activities totaled $2.4 million,
$1.0 million, and $.9 million during 1994, 1993, and 1992,
respectively. The majority of these revenues are related to
interest rate swaps, futures contracts, and rate protection
agreements, and are reported as trading income in the
consolidated statement of income. However, these amounts
also include interest income earned on U.S. Government
securities that were classified as trading account securities
and hedged with futures contracts.
C. OTHER OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS. As part of securities custody activities
and at the direction of trust clients, Northern Trust lends
securities owned by clients to borrowers who are reviewed
by the Credit Policy Credit Approval Committee. In
connection with these activities, Northern Trust has issued
certain indemnifications against loss resulting from the
bankruptcy of the borrower of securities. The borrowing
party is required to fully collateralize securities received
with cash, U.S. Government and government agency
securities, or irrevocable standby letters of credit. As
securities are loaned, collateral is maintained at a minimum
of 100 percent of the fair value of the securities plus
accrued interest, with revaluation of the collateral on a daily
basis. The amount of securities loaned as of December 31,
1994 and 1993 subject to indemnification was $5.0 billion
and $4.7 billion, respectively. All securities borrowed were
collateralized in excess of 100 percent of their current fair
value as of December 31, 1994 and 1993. Because of the
requirement to fully collateralize securities borrowed,
management believes that the exposure to credit loss from
this activity is remote.
The Bank is a participating member of various cash and
securities clearing organizations. It participates in these
organizations on behalf of its clients and on behalf of itself as
a result of its own investment and trading activities. A wide
variety of securities transactions are settled through these
organizations, including those involving obligations of states
and political subdivisions, asset-backed securities,
commercial paper, Eurodollars and securities issued by the
Government National Mortgage Association.
As a result of its participation in cash and securities
clearing organizations, the Bank could be responsible for a
pro rata share of certain credit-related losses arising out of
the clearing activities. The method in which such losses
would be shared by the clearing members is stipulated in
each clearing organization's membership agreement. Credit
exposure related to these agreements varies from day to day,
primarily as a result of fluctuations in the volume of
transactions cleared through the organizations. The
estimated credit exposure at December 31, 1994 and 1993
was $65 million and $66 million, respectively, based on the
clearing volume for those days. Controls related to these
clearing transactions are closely monitored, however, to
protect the assets of Northern Trust.
During the second quarter of 1994, the Corporation
entered into an agreement with The Benchmark Funds,
for which the Bank is investment adviser. Under the
agreement, which is essentially a written option contract,
The Benchmark Funds may sell to the Corporation in June
1995, at the higher of cost or market value, up to $111
million par value of certain floating rate federal agency
securities whose returns have lagged the sharp increase in
short-term interest rates. The agreement increases net asset
values and so preserves the investment flexibility necessary
to maintain competitive yields in certain money market
portfolios of The Benchmark Funds, which are used for cash
management and investment by the Bank's institutional
clients. The fair value of the agreement, which was
recorded in other liabilities, was $3.5 million as of
65
NORTHERN TRUST CORPORATION
<PAGE>
Notes To Consolidated Financial Statements (continued)
December 31, 1994. Changes in the fair value of the
agreement are recorded in other operating expenses.
18. CONCENTRATIONS OF CREDIT RISK--The
information in the section titled Loans and Other
Extensions of Credit found on pages 34 through 36 is
incorporated by reference.
19. PLEDGED AND RESTRICTED ASSETS--Certain
of Northern Trust's subsidiaries, as required or permitted
by law, pledge assets to secure public and trust deposits,
repurchase agreements and for other purposes. On
December 31, 1994, securities and loans totaling $3.7
billion ($2.8 billion of U.S. Government and agency
securities, $290.3 million of obligations of states and
political subdivisions and $560.8 million of loans and other
securities), were pledged. Collateral required for these
purposes totaled $3.0 billion. Deposits to be maintained at
the Federal Reserve Bank to meet reserve requirements
averaged $307.7 million in 1994 and $306.0 million in
1993.
Liabilities associated with U.S. Government and federal
agency securities sold under repurchase agreements totaled
$2.2 billion as of December 31, 1994. Of this amount,
65% was related to overnight agreements; 24% was related
to term agreements with maturities of 30 days or less; 9%
was related to term agreements with maturities of 31 to 90
days; and 2% was related to term agreements with
maturities greater than 90 days.
20. INCENTIVE PLANS AND AWARDS--
1992 INCENTIVE STOCK PLAN AND AMENDED
INCENTIVE STOCK PLAN (PLANS). As of December
31, 1994, shares available for future grants under the Plans
totaled 1,598,510. Stock options granted under the Plans
during 1994 and 1993 are summarized below.
<TABLE>
<CAPTION>
Outstanding Options
--------------------------
Shares Option Price
-------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1992 3,482,139 $ 6.74 to 39.25
-------------------------------------------------------------------------
Cancelled during 1993 (8,250) $39.25
Exercised during 1993 (388,298) 6.74 to 39.25
Granted during 1993 551,700 39.75 to 41.63
-------------------------------------------------------------------------
Outstanding at December 31, 1993 3,637,291 $ 6.74 to 41.63
-------------------------------------------------------------------------
Cancelled during 1994 (21,150) $37.69 to 39.75
Exercised during 1994 (461,739) 6.74 to 39.25
Granted during 1994 633,000 37.25 to 42.00
-------------------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1994 3,787,402 $ 7.64 TO 42.00
-------------------------------------------------------------------------
Exercisable at December 31, 1993 3,085,591 $ 6.74 to 39.25
-------------------------------------------------------------------------
EXERCISABLE AT
DECEMBER 31, 1994 3,155,902 $ 7.64 TO 41.63
-------------------------------------------------------------------------
</TABLE>
As of December 31, 1994, 396,000 shares of stock have
been credited to performance share accounts associated with
the stock awards under the Plans. At December 31, 1994,
397,486 shares had been awarded, subject to meeting
established performance goals and vesting conditions, for
three-year performance periods ending in 1994 through
1996. Total salary expense applicable to the stock awards
was $5.2 million in 1994, $6.3 million in 1993 and $6.0
million in 1992. As of December 31, 1994 restricted stock
awards outstanding to management totaled 52,500 shares.
These shares vest, subject to continuing employment, over
a period of five-to-seven years. Total expense applicable
to these awards was $.4 million in 1994.
OTHER INCENTIVE PLANS. Expense related to other
incentive plans is included in salary expense and totaled
$28.4 million in 1994, $29.3 million in 1993 and $27.1
million in 1992.
21. INTERNATIONAL OPERATIONS (BASED ON
OBLIGOR'S DOMICILE)--Northern Trust's international
activities are centered in the commercial banking, capital
markets and global custody businesses of The Northern
Trust Company, Chicago, two overseas branches, one Edge
Act subsidiary and Northern Trust of Florida. Total assets
employed in international operations were $2.8 billion on
December 31, 1994, $2.7 billion on December 31, 1993
and $2.2 billion on December 31, 1992. Of these assets,
$1.5 billion on December 31, 1994, 1993 and 1992, were
employed in Europe.
Net income from international operations includes the
direct net income contributions of foreign branches and the
Edge Act subsidiary. The Northern Trust Company,
Chicago and Northern Trust of Florida international profit
contributions include direct salary and other expenses of the
business units plus expense allocations for interest,
occupancy, overhead and the provision for credit losses.
The interest expense is allocated to international operations
based on specifically matched or pooled funding. Allocations
of indirect noninterest expenses related to international
activities are not significant but, when made, are based on
various methods such as time, space and number of
employees.
The pretax gain of $28.5 million ($17.7 million after-
tax) on the sale of Banque Scandinave en Suisse was not
included in the Geographic Distribution of Operating
Performance.
66
NORTHERN TRUST CORPORATION
<PAGE>
The tables below summarize international performance based on the domicile of
the primary obligor without regard to guarantors or the location of collateral.
GEOGRAPHIC DISTRIBUTION OF SELECTED ASSETS
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993 December 31, 1992
--------------------------------------------------------------------------------------------------
Time Other Time Other Time Other
Deposits Money Customers' Deposits Money Customers' Deposits Money Customers'
with Market Acceptance with Market Acceptance with Market Acceptance
(In Millions) Banks Assets Loans Liability Banks Assets Loans Liability Banks Assets Loans Liability
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Europe $1,257.8 $ -- $ 93.4 $ .9 $1,129.2 $ -- $184.7 $ .1 $1,333.4 $15.0 $124.6 $ .1
North America 651.7 -- 141.9 -- 557.5 -- 44.7 -- 295.2 -- 28.6 --
Latin America 64.1 -- 135.0* .6 177.3 .7 116.1* 3.9 112.0 1.1 110.2* 3.6
Asia-Pacific 194.4 -- 16.4 -- 226.2 -- 7.8 .3 118.8 2.0 10.1 .2
-----------------------------------------------------------------------------------------------------------------------
Total $2,168.0 $ -- $386.7 $1.5 $2,090.2 $ .7 $353.3 $4.3 $1,859.4 $18.1 $273.5 $3.9
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes loans guaranteed by the Export Import Bank of $95.2 million in 1994,
$85.8 million in 1993 and $57.6 million in 1992. The majority of the remaining
loans are trade-related.
GEOGRAPHIC DISTRIBUTION OF OPERATING PERFORMANCE
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------
Gross Income Gross Income Gross Income
Operating before Net Operating before Net Operating before Net
(In Millions) Income Taxes Income Income Taxes Income Income Taxes Income
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Europe $137.9 $19.1 $11.8 $105.7 $11.2 $ 7.1 $106.6 $ 7.9 $5.0
North America 133.9 9.1 5.6 68.2 4.7 2.9 58.5 2.8 1.9
Latin America 68.4 12.0 7.4 46.8 4.8 3.0 34.5 4.1 2.5
Asia-Pacific 42.4 7.7 4.8 20.9 3.1 1.9 7.9 .5 .3
--------------------------------------------------------------------------------------
Total $382.6 $47.9 $29.6 $241.6 $23.8 $14.9 $207.5 $15.3 $9.7
--------------------------------------------------------------------------------------
</TABLE>
22. ACQUISITIONS--On January 31, 1992, Northern
Trust Corporation and its subsidiary Northern Trust Bank
of California N.A. completed the acquisition of a portion of
the trust business assets (approximately $4 billion of assets
under administration) of Trust Services of America, Inc.,
for a purchase price of $47.5 million. The transaction was
recorded under the purchase method of accounting and
resulted in goodwill of $21.1 million to be amortized on a
straight-line basis over fifteen years.
On April 15, 1994, Northern Trust completed the
acquisition of Hazlehurst & Associates, Inc., a privately held
retirement benefit plan services company. Hazlehurst
shareholders received 534,113 shares of Corporation
Common Stock (and cash for fractional shares) totaling
$22.5 million. The transaction was accounted for as a
pooling-of-interests. Prior period consolidated financial
statements were not restated due to the immateriality of the
transaction.
In December 1993, the Corporation entered into a
definitive agreement to acquire Beach One Financial
Services, Inc., parent company of The Beach Bank of Vero
Beach (Florida). Beach One's assets totaled $198.6 million
at December 31, 1994 and net income totaled $2.9 million
in 1994. The acquisition agreement calls for Beach One
shareholders to receive Corporation Common Stock
aggregating $56.2 million with the exchange ratio set on the
basis of the average last-sale prices for the Corporation
Common Stock on the NASDAQ National Market System
over a 20-day trading period ending just prior to closing.
The maximum number of shares the Corporation is
required to issue without further approval of directors is
1,701,515, equivalent to a formula price of $33 per share.
The minimum number of shares Beach One holders are
required to accept is 1,169,791, equivalent to a formula
price of $48 per share. The agreement is subject to the
approval of Beach One shareholders and to various
regulatory approvals and other legal requirements. This
transaction is expected to be accounted for as a pooling-of-
interests.
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. Tanglewood's assets totaled
$229.9 million at December 31, 1994 and net income
totaled $2.6 million in 1994. The agreement is subject to
the approval of Tanglewood shareholders, to final due
diligence and to various regulatory approvals and is
expected to close in the second half of 1995.
67
NORTHERN TRUST CORPORATION
<PAGE>
Notes To Consolidated Financial Statements (continued)
23. NORTHERN TRUST CORPORATION
(CORPORATION ONLY)--Condensed financial information is
presented below. Investments in wholly owned subsidiaries
are carried on the equity method of accounting.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
-----------------
(In Millions) 1994 1993
-------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash on Deposit with Subsidiary Bank $ 2.3 $ .1
Time Deposits with Banks-International 42.0 158.7
Securities 207.2 144.7
Investments in Wholly Owned Subsidiaries
Bank Subsidiaries 1,109.3 1,021.4
Nonbank Subsidiaries 27.1 22.0
Loans--Bank Subsidiaries 75.0 75.0
--Nonbank Subsidiaries 13.4 10.9
--Other 28.1 26.9
Buildings and Equipment 7.5 6.2
Other Assets 57.3 51.5
-------------------------------------------------------------
Total Assets $1,569.2 $1,517.4
-------------------------------------------------------------
LIABILITIES
Commercial Paper $ 123.8 $ 124.1
Notes Payable 136.4 218.3
Other Liabilities 28.3 23.3
-------------------------------------------------------------
Total Liabilities 288.5 365.7
Stockholders' Equity 1,280.7 1,151.7
-------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,569.2 $1,517.4
-------------------------------------------------------------
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the Year Ended
December 31
--------------------------
(In Millions) 1994 1993 1992
-----------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME
Dividends--Bank Subsidiaries $ 82.1 $ 86.7 $ 68.3
--Nonbank Subsidiaries 6.6 .6 .5
Intercompany Interest
and Other Charges 12.1 15.2 14.6
Interest and Other Income 9.6 6.9 8.5
-----------------------------------------------------------
Total Operating Income 110.4 109.4 91.9
-----------------------------------------------------------
Operating Expenses
Interest Expense 21.5 22.1 25.0
Other Operating Expenses 17.1 12.2 5.0
-----------------------------------------------------------
Total Operating Expenses 38.6 34.3 30.0
-----------------------------------------------------------
Income before Income
Taxes and Equity in
Undistributed Net
Income of Subsidiaries 71.8 75.1 61.9
Benefit for Income Taxes (9.6) (6.8) (5.4)
-----------------------------------------------------------
Income before Equity in
Undistributed Net Income
of Subsidiaries 81.4 81.9 67.3
Equity in Undistributed Net Income
(Loss) of Subsidiaries
Bank Subsidiaries 101.7 83.0 79.2
Nonbank Subsidiaries (.9) 3.0 3.0
-----------------------------------------------------------
NET INCOME $182.2 $167.9 $149.5
-----------------------------------------------------------
Net Income Applicable
to Common Stock $174.9 $161.6 $142.7
-----------------------------------------------------------
</TABLE>
68
NORTHERN TRUST CORPORATION
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
December 31
----------------------
(In Millions) 1994 1993 1992
------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $182.2 $167.9 $149.5
Adjustments to
Reconcile Net Income
to Net Cash Provided
by Operating
Activities:
Equity in
Undistributed Net
Income of
Subsidiaries (100.8) (86.0) (82.2)
(Increase) Decrease in
Accrued Income (.9) .3 .4
Decrease in Prepaid
Expenses .6 .2 .6
Other Noncash, net 4.3 (1.6) 2.3
------------------------------------------------------------
Net Cash Flows from
Operating Activities 85.4 80.8 70.6
------------------------------------------------------------
INVESTING ACTIVITIES:
Net (Increase)
Decrease in Time
Deposits with Banks 116.7 (129.7) 78.9
Purchases of
Securities (227.1) (106.1) (197.7)
Sales of Securities 157.1 62.3 163.8
Proceeds from
Maturity and
Redemption of
Securities 8.6 18.4 72.1
Capital Investments in Subsidiaries (3.0) (4.0) (52.5)
Net (Increase)
Decrease in
Loans to
Subsidiaries (2.5) 122.1 (125.7)
Net (Increase)
Decrease in
Other Loans (1.2) .2 .2
Other, net (1.9) (2.0) (.9)
------------------------------------------------------------
Net Cash Flows from
Investing Activities 46.7 (38.8) (61.8)
------------------------------------------------------------
FINANCING ACTIVITIES:
Net Decrease in
Commercial Paper (.3) (2.9) (2.4)
Repayment of Notes
Payable (81.9) (6.3) (30.9)
Treasury Stock
Purchased (6.9) (2.2) (2.5)
Cash Dividends Paid on
Common and Preferred
Stock (54.1) (45.8) (39.5)
Proceeds from
Preferred Stock
Issued -- -- 48.5
Net Proceeds from
Stock Options 4.5 4.0 11.7
Other, net 8.8 11.0 6.4
------------------------------------------------------------
Net Cash Flows from
Financing Activities (129.9) (42.2) (8.7)
------------------------------------------------------------
Net Change in Cash on
Deposit
with Subsidiary Bank 2.2 (.2) .1
Cash on Deposit with
Subsidiary Bank at
Beginning of Year .1 .3 .2
------------------------------------------------------------
CASH ON DEPOSIT WITH
SUBSIDIARY BANK AT
END OF YEAR $ 2.3 $ .1 $ .3
------------------------------------------------------------
</TABLE>
69
NORTHERN TRUST CORPORATION
<PAGE>
Report of Independent Public Accountants
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS,
NORTHERN TRUST CORPORATION:
We have audited the accompanying consolidated balance sheet of Northern Trust
Corporation (a Delaware Corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northern Trust Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois,
January 17, 1995.
70
NORTHERN TRUST CORPORATION
<PAGE>
Consolidated Financial Statistics
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
($ In Millions) 1994 1993 1992 1991 1990
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 1,206.6 $ 1,025.3 $ 937.8 $ 839.9 $ 815.9
Money Market Assets
Federal Funds Sold and Repurchase Agreements 237.0 171.3 237.8 304.8 285.6
Time Deposits with Banks 2,063.3 1,956.8 1,620.5 1,331.3 912.5
Other 119.9 73.5 104.4 274.4 833.9
------------------------------------------------------------------------------------------------------
Total Money Market Assets 2,420.2 2,201.6 1,962.7 1,910.5 2,032.0
------------------------------------------------------------------------------------------------------
Securities
U.S. Government and Other 4,482.0 3,700.2 2,658.1 1,933.9 1,829.0
Obligations of States and Political
Subdivisions 465.1 502.3 516.0 533.8 510.6
Trading Account 53.8 29.5 16.2 32.1 57.0
------------------------------------------------------------------------------------------------------
Total Securities 5,000.9 4,232.0 3,190.3 2,499.8 2,396.6
------------------------------------------------------------------------------------------------------
Loans and Leases 8,316.1 7,297.1 6,452.9 6,199.4 5,847.7
Reserve for Credit Losses (145.2) (145.5) (145.6) (146.6) (149.3)
Other Assets 1,087.2 1,089.7 1,019.9 879.5 739.2
------------------------------------------------------------------------------------------------------
Total Assets $17,885.8 $15,700.2 $13,418.0 $12,182.5 $11,682.1
------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Demand and Other Noninterest-Bearing $ 2,592.5 $ 2,554.9 $ 1,876.0 $ 1,635.8 $ 1,597.2
Savings and Money Market Deposits 3,385.7 3,432.1 3,372.2 3,208.1 2,975.9
Savings Certificates 1,229.6 1,172.9 1,370.8 1,569.7 1,456.9
Other Time 412.8 404.7 493.9 533.1 520.8
Foreign Offices - Demand 361.7 65.3 56.2 41.8 81.8
- Time 3,284.8 2,436.4 1,815.6 1,100.6 1,105.6
------------------------------------------------------------------------------------------------------
Total Deposits 11,267.1 10,066.3 8,984.7 8,089.1 7,738.2
Federal Funds Purchased 1,350.7 1,692.5 1,540.2 1,412.8 1,463.6
Securities Sold under Agreements to Repurchase 1,444.3 664.4 542.9 463.8 700.3
Commercial Paper 138.1 131.5 132.9 129.3 129.0
Other Borrowings 864.5 868.9 526.6 703.3 483.8
Senior Medium-Term Notes 781.8 554.1 85.2 1.6 --
Notes Payable 293.6 297.9 258.8 245.2 204.9
Other Liabilities 520.2 351.5 419.6 378.9 319.7
------------------------------------------------------------------------------------------------------
Total Liabilities 16,660.3 14,627.1 12,490.9 11,424.0 11,039.5
------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 1,225.5 1,073.1 927.1 758.5 642.6
------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $17,885.8 $15,700.2 $13,418.0 $12,182.5 $11,682.1
------------------------------------------------------------------------------------------------------
RATIOS
Dividend Payout Ratio 28.4% 25.6% 24.4% 24.6% 24.5%
Return on Average Assets 1.02 1.07 1.11 1.05 .99
Return on Average Common Equity 16.57 17.89 18.71 19.01 19.78
Tier 1 Capital to Risk-Adjusted Assets - End
of Period 8.95 9.31 8.08 6.74 5.76
Total Capital to Risk-Adjusted Assets - End
of Period 12.36 13.41 11.56 10.68 8.97
Leverage 6.22 6.24 6.06 5.38 4.57
Average Stockholders' Equity to Average Assets 6.85 6.83 6.91 6.23 5.50
Average Loans and Leases Times Average
Stockholders' Equity 6.8X 6.8x 7.0x 8.2x 9.1x
------------------------------------------------------------------------------------------------------
Stockholders - End of Period 2,962 2,922 2,893 2,840 2,725
Staff - End of Period (Full-time equivalent) 6,608 6,259 6,249 5,798 5,784
------------------------------------------------------------------------------------------------------
</TABLE>
72
NORTHERN TRUST CORPORATION
<PAGE>
CONSOLIDATED FINANCIAL STATISTICS
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
(Interest and rate on a
taxable equivalent basis) 1994 1993
--------------------------------------------------
($ 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 Re-
purchase Agreements $ 10.9 $ 237.0 4.59% $ 5.5 $ 171.3 3.24%
Time Deposits with Banks 97.8 2,063.3 4.74 86.5 1,956.8 4.42
Other 5.2 119.9 4.31 2.6 73.5 3.53
-------------------------------------------------------------------------------
Total Money Market Assets 113.9 2,420.2 4.71 94.6 2,201.6 4.30
-------------------------------------------------------------------------------
Securities
U.S. Government 73.8 1,779.6 4.15 102.5 2,646.6 3.87
Obligations of States and
Political Subdivisions 52.8 465.1 11.35 58.6 502.3 11.66
Federal Agency 114.2 2,333.6 4.90 29.7 773.9 3.84
Other 19.6 368.8 5.31 13.6 279.7 4.88
Trading Account 4.3 53.8 7.91 2.2 29.5 7.52
-------------------------------------------------------------------------------
Total Securities 264.7 5,000.9 5.29 206.6 4,232.0 4.88
-------------------------------------------------------------------------------
Loans and Leases 503.5 8,316.1 6.05 439.3 7,297.1 6.02
-------------------------------------------------------------------------------
Total Earning Assets $882.1 $15,737.2 5.61% $740.5 $13,730.7 5.39%
-------------------------------------------------------------------------------
AVERAGE SOURCE OF FUNDS
Deposits
Savings and Money Market
Deposits $ 85.3 $ 3,385.7 2.52% $ 78.8 $ 3,432.1 2.30%
Savings Certificates 56.9 1,229.6 4.63 50.5 1,172.9 4.31
Other Time 18.6 412.8 4.50 15.7 404.7 3.88
Foreign Offices Time 137.2 3,284.8 4.18 90.4 2,436.4 3.71
-------------------------------------------------------------------------------
Total Deposits 298.0 8,312.9 3.58 235.4 7,446.1 3.16
Federal Funds Purchased 55.5 1,350.7 4.11 51.1 1,692.5 3.02
Repurchase Agreements 61.9 1,444.3 4.28 20.0 664.4 3.00
Commercial Paper 5.9 138.1 4.31 4.3 131.5 3.23
Other Borrowings 32.4 864.5 3.75 24.6 868.9 2.83
Senior Medium-Term Notes 33.8 781.8 4.32 18.4 554.1 3.33
Notes Payable 23.0 293.6 7.84 23.3 297.9 7.84
-------------------------------------------------------------------------------
Total Interest-Related
Funds 510.5 13,185.9 3.87 377.1 11,655.4 3.23
-------------------------------------------------------------------------------
Interest Rate Spread -- -- 1.74% -- -- 2.16%
-------------------------------------------------------------------------------
Noninterest-Related Funds -- 2,551.3 -- -- 2,075.3 --
-------------------------------------------------------------------------------
Total Source of Funds $510.5 $15,737.2 3.25% $377.1 $13,730.7 2.74%
-------------------------------------------------------------------------------
Net Interest Income/Margin $371.6 -- 2.36% $363.4 -- 2.65%
-------------------------------------------------------------------------------
NET INTEREST INCOME/MARGIN
COMPONENTS
Domestic $360.9 $12,890.4 2.80% $345.6 $11,491.0 3.01%
International 10.7 2,846.8 .38 17.8 2,239.7 .79
-------------------------------------------------------------------------------
Consolidated $371.6 $15,737.2 2.36% $363.4 $13,730.7 2.65%
-------------------------------------------------------------------------------
</TABLE>
Notes: -- Average volume includes nonaccrual loans.
-- Interest on loans and money market assets includes fees
of $6.8 million in 1994, $13.9 million in 1993, $11.7
million in 1992, $5.1 million in 1991 and $5.6 million in
1990.
-- Total interest income includes adjustments on loans and
securities (primarily obligations of states and political
subdivisions) to a taxable equivalent basis. Such
adjustments are based on the U.S. federal income tax rate
(35% for 1994-1993 and 34% for 1992-1990) and State of
Illinois income tax rate (7.18%) before giving effect to
the deductibility of state taxes for federal income tax
purposes. Lease financing receivable balances are reduced
by deferred income. Total taxable equivalent interest
adjustments amounted to $33.4 million in 1994, $34.1
million in 1993, $32.5 million in 1992, $36.0 million in
1991 and $38.1 million in 1990.
-- Yields on the portion of the securities portfolio
classified as available for sale are based on amortized
cost.
74
NORTHERN TRUST CORPORATION
<PAGE>
<TABLE>
<CAPTION>
1992 1991 1990
------------------------------------------------------------------------------
Interest Volume Rate Interest Volume Rate Interest Volume Rate
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.8 $ 237.8 3.70% $ 17.8 $ 304.8 5.83% $ 23.3 $ 285.6 8.16%
95.6 1,620.5 5.90 108.1 1,331.3 8.12 93.5 912.5 10.25
4.6 104.4 4.46 20.7 274.4 7.54 70.6 833.9 8.47
------------------------------------------------------------------------------
109.0 1,962.7 5.55 146.6 1,910.5 7.68 187.4 2,032.0 9.22
------------------------------------------------------------------------------
90.3 1,759.7 5.13 65.0 943.4 6.89 59.5 659.9 9.03
59.2 516.0 11.46 61.4 533.8 11.51 58.8 510.6 11.52
23.9 521.6 4.59 25.3 346.5 7.29 40.9 458.3 8.92
22.9 376.8 6.07 52.3 644.0 8.12 64.1 710.8 9.01
1.0 16.2 6.01 2.5 32.1 7.92 5.0 57.0 8.88
------------------------------------------------------------------------------
197.3 3,190.3 6.18 206.5 2,499.8 8.26 228.3 2,396.6 9.53
------------------------------------------------------------------------------
448.1 6,452.9 6.94 530.3 6,199.4 8.55 576.0 5,847.7 9.85
------------------------------------------------------------------------------
$754.4 $11,605.9 6.50% $883.4 $10,609.7 8.33% $991.7 $10,276.3 9.65%
------------------------------------------------------------------------------
$ 99.1 $ 3,372.2 2.94% $159.2 $ 3,208.1 4.96% $194.7 $ 2,975.9 6.54%
69.9 1,370.8 5.10 104.3 1,569.7 6.64 115.0 1,456.9 7.89
25.4 493.9 5.15 38.3 533.1 7.19 42.6 520.8 8.18
95.7 1,815.6 5.27 88.6 1,100.6 8.05 109.4 1,105.6 9.90
------------------------------------------------------------------------------
290.1 7,052.5 4.11 390.4 6,411.5 6.09 461.7 6,059.2 7.62
53.5 1,540.2 3.47 78.7 1,412.8 5.57 117.9 1,463.6 8.05
19.8 542.9 3.65 26.2 463.8 5.65 55.9 700.3 7.98
5.2 132.9 3.88 8.0 129.3 6.19 10.6 129.0 8.19
18.1 526.6 3.45 40.7 703.3 5.78 38.5 483.8 7.96
3.0 85.2 3.49 .1 1.6 8.68 -- -- --
21.0 258.8 8.11 21.4 245.2 8.71 19.7 204.9 9.61
------------------------------------------------------------------------------
410.7 10,139.1 4.05 565.5 9,367.5 6.04 704.3 9,040.8 7.79
------------------------------------------------------------------------------
-- -- 2.45% -- -- 2.29% -- -- 1.86%
------------------------------------------------------------------------------
-- 1,466.8 -- -- 1,242.2 -- -- 1,235.5 --
------------------------------------------------------------------------------
$410.7 $11,605.9 3.54% $565.5 $10,609.7 5.33% $704.3 $10,276.3 6.85%
------------------------------------------------------------------------------
$343.7 -- 2.96% $317.9 -- 3.00% $287.4 -- 2.80%
------------------------------------------------------------------------------
$325.7 $ 9,659.9 3.37% $300.8 $ 8,981.9 3.39% $274.0 $ 9,072.7 3.02%
18.0 1,946.0 .93 17.1 1,627.8 1.05 13.4 1,203.6 1.11
------------------------------------------------------------------------------
$343.7 $11,605.9 2.96% $317.9 $10,609.7 3.00% $287.4 $10,276.3 2.80%
------------------------------------------------------------------------------
</TABLE>
75
NORTHERN TRUST CORPORATION
<PAGE>
Consolidated Financial Statistics
QUARTERLY FINANCIAL DATA
STATEMENT OF INCOME
<TABLE>
<CAPTION>
1994
-------------------------------------------------
($ In Millions Except Per Entire Fourth Third Second First
Share Information) Year Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 848.7 243.0 221.5 200.0 184.2
Interest Expense 510.5 154.3 135.8 118.1 102.3
-------------------------------------------------------------------------------
Net Interest Income 338.2 88.7 85.7 81.9 81.9
Provision for Credit Losses 6.0 1.0 1.0 1.0 3.0
Noninterest Income 629.9 150.5 152.1 178.3 149.0
Investment Security Gains
(Losses) (.1) -- (.2) (.1) .2
Noninterest Expenses 700.5 184.9 166.2 187.5 161.9
Provision for Income Taxes 79.3 13.2 22.4 22.9 20.8
-------------------------------------------------------------------------------
NET INCOME 182.2 40.1 48.0 48.7 45.4
-------------------------------------------------------------------------------
Net Income Applicable to
Common Stock 174.9 38.0 46.2 46.9 43.8
-------------------------------------------------------------------------------
PER COMMON SHARE
Net Income - Primary $ 3.17 .69 .83 .85 .80
- Fully Diluted 3.16 .69 .83 .85 .80
-------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
<CAPTION>
(In Millions)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 1,206.6 1,176.3 1,151.3 1,244.0 1,256.3
Money Market Assets 2,420.2 2,206.2 2,425.0 2,610.1 2,441.8
Securities 5,000.9 5,500.4 5,140.7 4,591.4 4,761.3
Loans and Leases 8,316.1 8,618.7 8,434.9 8,271.6 7,930.4
Reserve for Credit Losses (145.2) (144.9) (144.9) (145.3) (145.6)
Other Assets 1,087.2 1,020.1 1,059.9 1,191.2 1,078.7
-------------------------------------------------------------------------------
Total Assets 17,885.8 18,376.8 18,066.9 17,763.0 17,322.9
-------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLD-
ERS' EQUITY
Deposits
Demand and Other Noninter-
est-Bearing $ 2,592.5 2,625.0 2,522.3 2,595.7 2,627.7
Savings and Others 4,615.3 4,664.9 4,623.6 4,608.1 4,563.6
Other Time 412.8 451.4 469.5 416.8 311.2
Foreign Offices 3,646.5 4,147.6 3,936.8 3,491.4 2,994.3
-------------------------------------------------------------------------------
Total Deposits 11,267.1 11,888.9 11,552.2 11,112.0 10,496.8
Purchased Funds 3,797.6 3,567.8 3,633.0 3,791.2 4,207.3
Senior Medium-Term Notes 781.8 770.5 801.6 803.4 751.5
Notes Payable 293.6 248.3 273.6 326.7 326.8
Other Liabilities 520.2 623.1 561.1 516.6 376.9
Stockholders' Equity 1,225.5 1,278.2 1,245.4 1,213.1 1,163.6
-------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity 17,885.8 18,376.8 18,066.9 17,763.0 17,322.9
-------------------------------------------------------------------------------
ANALYSIS OF NET INTEREST INCOME
<CAPTION>
($ In Millions)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning Assets $15,737.2 16,325.3 16,000.6 15,473.1 15,133.5
Interest-Related Funds 13,185.9 13,520.2 13,378.2 13,011.4 12,824.2
Noninterest-Related Funds 2,551.3 2,805.1 2,622.4 2,461.7 2,309.3
Net Interest Income (Tax-
able equivalent) 371.6 97.8 93.9 90.1 89.8
Net Interest Margin (Tax-
able equivalent) 2.36% 2.38 2.33 2.33 2.41
-------------------------------------------------------------------------------
COMMON STOCK DIVIDEND AND MARKET PRICE
-------------------------------------------------------------------------------
Dividends $ .92 .26 .22 .22 .22
Market Price Range - High 43.25 38.25 41.75 43.25 43.00
- Low 32.25 32.25 35.75 40.25 39.50
-------------------------------------------------------------------------------
</TABLE>
The common stock of Northern Trust Corporation is traded in the over-the-
counter market under the symbol NTRS. The above quotations are from the NASDAQ
system. The number of stockholders of record at December 31, 1994, was 2,962.
76
NORTHERN TRUST CORPORATION
<PAGE>
Corporate Structure
NORTHERN TRUST CORPORATION
50 South LaSalle Street, Chicago, Illinois 60675
(312) 630-6000
PRINCIPAL SUBSIDIARY
THE NORTHERN TRUST COMPANY
50 South LaSalle Street, Chicago, Illinois 60675
Wacker Drive Financial Center
125 South Wacker Drive, Chicago, Illinois 60675
Oak Street Financial Center
120 East Oak Street, Chicago, Illinois 60611
Highland Park Financial Center
579 Central Avenue
Highland Park, Illinois 60035
Winnetka Financial Center
62 Green Bay Road, Winnetka, Illinois 60093
Chicago South Financial Center
7801 South State Street
Chicago, Illinois 60619
London Branch
155 Bishopsgate, London EC2M 3XS, England
Cayman Islands Branch
P.O. Box 501, Georgetown, Cayman Islands,
British West Indies
SUBSIDIARIES OF THE
NORTHERN TRUST COMPANY
The Northern Trust International Banking Corporation
One World Trade Center, New York, New York 10048
Northern Global Financial Services Limited
18 Harbour Road, Wanchai
Hong Kong
NorLease, Inc.
50 South LaSalle Street, Chicago, Illinois 60675
The Northern Trust Company, Canada
161 Bay Street, Suite 4540, B.C.E. Place
Toronto, Canada M5J 2S1
INTERNATIONAL AFFILIATES
Banque Rivaud
13 rue Notre-Dames des Victoires,
75082 Paris Cedex 02, France
Transatlantic Trust Corporation
75 Rochford Street
P.O. Box 429
Charlottetown, Prince Edward Island,
Canada C1A 7K7
80
THE NORTHERN TRUST CORPORATION
<PAGE>
OTHER SUBSIDIARIES OF THE
CORPORATION
NORTHERN TRUST BANK/LAKE FOREST N.A.
265 Deerpath Road, Lake Forest, Illinois 60045
959 South Waukegan Road, Lake Forest, Illinois 60045
120 East Scranton Avenue, Lake Bluff, Illinois 60044
NORTHERN TRUST BANK/O'HARE N.A.
8501 West Higgins Road, Chicago, Illinois 60631
6401 North Harlem Avenue, Chicago, Illinois 60631
1501 Woodfield Road, Schaumburg, Illinois 60173
NORTHERN TRUST BANK/DUPAGE
One Oakbrook Terrace,
Oakbrook Terrace, Illinois 60181
400 East Diehl Road, Naperville, Illinois 60563
NORTHERN TRUST BANK OF FLORIDA N.A.
700 Brickell Avenue, Miami, Florida 33131
595 Biltmore Way, Coral Gables, Florida 33134
328 Crandon Boulevard, Suite 101,
Key Biscayne, Florida 33149
3001 Aventura Boulevard, Aventura, Florida 33180
1100 East Las Olas Boulevard,
Fort Lauderdale, Florida 33301
2601 East Oakland Park Boulevard,
Fort Lauderdale, Florida 33306
301 Yamato Road, Boca Raton, Florida 33431
440 Royal Palm Way, Palm Beach, Florida 33480
11780 U.S. Highway 1, Building 3, Suite 100,
North Palm Beach, Florida 33408
4001 Tamiami Trail North, Naples, Florida 33940
530 Fifth Avenue South, Naples, Florida 33940
8060 College Parkway S.W., Fort Myers, Florida 33919
1515 Ringling Boulevard, Sarasota, Florida 34236
901 Venetia Bay Boulevard, Suite 100,
Venice, Florida 34292
540 Bay Isles Road, Longboat Key, Florida 34228
100 Second Avenue South,
St. Petersburg, Florida 33701
NORTHERN TRUST BANK OF ARIZONA N.A.
2398 East Camelback Road, Phoenix, Arizona 85016
6373 East Tanque Verde Road, Tucson, Arizona 85715
10220 West Bell Road, Sun City, Arizona 85351
10015 Royal Oak Road, Sun City, Arizona 85351
7001 North Scottsdale Road, Scottsdale, Arizona 85253
NORTHERN TRUST BANK OF CALIFORNIA N.A.
355 South Grand Avenue, Suite 2600,
Los Angeles, California 90071
10877 Wilshire Boulevard (Westwood), Suite 100,
Los Angeles, California 90024
620 Newport Center Drive, Suite 200,
Newport Beach, California 92660
4370 LaJolla Village Drive, Suite 1000,
San Diego, California 92122
206 East Anapamu Street, Santa Barbara, California 93101
580 California Street, Suite 1800,
San Francisco, California 94104
NORTHERN TRUST BANK OF TEXAS N.A.
2020 Ross Avenue, Dallas, Texas 75201
5540 Preston Road, Dallas, Texas 75205
2701 Kirby Drive, Houston, Texas 77098
700 Rusk Street, Houston, Texas 77002
THE NORTHERN TRUST COMPANY OF NEW YORK
80 Broad Street, New York, New York 10004
NORTHERN TRUST CAYMAN INTERNATIONAL, LTD.
P.O. Box 1586, Grand Cayman,
Cayman Islands, British West Indies
NORTHERN TRUST SECURITIES, INC.
50 South LaSalle Street, Chicago, Illinois 60675
BERRY, HARTELL, EVERS & OSBORNE, INC.
580 California Street, San Francisco, California 94104
HAZLEHURST & ASSOCIATES, INC.
400 Perimeter Center Terrace, Suite 850,
Atlanta, Georgia 30346
19119 North Creek Parkway, Suite 200,
Bothell, Washington 98011
NORTHERN FUTURES CORPORATION
50 South LaSalle Street, Chicago, Illinois 60675
NORTHERN TRUST SERVICES, INC.
50 South LaSalle Street, Chicago, Illinois 60675
81
NORTHERN TRUST CORPORATION
<PAGE>
EXHIBIT NUMBER (21)
TO 1994 FORM 10-K
NORTHERN TRUST CORPORATION SUBSIDIARIES
AS OF MARCH 1, 1995
<TABLE>
<CAPTION>
Percent State of
Owned Incorporation
------- -------------
<S> <C> <C>
The Northern Trust Company 100% Illinois
NorLease, Inc. 100% Delaware
MFC Company, Inc. 100% Delaware
NTB Merchant Services, Inc. 100% Illinois
The Northern Trust Company, Canada 100% Ontario, Canada
Nortrust Nominees Ltd. 100% London
The Northern Trust Company U.K. Pension Plan Limited 100% London
The Northern Trust International Banking Corporation 100% Edge Act
Northern International Finance (Hong Kong) Ltd. 100% Hong Kong
Northern Global Financial Services Ltd. 100% Hong Kong
Norsub Corporation 100% Delaware
Northern Trust Bank/O'Hare N.A. 100% National Bank
Northern Trust Bank/DuPage 100% Illinois
First Lake Forest Corporation 100% Delaware
Northern Trust Bank/Lake Forest N.A. 100% National Bank
Northern Trust of Florida Corporation 100% Florida
Northern Trust Cayman International, Ltd. 100% Cayman Islands, BWI
Northern Trust Bank of Florida N.A. 100% National Bank
Realnor Properties, Inc. 100% Florida
Realnor Special Properties, Inc. 100% Florida
Realnor 1177, Inc. 100% Florida
Realnor Hallandale, Inc. 100% Florida
Northern of Arizona Holding Corporation 100% Arizona
Northern Trust Bank of Arizona N.A. 100% National Bank
Northern Trust of California Corporation 100% Delaware
Northern Trust Bank of California N.A. 100% National Bank
Berry, Hartell, Evers & Osborne, Inc. 100% Delaware
Northern Trust Bank of Texas N.A. 100% National Bank
Fiduciary Services Inc. 100% Texas
Northern Futures Corporation 100% Delaware
</TABLE>
<PAGE>
NORTHERN TRUST CORPORATION SUBSIDIARIES
AS OF MARCH 1, 1995
(continued)
Percent State of
Owned Incorporation
------- -------------
Northern Investment Corporation 100% Delaware
Northern Investment Management Company 100% Delaware
Northern Trust Securities, Inc. 100% Delaware
Northern Trust Services, Inc. 100% Illinois
Nortrust Realty Management, Inc. 100% Illinois
The Northern Trust Company of New York 100% New York
Hazlehurst & Associates, Inc. 100% Delaware
<PAGE>
EXHIBIT NUMBER (23)
TO 1994 FORM 10-K
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated January 17, 1995, incorporated by reference in the Northern
Trust Corporation's Annual Report on Form 10-K for the year end December 31,
1994, into the Corporation's previously filed Form S-8 Registration Statements
File Nos. 33-22546, 33-41501, 33-47597 and 33-51971, and Form S-4 Registration
Statements File Nos. 33-52219 and 33-54773.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 13, 1995
<PAGE>
EXHIBIT NUMBER (24)
TO 1994 FORM 10-K
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of Northern Trust Corporation
hereby severally constitute and appoint David W. Fox, Perry R. Pero and Peter L.
Rossiter, and each of them singly, our true and lawful attorneys and agents with
full power to them and each of them singly, to sign for us in our names, in the
capacities indicated below, Form 10-K, annual report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, for the fiscal year ended
December 31, 1994, and to file such Form, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting to such attorneys and agents, and each of them, full power of
substitution and revocation in the premises, and generally to do all such
things in our name and behalf in our capacities as officers and directors to
enable Northern Trust Corporation to comply with the provisions of the
Securities Exchange Act of 1934, as amended, and all regulations of the
Securities and Exchange Commission thereunder, hereby ratifying and confirming
our signatures as they may be signed by our attorneys, or any one of them, to
such Form, and all that our attorneys and agents, or any of them, may do or
cause to be done by virtue of these presents.
IN WITNESS WHEREOF, the undersigned have hereunto executed this Power of
Attorney this 21st day of February, 1995.
David W. Fox William A. Osborn
-------------------------------- --------------------------------
David W. Fox William A. Osborn
Chairman of the Board, Chief President, Chief Operating
Executive Officer and Director Officer and Director
Barry G. Hastings Perry R. Pero
-------------------------------- --------------------------------
Barry G. Hastings Perry R. Pero
Vice Chairman Senior Executive Vice President
and Director and Chief Financial Officer
Harry W. Short Worley H. Clark
-------------------------------- --------------------------------
Harry W. Short Worley H. Clark
Senior Vice President and Controller Director
(Chief Accounting Officer)
Dolores E. Cross Robert S. Hamada
-------------------------------- --------------------------------
Dolores E. Cross Robert S. Hamada
Director Director
<PAGE>
Arthur L. Kelly Harold B. Smith
-------------------------------- --------------------------------
Arthur L. Kelly Harold B. Smith
Director Director
Robert D. Krebs William D. Smithburg
-------------------------------- --------------------------------
Robert D. Krebs William D. Smithburg
Director Director
William G. Mitchell Bide L. Thomas
-------------------------------- --------------------------------
William G. Mitchell Bide L. Thomas
Director Director
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Victoria Antoni, a Notary Public, DO HEREBY CERTIFY that the above named
directors and officers of Northern Trust Corporation, personally known to me to
be the same persons whose names are subscribed to the foregoing instrument,
appeared before me this day in person, and severally acknowledged that they
signed and delivered the instrument as their free and voluntary act, for the
uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 21st day of February, 1995.
Victoria Antoni
---------------------
Notary Public
My Commission Expires:
7/25/95
-------------------------
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,192,503
<INT-BEARING-DEPOSITS> 1,864,651
<FED-FUNDS-SOLD> 777,001
<TRADING-ASSETS> 3,963
<INVESTMENTS-HELD-FOR-SALE> 4,407,852
<INVESTMENTS-CARRYING> 641,303
<INVESTMENTS-MARKET> 657,877
<LOANS> 8,590,649
<ALLOWANCE> 144,838
<TOTAL-ASSETS> 18,561,621
<DEPOSITS> 11,734,369
<SHORT-TERM> 4,576,295
<LIABILITIES-OTHER> 608,404
<LONG-TERM> 361,818
<COMMON> 90,601
0
170,000
<OTHER-SE> 1,020,134
<TOTAL-LIABILITIES-AND-EQUITY> 18,561,621
<INTEREST-LOAN> 499,619
<INTEREST-INVEST> 233,602
<INTEREST-OTHER> 115,528
<INTEREST-TOTAL> 848,749
<INTEREST-DEPOSIT> 298,015
<INTEREST-EXPENSE> 510,534
<INTEREST-INCOME-NET> 338,215
<LOAN-LOSSES> 6,000
<SECURITIES-GAINS> (107)
<EXPENSE-OTHER> 700,524
<INCOME-PRETAX> 261,513
<INCOME-PRE-EXTRAORDINARY> 182,177
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,177
<EPS-PRIMARY> 3.17
<EPS-DILUTED> 3.16
<YIELD-ACTUAL> 2.08
<LOANS-NON> 27,809
<LOANS-PAST> 17,272
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 145,538
<CHARGE-OFFS> 10,672
<RECOVERIES> 3,972
<ALLOWANCE-CLOSE> 144,838
<ALLOWANCE-DOMESTIC> 109,242
<ALLOWANCE-FOREIGN> 2,922
<ALLOWANCE-UNALLOCATED> 32,674
</TABLE>
