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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
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, 1995
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
-----------------------------
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 5, 1996, 56,965,427 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 5, 1996, as
reported by the NASDAQ Stock Market) held by non-affiliates was approximately
$2,711,905,940. 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,
1995 - Part I and Part II
1996 Notice and Proxy Statement for the Annual Meeting of Stockholders
to be held on April 16, 1996 - 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
Page
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
headquartered in the Chicago financial district. The Corporation also owns two
banks in Florida, one bank in each of Arizona, California and Texas, Connecticut
and New York trust companies and various other nonbank subsidiaries, including a
securities brokerage firm, a retirement services company 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, 1995, Northern Trust had consolidated total assets of
approximately $19.9 billion and stockholders' equity of $1.5 billion. At June
30, 1995 Northern Trust was the third largest bank holding company headquartered
in Illinois and the 38th largest in the United States, based on consolidated
total assets of approximately $19.3 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 seventh year, the
Bank's growth has come primarily from internal sources rather than through
merger or acquisition. At December 31, 1995, the Bank had consolidated assets of
approximately $15.2 billion. At June 30, 1995, the Bank was the third largest
bank in Illinois and the 41st largest in the United States, based on
consolidated total assets of approximately $15.1 billion on that date.
The Bank currently has eight 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,
The Northern Trust Company, Canada, Northern Global Financial Services Limited
and Northern Trust Trade Services, Limited. 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,
located in London, was established in connection with the pension plan for the
Bank's London Branch. The Northern Trust Company, Canada, located in Toronto,
was established to offer institutional trust products and services to Canadian
entities. Northern Global Financial Services Ltd., located in Hong Kong,
provides securities lending and relationship services for large asset custody
clients in Asia and the Pacific Rim. Northern Trust Trade Services, Limited
provides trade finance services.
OTHER NORTHERN TRUST CORPORATION SUBSIDIARIES
On February 29, 1996, three Illinois banking subsidiaries of the
Corporation merged into the Bank: Northern Trust Bank/O'Hare N.A., Northern
Trust Bank/DuPage, and Northern Trust Bank/Lake Forest N.A. As a result, the
Bank now operates fourteen offices in the Chicago metropolitan area. The
Corporation's Florida banking subsidiaries, Northern Trust Bank of Florida N.A.,
headquartered in Miami, and the Northern Trust Bank of Vero Beach, at December
31, 1995, had twenty-two offices located throughout Florida, with total assets
of approximately $1.8 billion. The Corporation's Arizona banking subsidiary,
Northern Trust Bank of Arizona N.A., is headquartered in Phoenix and at December
31, 1995 had total assets of approximately $315 million and served clients from
five office locations. The Corporation has a Texas banking subsidiary, Northern
Trust Bank of Texas N.A., headquartered in Dallas. It had six office locations
and total assets of approximately $456 million at December 31, 1995. The
Corporation's California banking subsidiary, Northern Trust Bank of California
N.A., is headquartered in Santa Barbara. At December 31, 1995, it had six office
locations and total assets of approximately $288 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, California. The Northern Trust
Company of New York provides security clearance services for all nondepository
eligible
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securities held by 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 United States. Hazlehurst
& Associates, Inc. is a retirement benefit plan services company in Atlanta,
Georgia. RCB International, Inc. in Stamford, Connecticut is an international
provider of institutional investment management services, and the parent of
RCB Trust Company.
INTERNAL ORGANIZATION
Northern Trust, under Chairman and Chief Executive Officer William A.
Osborn, organizes client services into two principal business units: Corporate
and Institutional Services and Personal Financial Services. In addition, the
Worldwide Operations and Technology business unit encompasses all trust and
banking operations and systems activities. These three business units, along
with Investment Services, Corporate Compliance and Corporate Support Services,
report to President and Chief Operating Officer Barry G. Hastings. Also, a 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 (C&IS)
Corporate and Institutional Services (C&IS), headed by Sheila A. Penrose,
Executive Vice President of the Corporation and of the Bank, provides trust,
commercial banking and treasury management services to corporate and
institutional clients.
Trust activities encompass services for owners of 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. Services with respect to securities traded in markets
foreign to the client is provided primarily through the Bank's London Branch.
Related foreign exchange services are also rendered 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, 1995, total assets under administration were $550.5 billion. The major
market segments served are large U.S. corporate, middle market, institutional
(insurance companies, foundations and endowments, and correspondent trust
services), and international clients, and public and union retirement funds. The
Northern Trust Company of New York, The Northern Trust Company, Canada,
NorLease, Inc., The Northern Trust International Banking Corporation, Northern
Futures Corporation, Hazlehurst & Associates, Inc., and RCB International, Inc.
are also included in C&IS.
A full range of commercial banking services is offered through the Bank
which places special emphasis on developing institutional relationships in two
target markets: large domestic corporations and financial institutions (both
domestic and international). Credit services are administered in two groups: a
Large Corporations Group and a Financial Institutions Group.
Treasury management services are provided to corporations and financial
institutions and include products and services, including lockbox collection,
controlled disbursement products and electronic banking, to accelerate cash
collections, control disbursement outflows, and generate information to manage
cash positions.
Personal Financial Services (PFS)
Services to individuals is another major dimension of the trust business.
Headed by Mark Stevens, Executive Vice President of the Corporation and the
Bank, Personal Financial Services (PFS) encompasses personal trust, estate
administration, personal banking, mortgage lending and trust and banking
services to middle market companies. A key element of the personal trust
business is to provide private banking and trust services to targeted high net
worth individuals in rapidly growing areas of wealth concentration.
PFS services are delivered through the Bank and a network of banking
subsidiaries located in Florida, Arizona, California and Texas. PFS is one of
the largest bank managers of personal trust assets in the United States, with
total assets under administration of $63.4 billion at December 31, 1995.
Northern Trust Securities, Inc. and Berry, Hartell, Evers & Osborne, Inc.
are also part of PFS.
Worldwide Operations and Technology
Supporting all of Northern Trust's business activities is the Worldwide
Operations and Technology Unit. Headed by James J. Mitchell, Executive Vice
President of the Corporation and the Bank, this unit focuses on supporting
sales, relationship management, transaction processing and product management
activities for C&IS and PFS.
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Risk Management
The Risk Management Unit, headed by Senior Executive Vice President and
Chief Financial Officer Perry R. Pero, includes the Credit Policy and Treasury
functions. 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 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.
The Board of Governors of the Federal Reserve System is an important
regulator of domestic economic conditions and 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, its setting of the discount rate at which member banks
may borrow from Federal Reserve Banks and its changes in the reserve
requirements for deposits. The policies adopted by the Federal Reserve Board 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 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 five 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 by maintaining 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. C&IS 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.
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., 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. Competitive pressures within the custody market
have resulted in consolidation in the industry, and the chief national
competitors of the Bank for Master Trust/Master Custody services are now 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, are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or provision of any
property or services.
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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. 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 holding 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 institution 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.
State laws governing the Corporation's banking subsidiaries allow each bank
to establish branches anywhere in its 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 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). Such liability is subordinated in right of payment to deposit
liabilities, secured obligations, any other general or senior liability and any
obligation subordinated to depositors and or other general creditors, other than
obligations owed to any affiliate of the depository institution (with certain
exceptions) and any obligations to shareholders in such capacity. 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 in
this area.
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.
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, which 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 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. RCB International, Inc. is subject to regulation by the Securities
and Exchange Commission and the Illinois Securities Department. Its subsidiary
RCB Trust Company is subject to
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regulation by the Connecticut Department of Banking. 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 are 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 46 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1995.
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 currently a twenty-seven basis point spread between the highest and
lowest assessment rates, so that banks classified as strongest by the FDIC are
subject in 1996 to no assessment, and banks classified as weakest by the FDIC
are subject to an assessment rate of .27%.
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:
<TABLE>
<CAPTION>
Tier 1 Tier 1 Total
Leverage Ratio Risk-Based Ratio Risk-Based Ratio
-------------- ---------------- ----------------
<S> <C> <C> <C>
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
</TABLE>
*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 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, 1995,
the Bank and each of the other subsidiary banks met or exceeded these goals. The
capital ratios are disclosed and discussed on page 30 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1995.
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 adopted by the agencies.
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FDICIA also contains a variety of other provisions that affect the
operations of a bank, including 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 6,531 full-time equivalent officers and staff
members as of December 31, 1995, approximately 4,563 of whom were employed by
the Bank.
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<TABLE>
<CAPTION>
STATISTICAL DISCLOSURES
The following statistical disclosures, included in the Corporation's Annual Report to Stockholders for the year ended December
31, 1995, are incorporated herein by reference.
1995
<S> <C> Annual Report
Schedule Page
- ------------------------------------------------------------------------------------------------------------------- --------------
Foreign Outstandings............................................................................................... 23
Nonperforming Assets and 90 Day Past Due Loans..................................................................... 23
Analysis of Reserve for Credit Losses.............................................................................. 24
Average Balance Sheet.............................................................................................. 58
Ratios............................................................................................................. 58
Analysis of Net Interest Income.................................................................................... 60
- ------------------------------------------------------------------------------------------------------------------- --------------
- ------------------------------------------------------------------------------------------------------------------------------------
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)
December 31, 1996
--------------------------------------------------------------------------------------------
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 $ 108.5 6.61% $ 7.6 5.58% $ -- --% $ -- --% 5 mos.
Obligations of States and
Political Subdivisions 48.1 11.44 149.1 11.10 127.3 10.72 42.4 8.72 63 mos.
Federal Agency -- -- 22.2 5.96 -- -- -- -- 36 mos.
Other--Fixed 8.1 6.98 1.5 9.70 .1 10.49 17.6 6.03 81 mos.
--Floating .3 8.00 2.0 8.00 .3 7.08 -- -- 34 mos.
- ----------------------------------- -------- ----- -------- ----- ------ ----- ------ ---- --------
Total Securities Held to Maturity $ 165.0 8.04% $ 182.4 10.20% $127.7 10.71% $ 60.0 7.93% 50 mos.
- ----------------------------------- -------- ----- -------- ----- ------ ----- ------ ---- --------
Securities Available for Sale
U.S. Government $ 829.7 5.80% $ 838.0 5.98% $ -- --% $ -- --% 12 mos.
Obligations of States and
Political Subdivisions -- -- -- -- 4.9 9.59 65.3 8.68 155 mos.
Federal Agency 2,236.0 6.04 883.2 6.30 27.4 6.42 6.2 6.57 9 mos.
Other--Fixed 46.3 5.63 26.3 6.24 -- -- -- -- 12 mos.
--Floating 7.7 6.51 7.8 6.51 .6 6.51 156.9 6.62 112 mos.
- ----------------------------------- -------- ----- -------- ----- ------ ----- ------ ---- --------
Total Securities Available for Sale $3,119.7 5.97% $1,755.3 6.14% $ 32.9 6.89% $228.4 7.21% 15 mos.
- ----------------------------------- -------- ----- -------- ----- ------ ----- ------ ---- --------
December 31, 1994
--------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years Over Ten Years
---------------- ----------------- ----------------- -------------- Average
($ in Millions) Book Yield Book Yield Book Yield Book Yield Maturity
- ----------------------------------- -------- ----- ------ ----- ------ ----- ------ ----- --------
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.
- ----------------------------------- -------- ----- ------ ----- ------ ----- ------ ---- --------
</TABLE>
10
<PAGE>
SECURITIES HELD TO MATURITY AND AVAILABLE FOR SALE
<TABLE>
December 31
----------------------------------------------------
(In Millions) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Securities Held to Maturity
U.S. Government $ 116.1 $ 137.2 $2,343.7 $1,522.8 $1,822.2
Obligations of States and Political Subdivisions 366.9 474.5 493.5 508.5 526.1
Federal Agency 22.2 - 833.1 559.2 293.1
Other 29.9 29.6 120.5 189.0 473.3
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
Total Securities Held to Maturity $ 535.1 $ 641.3 $3,790.8 $2,779.5 $3,114.7
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
Securities Available for Sale
U.S. Government $1,667.7 $ 801.3 $ - $ 227.6 $ -
Obligations of States and Political Subdivisions 70.2 - - - -
Federal Agency 3,152.8 3,251.5 40.9 46.1 -
Other 245.6 355.0 170.7 126.4 -
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
Total Securities Available for Sale $5,136.3 $4,407.8 $ 211.6 $ 400.1 $ -
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
Average Total Securities $6,193.0 $5,000.9 $4,232.0 $3,190.3 $2,499.8
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
Total Securities at Year-End $5,760.3 $5,053.1 $4,038.7 $3,181.2 $3,174.9
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
LOANS AND LEASES BY TYPE
December 31
----------------------------------------------------
(In Millions) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
Domestic
Commercial $3,202.1 $2,672.0 $2,421.1 $2,409.0 $2,719.4
Broker 304.0 274.6 249.4 336.3 336.0
Residential Real Estate 3,896.4 3,299.1 2,883.3 2,372.8 1,793.6
Commercial Real Estate 512.6 494.1 506.5 511.2 515.0
Consumer 758.9 662.1 617.5 505.9 449.7
Other 625.5 642.1 453.5 392.0 37.2
Lease Financing 202.3 159.9 138.4 135.2 120.7
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
Total Domestic 9,501.8 8,203.9 7,269.7 6,662.4 5,971.6
International 404.2 386.7 353.3 273.5 308.1
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
Total Loans and Leases $9,906.0 $8,590.6 $7,623.0 $6,935.9 $6,279.7
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
Average Loans and Leases $9,136.0 $8,316.1 $7,297.1 $6,452.9 $6,199.4
- ----------------------------------------------------------------- -------- -------- -------- -------- --------
</TABLE>
REMAINING MATURITY OF SELECTED LOANS AND LEASES
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------
One Year One to Over Five
(In Millions) Total or Less Five Years Years
- --------------------------------------------------------------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Domestic (Excluding Residential Real Estate and Consumer Loans)
Commercial $3,202.1 $2,484.6 $582.9 $134.6
Commercial Real Estate 512.6 177.5 273.6 61.5
Other 929.5 915.1 12.9 1.5
Lease Financing 202.3 23.0 67.7 111.6
- --------------------------------------------------------------- -------- -------- ------ ------
Total Domestic 4,846.5 3,600.2 937.1 309.2
International 404.2 329.0 59.3 15.9
- --------------------------------------------------------------- -------- -------- ------ ------
Total Selected Loans and Leases $5,250.7 $3,929.2 $996.4 $325.1
- --------------------------------------------------------------- -------- -------- ------ ------
Interest Rate Sensitivity of Loans and Leases
Fixed Rate $4,024.3 $3,089.5 $670.2 $264.6
Variable Rate 1,226.4 839.7 326.2 60.5
- --------------------------------------------------------------- -------- -------- ------ ------
Total $5,250.7 $3,929.2 $996.4 $325.1
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Average Deposits by Type
(In Millions) 1995 1994 1993 1992 1991
- --------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Domestic Offices
Demand and Noninterest-Bearing
Individuals, Partnerships and Corporations $ 1.651.1 $ 1,540.4 $ 1,487.5 $ 1,354.1 $ 1,191.8
Correspondent Banks 129.8 192.2 201.1 199.6 182.9
Other 966.4 859.9 866.3 322.3 261.1
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Total $ 2,747.3 $ 2,592.5 $ 2,554.9 $ 1,876.0 $ 1,635.8
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Time
Savings and Money Market Deposits $ 3,312.4 $ 3,385.7 $ 3,432.1 $ 3,372.2 $ 3,208.1
Savings Certificates less than $100,000 1,160.8 699.9 668.6 732.6 835.7
Savings Certificates $100,000 and more 839.5 529.7 504.3 638.2 734.0
Other Certificates 542.7 412.8 404.7 493.9 533.1
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Total $ 5,855.4 $ 5,028.1 $ 5,009.7 $ 5,236.9 $ 5,310.9
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Total Domestic Offices $ 8,602.7 $ 7,620.6 $ 7,564.6 $ 7,112.9 $ 6,946.7
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Foreign Offices
Demand $ 299.1 $ 361.7 $ 65.3 $ 56.2 $ 41.8
Time 3,493.4 3,284.8 2,436.4 1,815.6 1,100.6
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Total Foreign Offices $ 3,792.5 $ 3,646.5 $ 2,501.7 $ 1,871.8 $ 1,142.4
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Total Deposits $12,395.2 $11,267.1 $10,066.3 $ 8,984.7 $ 8,089.1
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Average Rates Paid on Time Deposits by Type
1995 1994 1993 1992 1991
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Time Deposits
Savings and Money Market Deposits 3.29% 2.52% 2.30% 2.94% 4.96%
Savings Certificates less than $100,000 6.08 4.77 4.61 5.46 6.47
Savings Certificates $100,000 and more 5.95 4.45 3.91 4.68 6.85
Other Certificates 5.81 4.50 3.88 5.15 7.19
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Total Domestic Offices 4.46 3.20 2.89 3.71 5.68
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Total Foreign Offices Time 5.21 4.18 3.71 5.27 8.05
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Total Time Deposits 4.74% 3.58% 3.16% 4.11% 6.09%
- --------------------------------------------------------- --------- --------- --------- --------- ---------
Remaining Maturity of Time Deposits $100,000 and more
December 31, 1995 December 31, 1994
--------------------------------------------- ----------------------------------------------
Domestic Offices Domestic Offices
--------------------------------------------- ----------------------------------------------
Certificates Other Foreign Certificates Other Foreign
(In Millions) of Deposit Time Offices of Deposit Time Offices
- ------------------------- ------------ --------- ---------- ------------- -------- --------
3 Months or Less $ 612.1 $ 3.4 $3,193.3 $515.2 $ 2.0 $3,806.1
Over 3 through 6 Months 233.8 1.6 23.8 162.4 1.5 40.7
Over 6 through 12 Months 152.2 5.0 13.0 137.9 4.0 7.7
Over 12 Months 268.5 5.9 1.9 172.8 7.6 3.6
- ------------------------- ------------ --------- ---------- ------------- -------- --------
Total $1,266.6 $15.9 $3,232.0 $988.3 $15.1 $3,858.1
- ------------------------- ------------ --------- ---------- ------------- -------- --------
</TABLE>
12
<PAGE>
PURCHASED FUNDS
<TABLE>
FEDERAL FUNDS PURCHASED
(Overnight Borrowings)
($ in Millions) 1995 1994 1993
- ------------------------------ -------- -------- --------
<S> <C> <C> <C>
Balance on December 31 $2,300.1 $ 972.0 $1,215.8
Highest Month-End Balance 3,620.1 1,595.9 2,311.5
Year--Average Balance 1,564.0 1,350.7 1,692.5
--Average Rate 5.83% 4.11% 3.02%
Average Rate at Year-End 5.17 4.26 2.82
- ------------------------------ -------- -------- --------
SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE
($ in Millions) 1995 1994 1993
- ------------------------------ -------- -------- --------
<S> <C> <C> <C>
Balance on December 31 $1,858.7 $2,216.9 $ 602.2
Highest Month-End Balance 2,283.0 2,777.1 1,571.2
Year--Average Balance 1,769.7 1,444.3 664.4
--Average Rate 5.80% 4.28% 3.00%
Average Rate at Year-End 5.41 5.08 2.81
- ------------------------------ -------- -------- --------
OTHER BORROWINGS
(Includes Treasury Tax and Loan Demand
Notes and Term Federal Funds Purchased)
($ in Millions) 1995 1994 1993
- ------------------------------ -------- -------- --------
Balance on December 31 $ 875.9 $1,077.9 $2,100.8
Highest Month-End Balance 3,415.9 3,116.1 2,698.6
Year--Average Balance 1,034.5 1,007.5 940.8
--Average Rate 5.38% 3.57% 2.76%
Average Rate at Year-End 3.61 4.71 2.79
- ------------------------------ -------- -------- --------
TOTAL PURCHASED FUNDS
($ in Millions) 1995 1994 1993
- ------------------------------ -------- -------- --------
Balance on December 31 $5,034.7 $4,266.8 $3,918.8
Year--Average Balance 4,368.2 3,802.5 3,297.7
--Average Rate 5.71% 4.03% 2.94%
- ------------------------------ -------- -------- --------
COMMERCIAL PAPER
($ in Millions) 1995 1994 1993
- ------------------------------ -------- -------- --------
Balance on December 31 $ 146.7 $ 123.8 $ 124.1
Highest Month-End Balance 154.4 172.3 167.6
Year -Average Balance 146.0 138.1 131.5
-Average Rate 5.87% 4.31% 3.23%
Average Rate at Year-End 5.80 5.73 3.19
- ------------------------------ -------- -------- --------
</TABLE>
13
<PAGE>
Changes in Net Interest Income
<TABLE>
<CAPTION>
1994/95 1994/93
-------------------------- --------------------------
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 $ (2.0) $ 3.4 $ 1.4 $ 3.0 $ 2.4 $ 5.4
Time Deposits with Banks (23.5) 17.8 (5.7) 5.0 6.3 11.3
Other (7.1) 3.0 (4.1) 2.0 .6 2.6
Securities
U.S. Government (31.8) 28.4 (3.4) (35.9) 7.2 (28.7)
Obligations of States and Political
Subdivisions (3.3) (2.7) (6.0) (4.2) (1.6) (5.8)
Federal Agency 112.4 32.2 144.6 76.3 8.2 84.5
Other (.9) 3.3 2.4 4.8 1.2 6.0
Trading Account - (.5) (.5) 2.0 .1 2.1
Loans and Leases 56.9 73.9 130.8 61.7 2.5 64.2
- ----------------------------------------- ------- ------ ------ ------ ------ ------
Total $ 100.7 $158.8 $259.5 $114.7 $ 26.9 $141.6
- ----------------------------------------- ------- ------ ------ ------ ------ ------
Increase (Decrease) In Interest Expense
Deposits
Savings and Money Market Deposits $ (2.4) $ 26.2 $ 23.8 $ (1.2) $ 7.7 $ 6.5
Savings Certificates 46.5 17.2 63.7 2.6 3.8 6.4
Other Time 7.5 5.4 12.9 .4 2.5 2.9
Foreign Offices Time 10.8 34.1 44.9 35.5 11.3 46.8
Federal Funds Purchased 12.4 23.3 35.7 (14.0) 18.4 4.4
Repurchase Agreements 18.9 21.8 40.7 33.4 8.5 41.9
Commercial Paper .5 2.2 2.7 .2 1.4 1.6
Other Borrowings 1.4 18.2 19.6 2.4 7.6 10.0
Senior Notes (23.3) 13.2 (10.1) 9.9 5.5 15.4
Notes Payable (1.7) .1 (1.6) (.3) - (.3)
- ----------------------------------------- ------- ------ ------ ------ ------ ------
Total 70.6 161.7 232.3 68.9 66.7 135.6
- ----------------------------------------- ------- ------ ------ ------ ------ ------
Increase (Decrease) In Net Interest
Income $ 30.1 $ (2.9) $ 27.2 $ 45.8 $(39.8) $ 6.0
- ----------------------------------------- ------- ------ ------ ------ ------ ------
Note: Changes not due only to volume changes or rate changes are included in
the change due to volume column.
===============================================================================================================
</TABLE>
International Operations (Based on Obligor's Domicile)
See also Note 22 titled International Operations on pages 53 and 54
of the Corporation's Annual Report to Stockholders for the year ended December
31, 1995, which is incorporated herein by reference.
Selected Average Assets and Liabilities Attributable to International Operations
<TABLE>
<CAPTION>
(In Millions) 1995 1994 1993 1992 1991 1990
- ----------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Assets $2,282.0 $2,820.5 $2,328.8 $2,033.0 $1,709.2 $1,297.5
- ----------------------------------------- -------- -------- -------- -------- -------- --------
Time Deposits with Banks 1,643.7 2,063.1 1,956.7 1,618.6 1,323.4 889.1
Other Money Market Assets .1 .4 .9 38.8 3.2 2.7
Loans 344.3 445.5 279.9 287.6 299.4 310.0
Customers' Acceptance Liability 1.9 3.0 4.8 3.8 10.2 11.2
Foreign Investments 14.3 21.6 29.8 31.4 30.3 30.8
- ----------------------------------------- -------- -------- -------- -------- -------- --------
Total Liabilities $4,163.5 $4,089.4 $2,715.0 $2,125.3 $1,278.2 $1,364.0
- ----------------------------------------- -------- -------- -------- -------- -------- --------
Deposits 3,992.2 4,010.6 2,706.2 2,099.0 1,214.7 1,287.5
Liability on Acceptances 1.9 3.0 4.8 3.8 10.3 11.2
- ----------------------------------------- -------- -------- -------- -------- -------- --------
===============================================================================================================
</TABLE>
14
<PAGE>
PERCENT OF INTERNATIONAL RELATED AVERAGE ASSETS AND LIABILITIES TO TOTAL
CONSOLIDATED AVERAGE ASSETS
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Assets 12% 16% 15% 15% 14%
- ------------ ---- ---- ---- ---- ----
Liabilities 21 23 17 16 11
- ------------ ---- ---- ---- ---- ----
- -----------------------------------------------------------
</TABLE>
RESERVE FOR CREDIT LOSSES RELATING TO INTERNATIONAL OPERATIONS
<TABLE>
<CAPTION>
(In Millions) 1995 1994 1993 1992 1991
- ---------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $ 4.6 $ 6.7 $5.3 $ 6.9 $ 7.0
Charge-Offs (.7) - (.6) (6.0) -
Recoveries .5 - .1 .4 .1
Provision for Credit Losses (1.3) (2.1) 1.9 4.0 (.2)
- ---------------------------- ----- ----- ---- ----- -----
Balance at End of Year $ 3.1 $ 4.6 $6.7 $ 5.3 $ 6.9
- ---------------------------- ----- ----- ---- ----- -----
</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. 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 1995 1994 1993 1992 1991
- -------------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Commercial $259.9 $233.8 $157.9 $122.3 $166.9
Foreign Governments and Official Institutions 103.7 72.8 47.1 26.4 27.3
Banks 37.3 77.0 145.9 121.9 113.8
Other 3.3 3.1 2.4 2.9 .1
- -------------------------------------------- ------ ------ ------ ------ ------
Total $404.2 $386.7 $353.3 $273.5 $308.1
- -------------------------------------------- ------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
December 31
---------------------------------------
<S> <C> <C> <C>
Deposits 1995 1994 1993
- --------------------------------------------- -------- -------- --------
Commercial $2,557.2 $2,817.2 $2,378.0
Foreign Governments and Official Institutions 749.5 803.8 263.2
Banks 415.7 485.2 410.8
Other Time 224.7 182.4 200.4
Other Demand 7.8 8.4 6.6
- --------------------------------------------- -------- -------- --------
Total $3,954.9 $4,297.0 $3,259.0
- --------------------------------------------- -------- -------- --------
</TABLE>
- -------------------------------------------------------------------------------
15
<PAGE>
CREDIT RISK MANAGEMENT
Overview
The Credit Policy function reports to the Corporation's 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 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 Northern Trust'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 examination 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:
Reserve for Credit Losses
<TABLE>
<CAPTION>
(In Millions) 1995 1994
- ------------------------------ ------ ------
<S> <C> <C>
Allocated Reserve
Commercial $ 85.0 $ 86.0
Residential Real Estate 6.0 5.0
Commercial Real Estate 7.0 12.0
Consumer 8.0 6.0
International 3.0 3.0
Unallocated Reserve 38.1 32.8
- ------------------------------ ------ ------
Total Reserve $147.1 $144.8
- ------------------------------ ------ ------
</TABLE>
- --------------------------------------------------------------------------------
Reserve for Credit Losses
<TABLE>
<CAPTION>
(In Millions) 1993 1992 1991
- ---------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Allocated Reserve on Nonperforming Loans $ .2 $ 11.0 $ 5.3
Unallocated Reserve 145.3 134.5 140.4
- ---------------------------------------- ------ ------ ------
Total Reserve $145.5 $145.5 $145.7
- ---------------------------------------- ------ ------ ------
</TABLE>
- --------------------------------------------------------------------------------
Loan and lease categories as a percent of total loans and leases as of
December 31, 1991 through 1995, are presented below.
Loan and Lease Category to Total Loans and Leases
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loan and Lease Category
Commercial 33% 32% 33% 37% 45%
Residential Real Estate 39 38 38 34 29
Commercial Real Estate 5 6 7 7 8
Consumer 8 8 8 7 7
Other 11 11 9 11 6
International 4 5 5 4 5
- ------------------------ ---- ---- ---- ---- ----
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, 1995:
1995
Annual Report
Notes to Consolidated Financial Statements Page(s)
- --------------------------------------------------------------- -------------
1. Accounting Policies
F. Interest Risk Management Instruments.................... 36
G. Loans and Leases........................................ 37
H. Reserve for Credit Losses............................... 37
K. Other Real Estate Owned................................. 37
4. Loans and Leases........................................... 41
5. Reserve for Credit Losses.................................. 42
16. Contingent Liabilities..................................... 48
18. Off-Balance Sheet Financial Instruments.................... 50-52
- ---------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................
- ---------------------------------------------------------------
Asset Quality and Credit Risk.................................. 20-24
- --------------------------------------------------------------- -------------
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 26 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, 1995, 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) 1995 1994
- ------------------------------------------------------- --------- ---------
<S> <C> <C>
Assets
Cash and Due from Banks $ 1,139.3 $ 1,013.8
Money Market Assets
Federal Funds Sold and Securities Purchased under
Agreements to Resell 168.2 783.6
Time Deposits with Banks 1,567.4 1,864.4
Other 131.4 45.8
- ------------------------------------------------------- --------- ---------
Total 1,867.0 2,693.8
- ------------------------------------------------------- --------- ---------
Securities (Fair Value in 1995 $4,607.9 and $4,161.9
in 1994) 4,672.1 4,149.2
Loans and Leases 6,660.5 6,030.5
- ------------------------------------------------------- --------- ---------
Reserve for Credit Losses (114.1) (113.7)
Buildings and Equipment 197.1 200.7
Customers' Acceptance Liability 32.8 53.5
Trust Security Settlement Receivables 327.1 305.7
Other Assets 448.7 402.0
- ------------------------------------------------------- --------- ---------
Total Assets $15,230.5 $14,735.5
- ------------------------------------------------------- --------- ---------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 2,320.5 $ 2,183.8
Savings and Money Market Deposits 1,852.0 1,807.3
Savings Certificates 805.3 624.1
Other Time 135.4 151.3
Foreign Offices -Demand 459.8 225.4
-Time 3,268.3 3,856.4
- ------------------------------------------------------- --------- ---------
Total Deposits 8,841.3 8,848.3
Federal Funds Purchased 2,314.7 1,046.0
Securities Sold under Agreements to Repurchase 1,680.7 2,075.2
Other Borrowings 808.9 893.3
Senior Notes 15.0 545.0
Notes Payable 284.3 209.6
Liability on Acceptances 32.8 53.5
Other Liabilities 387.8 273.9
- ------------------------------------------------------- --------- ---------
Total Liabilities 14,365.5 13,944.8
- ------------------------------------------------------- --------- ---------
Stockholder's Equity
Capital Stock-Par Value $60 198.0 198.0
Surplus 198.0 198.0
Undivided Profits 468.2 408.5
Net Unrealized Gain (Loss) on Securities 0.8 (13.8)
Translation Adjustment - -
- ------------------------------------------------------- --------- ---------
Total Stockholder's Equity 865.0 790.7
- ------------------------------------------------------- --------- ---------
Total Liabilities and Stockholder's Equity $15,230.5 $14,735.5
- ------------------------------------------------------- --------- ---------
</TABLE>
20
<PAGE>
The Northern Trust Company
Consolidated Statement of Income (unaudited)
<TABLE>
<CAPTION>
For the Year Ended
December 31
------------------------
(In Millions) 1995 1994 1993
- --------------------------------------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Interest Income
Money Market Assets
Federal Funds Sold and Securities Purchased under Agreements to Resell $ 12.9 $ 11.4 $ 5.6
Time Deposits with Banks 92.1 97.8 86.4
Other 4.5 6.8 2.9
- --------------------------------------------------------------------------------------- ------ ------ ------
Total 109.5 116.0 94.9
- --------------------------------------------------------------------------------------- ------ ------ ------
Securities 305.2 197.1 140.0
Loans and Leases 406.6 328.4 285.0
- --------------------------------------------------------------------------------------- ------ ------ ------
Total Interest Income 821.3 641.5 519.9
- --------------------------------------------------------------------------------------- ------ ------ ------
Interest Expense
Deposits--Savings and Money Market Deposits 68.8 49.8 44.4
--Savings Certificates 48.2 24.4 23.2
--Other Time 18.4 11.2 7.7
--Foreign Offices 181.6 140.1 92.4
Federal Funds Purchased 94.9 57.4 53.1
Securities Sold under Agreements to Repurchase 94.4 57.2 16.6
Other Borrowings 51.7 33.9 27.2
Senior Notes 23.5 33.6 18.3
Notes Payable 17.0 15.6 17.9
- --------------------------------------------------------------------------------------- ------ ------ ------
Total Interest Expense 598.5 423.2 300.8
- --------------------------------------------------------------------------------------- ------ ------ ------
Net Interest Income 222.8 218.3 219.1
Provision for Credit Losses 4.8 4.9 17.4
- --------------------------------------------------------------------------------------- ------ ------ ------
Net Interest Income after Provision for Credit Losses 218.0 213.4 201.7
- --------------------------------------------------------------------------------------- ------ ------ ------
Noninterest Income
Trust Fees 348.3 326.7 297.9
Security Commissions and Trading Income .1 (.4) (.5)
Other Operating Income 136.7 143.7 113.2
Investment Security Gains (Losses) .6 (.1) 1.7
- --------------------------------------------------------------------------------------- ------ ------ ------
Total Noninterest Income 485.7 469.9 412.3
- --------------------------------------------------------------------------------------- ------ ------ ------
Income before Noninterest Expenses 703.7 683.3 614.0
- --------------------------------------------------------------------------------------- ------ ------ ------
Noninterest Expenses
Salaries 240.7 229.1 216.6
Pension and Other Employee Benefits 58.6 55.7 51.5
Occupancy Expense 40.2 39.2 38.8
Equipment Expense 39.7 48.6 33.9
Other Operating Expenses 108.9 124.1 105.7
- --------------------------------------------------------------------------------------- ------ ------ ------
Total Noninterest Expenses 488.1 496.7 446.5
- --------------------------------------------------------------------------------------- ------ ------ ------
Income before Income Taxes 215.6 186.6 167.5
Provision for Income Taxes (Includes related investment
security transactions tax provision of $.2 in 1995, none in 1994 and $.7 in 1993) 67.7 56.5 46.4
- --------------------------------------------------------------------------------------- ------ ------ ------
Net Income $147.9 $130.1 $121.1
- --------------------------------------------------------------------------------------- ------ ------ ------
Dividends Paid to the Corporation 89.0 48.0 44.0
- --------------------------------------------------------------------------------------- ------ ------ ------
</TABLE>
21
<PAGE>
Supplemental Item--Executive Officers of the Registrant
WILLIAM A. OSBORN
Mr. Osborn became Chairman of the Board of the Corporation and the Bank in
October 1995, and Chief Executive Officer of the Corporation and the Bank in
June 1995. He held the title of President of the Corporation and the Bank from
January 1994 through September 1995 and Chief Operating Officer from January
1994 through June 1995. He was a Senior Executive Vice President of the
Corporation and the Bank from November 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, 48, began his career with the Bank in 1970.
BARRY G. HASTINGS
Mr. Hastings became President of the Corporation and the Bank in October
1995, and Chief Operating Officer of the Corporation and the Bank in June 1995.
He held the title of Vice Chairman of the Corporation and the Bank from January
1994 through June 1995. He was a Senior Executive Vice President of the
Corporation and the Bank from November 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, 48, began his career with the Corporation
in 1974.
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, 59, 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 Personal
Financial Services--Chicago. He was responsible for strategic expense management
from 1995 to 1996 and strategic planning and marketing from 1991 to 1995. 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, 44, 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 and Technology business unit. Mr. Mitchell, 53, joined
the Bank in 1964.
SHEILA A. PENROSE
Ms. Penrose became an Executive Vice President of the Corporation in
November 1994 and of the Bank in November 1993, and is currently head of the
Corporate & Institutional Services business unit. From 1986 until 1993, she had
been Senior Vice President of the Bank. Ms. Penrose, 50, 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, 56, joined the Bank in 1964.
PETER L. ROSSITER
Mr. Rossiter was appointed General Counsel and Secretary 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, 47, 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, 47, had been a partner in the accounting firm of KPMG Peat Marwick from
1982 to 1990.
MARK STEVENS
Mr. Stevens was appointed an Executive Vice President of the Corporation
and the Bank effective February 1, 1996, and at that time became head of the
Personal Financial Services business unit. Mr. Stevens continues to serve as
Chief Executive Officer of Northern Trust Bank of Florida N.A., a position he
has held since 1987. Mr. Stevens, 48, joined the Corporation in 1979.
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, 56, 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, 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.
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 332,000
square feet of space principally 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 thirteen
other Chicago Metropolitan area locations, five of which are owned and eight 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 47 locations, 9 of which
are owned and 38 of which are leased. Detailed information regarding the
addresses of all Northern Trust's locations can be found on pages 66 and 67 in
the Corporation's Annual Report to Stockholders for the year ended December 31,
1995, 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 page 42 of the Corporation's Annual Report to Stockholders
for the year ended December 31, 1995, 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 16 titled Contingent Liabilities on page 48 of the Corporation's Annual
Report to Stockholders for the year ended December 31, 1995.
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 62 and 63 of the Corporation's Annual Report
to Stockholders for the year ended December 31, 1995.
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 46 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1995.
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 12
of the Corporation's Annual Report to Stockholders for the year ended December
31, 1995.
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 12 through 31 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1995.
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, 1995, are incorporated herein by reference.
<TABLE>
<CAPTION>
1995
Annual Report
For Northern Trust Corporation and Subsidiaries: Page(s)
- --------------------------------------------------------------------------------------------------------------- -------------
<S> <C>
Consolidated Balance Sheet--December 31, 1995 and 1994......................................................... 32
Consolidated Statement of Income--Years Ended December 31, 1995, 1994 and 1993................................. 33
Consolidated Statement of Changes in Stockholders' Equity--Years Ended December 31, 1995, 1994 and 1993........ 34
Consolidated Statement of Cash Flows--Years Ended December 31, 1995, 1994 and 1993............................. 35
- --------------------------------------------------------------------------------------------------------------- -------------
For Northern Trust Corporation (Corporation Only)
- --------------------------------------------------------------------------------------------------------------- -------------
Condensed Balance Sheet--December 31, 1995 and 1994............................................................ 55
Condensed Statement of Income--Years Ended December 31, 1995, 1994 and 1993.................................... 55
Consolidated Statement of Changes in Stockholders' Equity--Years Ended December 31, 1995, 1994 and 1993........ 34
Condensed Statement of Cash Flows--Years Ended December 31, 1995, 1994 and 1993................................ 55
- --------------------------------------------------------------------------------------------------------------- -------------
Notes to Consolidated Financial Statements..................................................................... 36-55
- --------------------------------------------------------------------------------------------------------------- -------------
Report of Independent Public Accountants....................................................................... 56
- --------------------------------------------------------------------------------------------------------------- -------------
</TABLE>
The section titled "Quarterly Financial Data" on pages 62 and 63 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1995, 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 1996 Notice and Proxy
Statement filed on March 11, 1996 in connection with the solicitation of proxies
for the Annual Meeting of Stockholders to be held April 16, 1996. 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 18 of the Corporation's definitive 1996
Notice and Proxy Statement filed in connection with the solicitation of proxies
for the Annual Meeting of Stockholders to be held April 16, 1996.
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 1996 Notice and Proxy Statement
filed in connection with the solicitation of proxies for the Annual Meeting of
Stockholders to be held April 16, 1996.
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 1996 Notice and Proxy Statement filed
in connection with the solicitation of proxies for the Annual Meeting of
Stockholders to be held April 16, 1996.
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, 1995 and
1994.
Unaudited Consolidated Statement of Income--Years Ended
December 31, 1995, 1994 and 1993.
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, 1995:
Consolidated Financial Statements of Northern Trust Corporation
and Subsidiaries:
Consolidated Balance Sheet--December 31, 1995 and 1994.
Consolidated Statement of Income--Years Ended December 31,
1995, 1994 and 1993.
Consolidated Statement of Changes in Stockholders' Equity--Years
Ended December 31, 1995, 1994 and 1993.
Consolidated Statement of Cash Flows--Years Ended December 31,
1995, 1994 and 1993.
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, 1995:
Financial Statements of Northern Trust Corporation (Corporation):
Condensed Balance Sheet--December 31, 1995 and 1994.
Condensed Statement of Income--Years Ended December 31, 1995,
1994 and 1993.
Consolidated Statement of Changes in Stockholders' Equity--Years
Ended December 31, 1995, 1994 and 1993.
Condensed Statement of Cash Flows--Years Ended December 31,
1995, 1994 and 1993.
The Notes to Consolidated Financial Statements as of December 31, 1995,
incorporated by reference into Item 8 from the Corporation's Annual Report
to Stockholders for the year ended December 31, 1995, 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, 1995 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, 1995.
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 12, 1996 Northern Trust Corporation
(Registrant)
By: William A. Osborn
-------------------------
William A. Osborn
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.
Signature Title
--------- -----
William A. Osborn Chairman of the Board,
- ------------------------- Chief Executive Officer
William A. Osborn and Director
Perry R. Pero Senior Executive Vice
- ------------------------- President and Chief
Perry R. Pero Financial Officer
Harry W. Short Senior Vice President and
- ------------------------- Controller (Chief
Harry W. Short Accounting Officer)
Dolores E. Cross Director )
)
Robert S. Hamada Director )
)
Barry G. Hastings Director )
)
Robert A. Helman Director )
)
Arthur L. Kelly Director )
)
Ardis Krainik Director )----- By: Peter L. Rossiter
) -------------------------
Frederick A. Krehbiel Director ) Peter L. Rossiter
) Attorney-in-Fact
William G. Mitchell Director )
)
Harold B. Smith Director )
)
William D. Smithburg Director )
)
Bide L. Thomas Director )
Date: March 12, 1996
27
<PAGE>
EXHIBIT INDEX
The following Exhibits are filed herewith or are incorporated herein by
reference.
<TABLE>
Exhibit Incorporated
By Reference to
Exhibit of Same Name
Exhibit in Prior Filing*
Number Description or Filed Herewith
- ------- ----------------------------------------------------------------- --------------------
<S> <C> <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 ....... (2)
(ii) Form of The Northern Trust Company's Global Senior
Bank Note (Fixed Rate) .................................. (2)
(iii) Form of The Northern Trust Company's Global Senior
Bank Note (Floating Rate) ............................... (2)
(iv) Form of The Northern Trust Company's Global
Subordinated Medium-Term Bank Note (Fixed Rate) ......... (2)
(v) Form of The Northern Trust Company's Global
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)
(1) Extension of Implementation Agreement dated
January 4, 1996 ................................... Filed Herewith
(ii) Northern Trust Corporation Amended Incentive Stock
Plan, as amended May 20, 1986.** ........................ (4)
(iii) Form of Employment Security Agreement dated May 23,
1986, between Northern Trust Corporation and each of
47 officers** ........................................... (4)
(1) Form of Agreement dated December 17, 1986, to Form
of Employment Security Agreement** ................ (5)
(iv) Long-Term Performance Stock Plan of Northern Trust
Corporation, as amended April 19, 1988.** ............... (6)
(v) 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)
(vi) Restated Northern Trust Employee Stock Ownership Plan,
dated January 1, 1989 as amended to date ................ (15)
(vii) Trust Agreement between The Northern Trust Company and
Citizens and Southern Trust Company (Georgia), N.A.,
(predecessor of NationsBank) dated January 26, 1989 ..... (7)
(viii) 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)
(ix) Guaranty Agreement of Registrant with respect to the
8.23% Notes of the ESOP Trust, dated January 26, 1989 ... (7)
(x) Share Acquisition Agreement between Registrant and the
ESOP Trust, dated January 26, 1989 ...................... (7)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated
By Reference to
Exhibit of Same Name
Exhibit in Prior Filing*
Number Description or Filed Herewith
- ------- ----------------------------------------------------------------- --------------------
<S> <C> <C>
(xi) 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)
(xii) Supplemental Employee Stock Ownership Plan for Employees
of The Northern Trust Company as amended and
restated.**.............................................. Filed Herewith
(xiii) Supplemental Thrift-Incentive Plan for Employees of
The Northern Trust Company as amended and restated.**.... Filed Herewith
(xiv) Supplemental Pension Plan for Employees of
The Northern Trust Company as amended and restated.**.... Filed Herewith
(xv) Rights Agreement, dated as of October 17, 1989,
between Northern Trust Corporation and Harris Trust
& Savings Bank. ......................................... (9)
(xvi) 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)
(1) First Amendment to Agreement of Lease dated
August 15, 1986.................................... Filed Herewith
(2) Second Amendment to Agreement of Lease dated
August 6, 1987..................................... Filed Herewith
(3) Third Amendment to Agreement of Lease dated
May 20, 1988....................................... Filed Herewith
(4) Fourth Amendment to Agreement of Lease dated
May 1, 1990........................................ Filed Herewith
(5) Fifth Amendment to Agreement of Lease dated
January 12, 1995................................... Filed Herewith
(6) Sixth Amendment to Agreement of Lease dated
November 30, 1995.................................. Filed Herewith
(xvii) 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)
(xviii) Amended 1992 Incentive Stock Plan**...................... (16)
(xix) 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)
(xx) Life Insurance Agreement dated January 5, 1995,
between Northern Trust Corporation and David W. Fox**.... (15)
(xxi) Northern Trust Corporation (1995) Management
Performance Plan**....................................... (17)
(xxii) Consulting Agreement dated October 1, 1995 between
Northern Trust Corporation and David W. Fox**............ Filed Herewith
(xxiii) Northern Trust Corporation Annual Performance Plan
1995.**.................................................. Filed Herewith
(xxiv) Form of Employment Security Agreement dated March 1,
1996 between Northern Trust Corporation and each of 7
Executive Officers.**.................................... Filed Herewith
(11) Computation of Per Share Earnings................................... Filed Herewith
(13) 1995 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) Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
(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
(15) Annual Report on Form 10-K for the year ended December 31, 1994
(16) Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
(17) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995
** 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)(i)(1)
TO 1995 FORM 10-K
[LETTERHEAD OF ANDERSEN CONSULTING LLP]
January 4, 1996
Ms. Eli S. Barkhausen
Senior Vice President
The Northern Trust Company
50 South LaSalle Street CB-3N
Chicago, IL 60675
Dear Ms. Barkhausen:
As you know the Implementation Agreement between Andersen Consulting LLP and The
Northern Trust dated September 30, 1991 expired on December 31, 1995. The
purpose of this letter is to document our mutual consent to extend that
Implementation Agreement for 90 days, through March 31, 1996, in order to allow
us ample time to develop a mutually agreeable Agreement for our work going
forward.
Thank you for the continued opportunity to assist The Northern Trust with this
important project. If you have any questions about this letter please do not
hesitate to contact me at (312) 630-0519.
Sincerely,
Jill B. Smart
Partner
Andersen Consulting LLP
Accepted by: Accepted by:
The Northern Trust Andersen Consulting LLP
By: /s/ Eli S. Barkhausen By: /s/ Jill B. Smart
----------------------- -----------------------
Title: Senior Vice President Title: Partner
----------------------- -----------------------
Date: 1/4/96 Date: January 4, 1996
----------------------- -----------------------
<PAGE>
EXHIBIT NUMBER (10)(xii)
TO 1995 FORM 10-K
RESTATED SUPPLEMENTAL EMPLOYEE STOCK OWNERSHIP PLAN
FOR EMPLOYEES OF THE NORTHERN TRUST COMPANY
The Supplemental Employee Stock Ownership Plan for Employees of The Northern
Trust Company ( the "Plan"), was initially adopted effective September l, l989,
restated effective September l, l989, and again restated effective February l9,
l99l (the "Restated Supplemental ESOP") and amended from time to time
thereafter. The Northern Trust Company desires to further amend and restate the
Restated Supplemental ESOP, which has been established and is maintained by The
Northern Trust Company soley for the purpose of permitting certain employees of
the Company who participate in the Northern Trust Stock Ownership Plan to
receive allocations of amounts in excess of certain limitations on contributions
imposed by Section 40l(a)(17) and Section 415 of the Code.
Accordingly, effective January l, l996, The Northern Trust Company hereby
further amends and restates the Restated Supplemental ESOP pursuant to the terms
and provisions set forth below:
ARTICLE I
DEFINITIONS
Wherever used herein the following terms shall have the meanings hereinafter set
forth:
1.1 "Beneficiary" means any person eligible to receive a death benefit under
the Plan as designated by the Participant, in the event of death of the
Participant.
1.2 "Board" means the Board of Directors of The Northern Trust Company.
1.3 "Change-in-Control" means the earliest to occur of:
(a) The receipt by Northern Trust Corporation (the "Corporation") of a Schedule
13D or other statement filed under Section l3(d) of the Securities Exchange Act
of l934, as amended (the "Exchange Act"), indicating that any entity, person, or
group has acquired beneficial ownership, as that term is defined in Rule l3d-3
under the Exchange Act, of more than 30% of the outstanding capital stock of the
Corporation entitled to vote for the election of directors ("voting stock");
(b) The commencement by 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;
<PAGE>
(c) The effective time of (i) a merger or consolidation of the Corporation with
one or more other corporations as a result of which the holders of the
outstanding voting stock of the Corporation immediately prior to such merger or
consolidation hold less than 80% of the voting stock of the surviving or
resulting corporation, or (ii) a transfer of substantially all of the property
of the Corporation other than to an entity of which the Corporation owns at
least 80% of the voting stock; or
(d) The election to the Board of Directors of the Corporation, without the
recommendation or approval of the incumbent Board of Directors of the
Corporation, of the lesser of (i) three directors or (ii) directors constituting
a majority of the number of directors of the Corporation then in office.
1.4 "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any regulations promulgated thereunder.
1.5 "Committee" means the Employee Benefit Administrative Committee of The
Northern Trust Company, as constituted from time to time, which has the
responsibility for administering the Qualified Plan.
1.6 "Company" means The Northern Trust Company, an Illinois banking
corporation, and such of its subsidiaries and affiliates as shall, with the
consent of the Board, adopt the Plan, and, to the extent provided in Section 8.8
below, any successor corporation or other entity resulting from a merger or
consolidation into or with the Company or a transfer or sale of substantially
all of the assets of the Company.
1.7 "Company Stock" means any qualifying employer security within the meaning
of Section 4975(e)(8) of the Code and Section 407(d)(1) of the Employee
Retirement Income Security Act of 1974 and regulations thereunder.
1.8 "Participant" means any employee of the Company who is a participant under
the Qualified Plan as described in Section 2.1 of the Plan and with respect to
whom contributions may be made under the Plan.
1.9 "Plan" means the Restated Supplemental Employee Stock Ownership Plan, for
employees of The Northern Trust Company, as amended and restated effective
January l, l996.
1.10 "Plan Year" means the calendar year or any other twelve consecutive month
period that may be designated by the Company as the fiscal year of the Qualified
Plan; provided, however, that the first Plan Year shall be the four consecutive
month period commencing on September l, l989 and ending on December 31, l989.
1.11 "Qualified Plan" means the Northern Trust Employee Stock Ownership Plan,
as amended and restated effective January l, l989, and as further amended from
time to each, and each predecessor, successor or replacement employee stock
ownership plan.
1.12 "Qualified Plan Company Stock Account" means the account
<PAGE>
established for a Participant under the Qualified Plan and known as the Company
Stock Acount.
1.13 "Qualified Thrift-Incentive Plan" means The Northern Trust Company
Thrift-Incentive Plan as amended and restated effective January l, l989, and
each predecessor, successor or replacement employees' cash or deferred
arrangement.
1.14 "Section 415 Limits" means the limit imposed by Section 415 of the Code,
or any successor section, on aggregate annual additions in any Plan Year to the
accounts of a Participant under the Qualified Plan and The Northern Trust
Company Thrift-Incentive Plan, and the limits imposed by Section 415(c)(6) of
the Code, or any successor section, on the Plan.
1.15 "Supplemental ESOP Account" means the account maintained by the Company
under the Plan for each Participant who receives Supplemental ESOP Allocations
under the Plan.
1.16 "Supplemental ESOP Allocation" means the amount allocated for the benefit
of a Participant under and in accordance with the terms of Section 3.1 of the
Plan in any Plan Year.
1.17 "Supplemental Matching Contribution Account" means the account maintained
by the Company under the Supplemental Thrift-Incentive Plan for a Participant
that is credited with Supplemental Matching Contributions contributed under such
plan.
1.18 Except as otherwise expressly provided herein, all words and phrases in
the Qualified Plan shall have the same meaning in the Plan.
ARTICLE II
ELIGIBILITY
2.1 Participant. An employee of the Company who is eligible in any Plan Year to
receive an allocation of Company Stock to his Company Stock Account under the
Qualified Plan, the total amount of which is reduced by reason of the
application of the limitation on contributions imposed by Section 40l(a)(17), or
Section 415 of the Code, as in effect on any date for allocation of such shares,
or as in effect at any time thereafter, on the Qualified Plan, shall be a
Participant in the Plan for such Plan Year.
ARTICLE III
SUPPLEMENTAL ALLOCATIONS
3.1 Supplemental ESOP Allocations. The Supplemental ESOP Allocation to be made
for the benefit of a Participant for any Plan Year shall be an amount equal to
(i) the closing price of a share of Company Stock on the NASDAQ Stock Market on
the last trading day of such Plan Year, times, (ii) the difference between (a)
and (b) below:
<PAGE>
(a) The number of shares of Company Stock that would have been allocated to the
Qualified Plan Company Stock Account of the Participant for the Plan Year,
without giving effect to the Section 415 Limits or to the limitations imposed by
Section 40l(a)(17) of the Code on the Qualified Plan;
LESS
(b) The number of shares of Company Stock actually allocated to the Qualified
Plan Company Stock Account of the Participant for the Plan Year.
Supplemental ESOP Allocations made for the benefit of a Participant for any Plan
Year shall be allocated to a Supplemental ESOP Account maintained under the Plan
in the name of such Participant as of the last day of such Plan Year.
3.2 Vesting. Each Participant shall vest in the balance of his Supplemental
ESOP Account in accordance with the vesting schedule set forth in the Qualified
Plan applicable to the undistributed balance of his Qualified Plan Company Stock
Account. Notwithstanding the preceding sentence or any other provision of the
Plan, each Participant shall immediately become fully vested in the
undistributed balance of his Supplemental ESOP Account in the event of a Change-
in-Control.
ARTICLE IV
INVESTMENT OF SUPPLEMENTAL ALLOCATIONS
4.1 Investments. The Company may contribute amounts allocated hereunder to the
Supplemental ESOP Accounts of Participants to a trust ("Trust") established
under the trust agreement between the Company and Harris Trust & Savings Bank, a
bank organized and existing under the laws of the State of Illinois, as trustee
("Trust Agreement"). Amounts allocated hereunder to the Supplemental ESOP
Account of a Participant and contributed to the Trust, shall be invested in one
or more of the investment funds from time to time offered by the trustee of the
Trust Agreement as set forth on Schedule A attached hereto and shall be subject
to the same administrative procedures and Participant investment elections that
apply to his Supplemental Matching Contribution Account.
A Participant shall be entitled to change investment elections applicable to his
Supplemental ESOP Account, or to direct transfers of amounts in his Supplemental
ESOP Account among the investment funds set forth on Schedule A, provided that
such directions shall also apply to his Supplemental Matching Contribution
Account. Such changes can be made monthly by written request.
4.2 Company Securities. Notwithstanding anything to the contrary contained
herein, in no event shall amounts allocated to the Supplemental ESOP Account of
a Participant be invested in any fund that provides for investment in stock or
other securities of the Company; provided, however, that nothing contained
herein shall prohibit
<PAGE>
investment of amounts allocated to the Supplemental ESOP of any Participant in a
common or collective trust fund of the trustee of the Trust Agreement in which
no more than five percent of the total fair market value of the assets of such
common or collective trust fund are invested in stock or other securities of the
Company.
ARTICLE V
DISTRIBUTIONS
5.1 Distribution. (a) In the event that the Participant's employment with the
Company terminates for any reason, the Participant shall receive on the last day
of the calendar month following the month in which such termination occurs, a
lump sum distribution, in cash, equal to the vested adjusted balance of the
Participant's Supplemental ESOP Account, including gains or losses attributable
to investments made pursuant to Section 4.1, determined as of the last day of
the calendar month in which such termination occurs. Notwithstanding the
foregoing, if a Participant is entitled to receive a Supplemental ESOP
Allocation for the Plan Year in which he terminated employment, such
Supplemental ESOP Allocation and any gains or losses attributable thereto shall
be distributed to or with respect to the Participant upon completion of the
first valuation following the posting of such Supplemental ESOP Allocation to
his Supplemental ESOP Account.
Any nonvested portion of a Participant's Supplemental ESOP Account shall be
forfeited and retained by the Company.
(b) The amount to be paid from the Supplemental ESOP in the year of the
Participant's termination shall be limited to an amount which will not cause the
total amount of compensation received from the Company, to exceed the maximum
amount deductible by the Company under Code section 162(m). Amounts not paid as
a result of the above limitation shall be paid in subsequent years, to the
extent permissible under the above limitation.
(c) If a Participant dies before a complete distribution of his Supplemental
ESOP Account has been made to him, the vested adjusted balance of such
Participant's Supplemental ESOP Account, including gains or losses attributable
to investments made pursuant to Section 4.1, determined as of the last day of
the calendar month in which the Participant's employment with the Company
terminated, shall be distributed in one lump sum, in cash, to the Beneficiary
last designated by the Participant in a writing delivered to the Committee prior
to his death. If a Participant has not designated a Beneficiary, or if no
designated Beneficiary is living on the date of distribution, the vested
adjusted balance of such Participant's Supplemental ESOP Account, shall be
distributed in one lump sum, in cash, to those persons entitled to receive
distributions of the Participant's accounts under the Qualified Plan.
ARTICLE VI
ADMINISTRATION OF THE PLAN
<PAGE>
6.1 Administration by the Committee. The Committee shall be responsible for the
general operation and administration of the Plan and for carrying out the
provisions thereof. The Committee shall have discretion to interpret and
construe the provisions of the Plan.
6.2 General Powers of Administration. All provisions set forth in the Qualified
Plan with respect to the administrative powers and duties of the Committee,
expenses of administration, and procedures for filing claims shall also be
applicable with respect to the Plan. The Committee shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions and reports
furnished by any actuary, accountant, controller, counsel or other person
employed or engaged by the Committee with respect to the Plan.
ARTICLE VII
AMENDMENT OR TERMINATION
7.1 Amendment or Termination. The Company intends the Plan to be permanent but
reserves the right to amend or terminate the Plan when, in the sole discretion
of the Company, such amendment or termination is advisable. Any such amendment
or termination shall be made pursuant to a resolution of the Board and shall be
effective as of the date set forth in such resolution.
7.2 Effect of Amendment or Termination. No amendment or termination of the Plan
shall directly or indirectly reduce the balance of any Supplemental ESOP Account
held hereunder as of the effective date of such amendment or termination. Upon
termination of the Plan, disribution of amounts in a Participant's Supplemental
ESOP Account shall be made to him or his Beneficiary in the manner and at the
time described in Section 5.1 of the Plan. No additional Supplemental ESOP
Allocations shall be made to the Supplemental ESOP Account of any Participant
after termination of the Plan.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Participant's Rights Unsecured. The Plan at all times shall be entirely
unfunded and no provision shall at any time be made with respect to segregating
any assets of the Company for payment of any benefits hereunder. No Participant,
beneficiary or any other person shall have any interest in any particular assets
of the Company by reason of the right to receive a benefit under the Plan and
any such Participant, Beneficiary or other person shall have only the rights of
a general unsecured creditor of the Company with respect to any rights under the
Plan.
8.2 General Conditions. Except as otherwise expressly provided herein, all
terms and conditions of the Qualified Plan applicable to allocations of Company
Stock under the Qualified Plan shall also be applicable to a Supplemental ESOP
Allocation made hereunder. Any allocation of Company Stock or dividends to be
made under the Qualified
<PAGE>
Plan shall be made solely in accordance with the terms and conditions of the
Qualified Plan and nothing in this Plan shall operate or be construed in any way
to modify, amend or affect the terms and provisions of the Qualified Plan.
8.3 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a
guaranty by the Company or any other person or entity that the assets of the
Company will be sufficient to pay any benefit hereunder.
8.4 No Enlargement of Employee Rights. No Participant shall have any right to
receive a distribution under the Plan except in accordance with the terms of the
Plan. Establishment of the Plan shall not be construed to give any Participant
the right to be retained in the service of the Company.
8.5 Spendthrift Provision. No interest of any person or entity in, or right to
receive a distribution under, the Plan shall be subject in any manner to sale,
transfer, assignment, pledge, attachment, garnishment, or other alienation or
encumbrance of any kind; nor may such interest or right to receive a
distribution be taken, either voluntarily or involuntarily, for the satisfaction
of the debts of, or other obligations or claims against, such person or entity,
including claims for alimony, support, separate maintenance and claims in
bankruptcy proceedings.
8.6 Applicable Law. The Plan shall be construed and administered under the laws
of the State of Illinois to the extent not inconsistent with the Employee
Retirement Income Security Act of 1974.
8.7 Incapacity of Recipient. If any benefit under the Plan shall be payable to
a minor or a person not adjudicated incompetent but who, by reason of illness or
mental or physical disability, is, in the opinion of the Committee, unable to
properly manage his affairs, such benefit shall be paid in such of the following
ways as the Committee deems best: (a) to the person directly; (b) in the case of
a minor, to a custodian under any Uniform Gift to Minors Act for the person; or
(c) to the person's spouse, adult child or blood relative. Any benefit so paid
shall be a complete discharge of any liability of the Company and Plan therefor.
8.8 Successors. The Plan shall not be automatically terminated by a transfer or
sale of assets of the Company or by the merger or consolidation of the Company
into or with any other corporation or other entity, but the Plan shall be
continued after such sale, merger or consolidation only if and to the extent
that the transferee, purchaser or successor entity agrees to continue the Plan.
In the event that the Plan is not continued by the transferee, purchaser or
successor entity, then the Plan shall terminate subject to the provisions of
Section 7.2.
8.9 Unclaimed Benefit. Each Participant shall keep the Committee informed of
his current address and the current address of his designated Beneficiary.
Neither the Company nor the Committee shall be obligated to search for the
whereabouts of any person. If the location
<PAGE>
of a Participant is not made known to the Committee within three (3) years after
the date on which distribution of the Participant's Supplemental ESOP Account
may first be made, distribution may be made as though the Participant 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
Participant, neither the Company nor the Committee is able to locate any
designated Beneficiary of the Participant, then the Company shall have no
further obligation to pay any benefit hereunder to such Participant or
designated Beneficiary and such benefit shall be irrevocably forfeited;
provided, however, that if the Participant or designated Beneficiary makes a
valid claim for any benefit that has been so forfeited, the forfeited benefit
shall be reinstated.
8.10 Limitations on Liability. Notwithstanding any of the preceding provisions
of the Plan, neither the Company, any member of the Committee, nor any
individual acting as an employee or agent of the Company or Committee shall be
liable to any Participant, former Participant, Beneficiary or any other person
for any claim, loss, liability or expense incurred in connection with the Plan.
8.11 Gender; Headings. Words in the masculine gender shall include the
feminine and the singular shall include the plural, and vice versa, unless
qualified by the context. Any headings used herein are included for ease of
reference only, and are not to be construed so as to alter the terms hereof.
IN WITNESS WHEREOF, The Northern Trust Company has caused this Plan to be signed
by its duly authorized officer as of the 31st day of December, l995.
THE NORTHERN TRUST COMPANY
BY_______________________
<PAGE>
SCHEDULE A
SUPPLEMENTAL EMPLOYEE STOCK OWNERSHIP PLAN &
SUPPLEMENTAL THRIFT-INCENTIVE PLAN
INVESTMENT FUND OPTIONS
1. Insight Money Market Fund
2. Intermediate Bond Fund
3. Equity Fund
<PAGE>
EXHIBIT NUMBER (10)(xiii)
TO 1995 FORM 10-K
RESTATED SUPPLEMENTAL THRIFT-INCENTIVE PLAN
FOR EMPLOYEES OF THE NORTHERN TRUST COMPANY
The Northern Trust Company Supplemental Plan was adopted on September l6, l975
and amended through December 16, l986. The portions of that plan that pertained
to The Northern Trust Company Thrift-Incentive Plan were amended and restated by
the Restated Supplemental Thrift-Incentive Plan for Employees of The Northern
Trust Company, initially adopted effective September l, l989, restated effective
September l, l989 and amended from time to time thereafter (the "Restated
Supplemental Thrift-Incentive Plan"). The Northern Trust Company desires to
further amend and restate the Restated Supplemental Thrift-Incentive Plan, which
has been established and is maintained by The Northern Trust Company solely for
the purpose of permitting certain of the employees of the Company who
participate in The Northern Trust Company Thrift-Incentive Plan to receive
contributions in excess of certain limitations imposed by Section 401(a)(17) of
the Code.
Accordingly, effective January 1, 1996, The Northern Trust Company hereby
further amends and restates the Restated Supplemental Thrift-Incentive Plan
pursuant to the terms and conditions set forth below:
ARTICLE I
DEFINITIONS
Wherever used herein the following terms shall have the meanings hereinafter set
forth:
1.1 "Beneficiary" means any person eligible to receive a death benefit under the
Plan as designated by the Participant, in the event of death of the Participant.
1.2 "Board" means the Board of Directors of The Northern Trust Company.
1.3 "Change-in-Control" means the earliest to occur of:
(a) The receipt by Northern Trust Corporation (the "Corporation") of a Schedule
13D or other statement filed under Section l3(d) of the Securities Exchange Act
of l934, as amended (the "Exchange Act"), indicating that any entity, person, or
group has acquired beneficial ownership, as that term is defined in Rule l3d-3
under the Exchange Act, of more than 30% of the outstanding capital stock of the
Corporation entitled to vote for the election of directors ("voting stock");
(b) The commencement by 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;
(c) The effective time of (i) a merger or consolidation of the
<PAGE>
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 (ii) a transfer of substantially all of the
property of the Corporation other than to an entity of which the Corporation
owns at least 80% of the voting stock; or
(d) The election to the Board of Directors of the Corporation, without the
recommendation or approval of the incumbent Board of Directors of the
Corporation, of the lesser of (i) three directors or (ii) directors constituting
a majority of the number of directors of the Corporation then in office.
1.4 "Code" means the Internal Revenue Code of l986, as amended from time to
time, and any regulations promulgated thereunder.
1.5 "Committee" means the Employee Benefit Administrative Committee of The
Northern Trust Company, as constituted from time to time, which has the
responsibility for administering the Qualified Plan.
1.6 "Company" means The Northern Trust Company, an Illinois banking
corporation, and such of its subsidiaries and affiliates as shall, with the
consent of the Board, adopt the Plan, and, to the extent provided in Section 8.8
below, any successor corporation or other entity resulting from a merger or
consolidation into or with the Company or a transfer or sale of substantially
all of the assets of the Company.
1.7 "Deferral Distribution Date" means the date for distribution of a
Participant's Supplemental Before-Tax Deposits as irrevocably set forth in
each of his Supplemental Before-Tax Deposit Agreements.
1.8 "Participant" means an employee of the Company who is a participant under
the Qualified Plan as described in Section 2.l of the Plan and by whom or with
respect to whom contributions may be made under the Plan.
1.9 "Plan" means the Restated Supplemental Thrift-Incentive Plan for Employees
of The Northern Trust Company, as amended from time to time.
1.10 "Plan Year" means the calendar year or other twelve-consecutive- month
period that may be designated by the Company as the fiscal year of the
Qualified Plan, provided, however, that the first Plan Year shall be the
four-consecutive-month period commencing on September l, l989 and ending on
December 31, l989.
1.11 "Qualified Plan" means The Northern Trust Company Thrift-Incentive Plan as
amended and restated effective January l, l989, and as further amended from time
to time, and each predecessor, successor or replacement employees' cash or
deferred arrangement.
1.12 "Qualified Plan Matching Contribution" means the total of all matching
contributions made by the Company for the benefit of a Participant under and in
accordance with the terms of the Qualified Plan in any Plan Year.
<PAGE>
1.13 "Qualified Plan Matching Contribution Account" means the account
established for a Participant under the Qualified Plan and known as the Matching
Contribution Account.
1.14 "Qualified Plan Before-Tax Deposit" means the total of all salary
reduction contributions made by the Company as authorized by a Participant under
and in accordance with the terms of the Qualified Plan in any Plan Year.
1.15 "Qualified Plan Before-Tax Deposit Account" means the account established
for the Participant under the Qualified Plan and known as the Before-Tax Deposit
Account.
1.16 "Supplemental Account" means either or both of the Supplemental Before-Tax
Deposit Account and the Supplemental Matching Contribution Account.
1.17 "Supplemental ESOP Allocation" means the amount allocated for the benefit
of a Participant under and in accordance with the terms of Section 3.1 of the
Supplemental ESOP Plan in any Plan year.
1.18 "Supplemental Matching Contribution" means the matching contribution made
by the Company for the benefit of a Participant under and in accordance with the
terms of the Plan in any Plan Year.
1.19 "Supplemental Matching Contribution Account" means the account maintained
by the Company under the Plan for a Participant that is credited with
Supplemental Matching Contributions contributed under the Plan.
1.20 "Supplemental Before-Tax Deposit" means the salary reduction contribution
made by the Company as authorized by a Participant under and in accordance with
the terms of the Plan in any Plan Year.
1.21 "Supplemental Before-Tax Deposit Account" means the account maintained by
the Company under the Plan for a Participant that is credited with Supplemental
Before-Tax Deposits contributed under the Plan.
1.22 Except as otherwise expressly provided herein, all words and phrases in
the Qualified Plan shall have the same meaning in the Plan.
ARTICLE II
ELIGIBILITY
2.1 (a) Conditions for Participation. An employee of the Company: (i) who is
eligible to participate in the Qualified Plan on the first day of a Plan Year
and (ii) whose Salary (as defined in the Qualified Plan), determined as of
November 30 of the prior plan year, exceeds the compensation limitation under
Section 40l(a)(17) of the Code for such prior Plan Year, shall be eligible to
make salary deferrals under the Plan for such Plan Year as soon as he has
reached the Code Section
<PAGE>
40l(a)(17) limitation. However, if the compensation limit for the Plan Year for
which participation is being determined is known by November 30 of such prior
Plan Year, participation will be based upon such limit.
In the event an employee of the Company who is ineligible to participate in the
Plan on the first day of a Plan Year either because he was not eligible for the
Qualified Plan on the first day of the Plan Year or because his Salary does not
exceed the Code Section 40l(a)(17) limitation for the prior Plan Year
subsequently becomes eligible for the Qualified Plan or has his Salary increased
and becomes ineligible to make contributions to the Qualified Plan because his
Salary exceeds the compensation limit set forth in Code Section 40l(a)(17), such
employee shall become eligible to participate in the Plan for purposes of
Supplemental Matching Contributions only as of the date he is no longer eligible
to make contributions to the Qualified Plan as a result of the above limitation.
Such Supplemental Matching Contributions shall be based on the employee's rate
of contribution to the Qualified Plan at the time his contributions ceased.
(b) Participant Elections. An employee who meets the eligibility requirements
on November 30 for Plan participation in the following Plan Year will be allowed
to elect (i) to decline participation in the Plan, or (ii) to begin
contributions to the Plan once he is no longer able to contribute to the
Qualified Plan because he has reached the limitations of Section 40l(a)(17).
ARTICLE III
SUPPLEMENTAL CONTRIBUTIONS
3.1 Supplemental Before-Tax Deposit. The Supplemental Before-Tax Deposit
authorized by a Participant for any Plan Year shall be applied only to salary in
excess of Section 40l(a)(17) limitations, in any amount equal to at least one
percent (1%), but not to exceed twelve percent (12%).
The Supplemental Before-Tax Deposit made for the benefit of a Participant for
any Plan Year shall be allocated to a Supplemental Before-Tax Deposit Account
maintained under the Plan in the name of such Participant on or before the last
day of such Plan Year.
3.2 Supplemental Before-Tax Deposit Agreement. As a condition to the Company's
obligation to make a Supplemental Before-Tax Deposit for the benefit of a
Participant pursuant to Section 3.1 for any Plan Year, the Participant must
execute a Supplemental Before-Tax Deposit Agreement, in such form as the
Committee in its discretion shall determine, on which the Participant shall
elect to have his Salary for such Plan Year reduced, and a Supplemental Before-
Tax Deposit made on his behalf, on salary in excess of Section 40l(a)(17)
limitations, in any amount equal to at least one percent (l%) of his Salary, or
any multiple thereof, but not to exceed twelve percent (12%).
An Agreement that is effective for any Plan Year shall be executed and delivered
to the Committee by the specified date before the beginning
<PAGE>
of that Year and shall be irrevocable for that year and for subsequent Years
unless and until revoked or revised by a Participant by written instrument
delivered to the Committee prior to the beginning of the Plan Year in which such
revocation or revision is to be effective.
3.3 Supplemental Matching Contributions. The Supplemental Matching
Contribution to be made by the Company on behalf of a Participant for any Plan
Year who (i) is a Participant at the beginning of a Plan Year eligible to make
salary deferrals after reaching the Section 40l(a)(17) limitations, who actually
makes salary deferrals or (ii) during the Plan Year becomes a Participant
eligible to participate for purposes of Supplemental Matching Contributions
only, shall be made in accordance with the matching contribution formula and
provisions set forth in the Qualified Plan.
Supplemental Matching Contributions made for the benefit of a Participant for
any Plan Year shall be allocated to a Supplemental Matching Contribution Account
maintained under the Plan in the name of such Participant as of the last day of
such Plan Year.
3.4 Vesting of Benefits. Each Participant shall at all times be fully vested
in the adjusted balance of his Supplemental Before-Tax Deposit Account. Each
Participant shall vest in the adjusted balance of his Supplemental Matching
Contribution Account in accordance with the vesting schedule applicable to his
Qualified Plan Matching Contribution Account set forth in the Qualified Plan.
Notwithstanding the preceding sentence or any other provision of the Plan, each
Participant shall become fully vested in the adjusted balance of his
Supplemental Matching Contribution Account on the effective date of a Change-in-
Control.
ARTICLE IV
INVESTMENT OF SUPPLEMENTAL CONTRIBUTIONS
4.1 Investments. The Company may contribute amounts allocated hereunder to
the Supplemental Accounts of Participants to a trust ("Trust") established under
the trust agreement between the Company and Harris Trust & Savings Bank, a bank
organized and existing under the laws of the State of Illinois, as trustee
("Trust Agreement"). Amounts allocated hereunder to the Supplemental Account of
a Participant shall be subject to such administrative procedures relating to
investment elections as the Committee may from time to time establish. When
amounts are allocated to the Supplemental Account of a Participant and are
contributed to the Trust, they shall be invested in one or more of the
investment funds from time to time offered by the trustee of the Trust
Agreement, as set forth on Schedule A attached hereto.
A Participant shall be entitled to change investment elections applicable to his
Supplemental Account, or to direct transfers of amounts in his Supplemental
Account among the investment funds set forth on Schedule A, provided that such
directions shall also apply to his Supplemental ESOP Allocation. Such changes
can be made monthly by written request.
<PAGE>
4.2 Company Securities. Notwithstanding anything to the contrary contained
herein, in no event shall amounts allocated to the Supplemental Account of a
Participant be invested in any fund that provides for investment in stock or
other securities of the Company; provided, however, that nothing contained
herein shall prohibit investment of amounts allocated to the Supplemental
Account of any Participant in a common or collective trust fund of the trustee
of the Trust Agreement in which no more than five percent of the total fair
market value of the assets of such common or collective trust fund are invested
in stock or other securities of the Company.
ARTICLE V
DISTRIBUTIONS
5.1 Distribution. (a) Subject to Section 8.2, all amounts allocated to a
Participant's Supplemental Before-Tax Deposit Account, including gains and
losses attributable to investments made pursuant to Section 4.1, shall be
distributed to or with respect to the Participant in one lump sum as of the
first to occur of (a) the Deferral Distribution Date irrevocably set forth
in the related Supplemental Before-Tax Deposit Agreement or (b) the last day of
the calendar month following the month in which the Participant's employment
with the Company terminates for any reason, including death. The vested adjusted
balance of a Participant's Supplemental Matching Contribution Account, including
gains and losses attributable to investments made pursuant to Section 4.1, shall
be distributed to or with respect to a Participant as of the last day of the
calendar month following the month in which the Participant's employment with
the Company and all affiliates terminates for any reason, including death.
Notwithstanding the foregoing, if a Participant is entitled to receive a
Supplemental Matching Contribution for the Plan Year in which he terminated
employment, such Supplemental Matching Contribution and any gains or losses
attributable thereto shall be distributed to or with respect to the Participant
upon completion of the first valuation following the posting of such
Supplemental Matching Contribution to the Supplemental Matching Contribution
Account.
Any unvested amounts credited to a Participant's Supplemental Matching
Contribution Account shall be forfeited and retained by the Company.
(b) The annual amount to be paid from the Supplemental TIP shall be limited
to an amount which will not cause the total amount of compensation received
from The Northern Trust to exceed the maximum amount deductible by The
Northern Trust under Code section 162(m). Amounts not paid as a result of
the above limitation shall be paid in subsequent years, to the extent
permissible under the above limitation.
(c) If a Participant dies before a complete distribution of his Supplemental
Before Tax Deposit Account or his Supplemental Matching Contribution Account has
been made to him, such amounts shall be distributed to the Beneficiary
designated by the Participant in a writing last delivered to the Committee prior
to his death. If a Participant has not designated a Beneficiary, or if no
designated Beneficiary is living on the date of distribution, such amounts shall
<PAGE>
be distributed to those persons entitled to receive distributions of the
Participant's accounts under the Qualified Plan.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.1 Administration by the Committee. The Committee shall be responsible for
the general operation and administration of the Plan and for carrying out the
provisions thereof. The Committee shall have discretion to interpret and
construe the provisions of the Plan.
6.2 General Powers of Administration. All provisions set forth in the
Qualified Plan with respect to the administrative powers and duties of the
Committee, expenses of administration, and procedures for filing claims shall
also be applicable with respect to the Plan. The Committee shall be entitled to
rely conclusively upon all tables, valuations, certificates, opinions and
reports furnished by any actuary, accountant, controller, counsel or other
person employed or engaged by the Committee with respect to the Plan.
ARTICLE VII
AMENDMENT OR TERMINATION
7.1 Amendment or Termination. The Company intends the Plan to be permanent
but reserves the right to amend or terminate the Plan when, in the sole
discretion of the Company, such amendment or termination is advisable. Any such
amendment or termination shall be made pursuant to a resolution of the Board and
shall be effective as of the date set forth in such resolution.
7.2 Effect of Amendment or Termination. No amendment or termination of the
Plan shall directly or indirectly reduce the balance of any Supplemental Account
held hereunder as of the effective date of such amendment or termination. Upon
termination of the Plan, disribution of amounts in a Participant's Supplemental
Account shall be made to him or his Beneficiary in the manner and at the time
described in Section 5.1 of the Plan. No additional credits of Supplemental
Before-Tax Deposits or Supplemental Matching Contributions shall be made to the
Supplemental Account of a Participant after termination of the Plan, but the
Company shall continue to credit gains and losses attributable to investments
made pursuant to Section 4.1 to such Supplemental Account until the balance of
such Account has been fully distributed to the Participant or his Beneficiary.
ARTICLE VIII
GENERAL PROVISIONS
8.l Participant's Rights Unsecured. If and to the extent amounts allocated
hereunder to the Supplemental Accounts of Participants are contributed by the
Company to the Trust described in Section 4.1, benefits under the Plan shall be
payable pursuant to the Trust Agreement. Pursuant to the Trust Agreement, all
assets held thereunder
<PAGE>
shall remain subject to the general creditor of the Company. The Plan at all
times shall be entirely unfunded and no provision shall at any time be made with
respect to segregating any assets of the Company for payment of any benefits
hereunder. No Participant, Beneficiary or any other person shall have any
interest in any particular assets of the Company by reason of the right to
receive a benefit under the Plan and Trust Agreement and any such Participant,
Beneficiary or other person shall have only the rights of a general unsecured
creditor of the Company with respect to any rights under the Plan and Trust
Agreement.
8.2 General Conditions. Except as otherwise expressly provided herein, all
terms and conditions of the Qualified Plan applicable to a Qualified Plan
Before-Tax Deposit or a Qualified Plan Matching Contribution shall also be
applicable to a Supplemental Before-Tax Deposit or a Supplemental Matching
Contribution to be made hereunder. Any Qualified Plan Before-Tax Deposit or
Qualified Plan Matching Contribution, or any other contributions to be made
under the Qualified Plan, shall be made solely in accordance with the terms and
conditions of the Qualified Plan and nothing in this Plan shall operate or be
construed in any way to modify, amend or affect the terms and provisions of the
Qualified Plan.
8.3 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a
guaranty by the Company or any other person or entity that the assets of the
Company will be sufficient to pay any benefit hereunder.
8.4 No Enlargement of Employee Rights. No Participant shall have any right
to receive a distribution of contributions made under the Plan except in
accordance with the terms of the Plan. Establishment of the Plan shall not
be construed to give any Participant the right to be retained in the service
of the Company.
8.5 Spendthrift Provision. No interest of any person or entity in, or right
to receive a distribution under, the Plan shall be subject in any manner to
sale, transfer, assignment, pledge, attachment, garnishment, or other alienation
or encumbrance of any kind; nor may such interest or right to receive a
distribution be taken, either voluntarily or involuntarily, for the satisfaction
of the debts of, or other obligations or claims against, such person or entity,
including claims for alimoney, support, separate maintenance and claims in
bankruptcy proceedings.
8.6 Applicable Law. The Plan shall be construed and administered under the
laws of the State of Illinois to the extent not inconsistent with the Employee
Retirement Income Security Act of l974.
8.7 Incapacity of Recipient. If any benefit under the Plan shall be payable
to a minor or a person not adjudicated incompetent but who, by reason of illness
or mental or physical disability, is, in the opinion of the Committee, unable to
properly manage his affairs, such benefit shall be paid in such of the following
ways as the Committee deems best: (a) to the person directly; (b) in the case of
a minor, to a custodian under any Uniform Gift to Minors Act for the person; or
(c) to the person's spouse, adult child or blood relative. Any benefit so
<PAGE>
paid shall be a complete discharge of any liability of the Company and the Plan
therefor.
8.8 Successors. The Plan shall not be automatically terminated by a transfer
or sale of assets of the Company or by the merger or consolidation of the
Company into or with any other corporation or other entity, but the Plan shall
be continued after such sale, merger or consolidation only if and to the extent
that the transferee, purchaser or successor entity agrees to continue the Plan.
In the event that the Plan is not continued by the transferee, purchaser or
successor entity, then the Plan shall terminate subject to the provisions of
Section 7.2.
8.9 Unclaimed Benefit. Each Participant shall keep the Committee informed of
his current address and the current address of his designated Beneficiary.
Neither the Company nor the Committee shall be obligated to search for the
whereabouts of any person. If within three years after any benefit becomes due
under the Plan to or with respect to any Participant, the Committee is unable to
make payment because the identity or whereabouts of such person cannot be
ascertained notwithstanding the mailing of notice to any last known address or
addresses, the Committee shall make payment of such benefit as though the
Participant had died three years after the date such benefit became due. In the
event payment cannot be made at that time, the Participant's Supplemental
Before-Tax Deposit Account and Supplemental Contribution Account shall be closed
out and disposed of in the same manner as forfeitures, but the amount thereof
shall be a continuing liability of the Plan. In the event it shall become
possible to make payment of the liability at a later date, the amount of the
liability shall be paid in accordance with the provisions of the Plan.
8.10 Limitations on Liability. Notwithstanding any of the preceding provisions
of the Plan, neither the Company, any member of the Committee nor any individual
acting as an employee or agent of the Company or Committee shall be liable to
any Participant, former Participant, Beneficiary or any other person for any
claim, loss, liability or expense incurred in connection with the Plan.
8.11 Gender; Headings. Words in the masculine gender shall include the
feminine and the singular shall include the plural, and vice versa, unless
qualified by the context. Any headings used herein are included for ease of
reference only, and are not to be construed so as to alter the terms hereof.
IN WITNESS WHEREOF, The Northern Trust Company has caused this Plan to be signed
by its duly authorized officer as of the 31st day of December, 1995.
THE NORTHERN TRUST COMPANY
BY_______________________
<PAGE>
SCHEDULE A
SUPPLEMENTAL THRIFT-INCENTIVE PLAN &
SUPPLEMENTAL EMPLOYEE STOCK OWNERSHIP PLAN
INVESTMENT FUND OPTIONS
l. Insight Money Market Fund
2. Intermediate Bond Fund
3. Equity Fund
<PAGE>
EXHIBIT NUMBER (10)(xiv)
TO 1995 FORM 10-K
RESTATED SUPPLEMENTAL PENSION PLAN
FOR EMPLOYEES OF THE NORTHERN TRUST COMPANY
The Northern Trust Company Supplemental Plan was adopted on September l6,
l975 and amended through December l6, l986. The portions of that plan that
pertained to The Northern Trust Company Pension Plan were amended and
restated by The Restated Supplemental Pension Plan for Employees of The
Northern Trust Company, initially adopted effective September l, l989,
restated effective September l, l989 and amended effective December 2l, l993
and from time to time thereafter ("the Restated Supplemental Pension Plan").
The Northern Trust Company desires to further amend and restate The Restated
Supplemental Pension Plan, which has been established and is maintained by
The Northern Trust Company solely for the purpose of providing benefits for
certain employees of the Company who participate in The Northern Trust
Company Pension Plan and whose benefits under such plan are limited by the
restrictions on benefits imposed by Section 40l(a)(17) and Section 415 of
the Code.
Accordingly, effective January l, l996, The Northern Trust Company hereby
further amends and restates The Restated Supplemental Pension Plan pursuant
to the terms and provisions set forth below.
ARTICLE I
DEFINITIONS
Wherever used herein the following terms shall have the meanings
hereinafter set forth:
1.1 "Beneficiary" means (i) Spouse or, (ii) if the Participant had fifteen
or more years of credited service under the Qualified Plan and dies without
a Spouse but with Eligible Child(ren) as defined in the Qualified Plan, such
Participant's Eligible Child(ren).
1.2 "Board" means the Board of Directors of The Northern Trust Company.
1.3 "Code" means the Internal Revenue Code of l986, as amended from
time to time, and any regulations promulgated thereunder.
1.4 "Change-in-Control" means the earliest to occur of:
(a) The receipt by Northern Trust Corporation (the "Corporation") of a
Schedule 13D or other statement filed under Section l3(d) of the
Securities Exchange Act of l934, as amended (the "Exchange Act"),
indicating that any entity, person, or group has acquired beneficial
ownership, as that term is defined in Rule l3d-3 under the Exchange
Act, of more than 30% of the outstanding capital stock of the Corporation
entitled to vote for the election of directors ("voting
stock");
<PAGE>
(b) 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;
(c) The effective time of (i) a merger or consolidation of the
Corporation with one or more other corporations as a result of which the
holders of the outstanding voting stock of the Corporation
immediately prior to such merger or consolidation hold less than 80% of the
voting stock of the surviving or resulting corporation, or (ii) a
transfer of substantially all of the property of the Corporation other than
to an entity of which the Corporation owns at least 80% of the
voting stock; or
(d) The election to the Board of Directors of the Corporation, without the
recommendation or approval of the incumbent Board of Directors of
the Corporation, of the lesser of (i) three directors or (ii) directors
constituting a majority of the number of directors of the Corporation
then in office.
1.5 "Committee" means the Employee Benefit Administrative Committee of The
Northern Trust Company, as constituted from time to time, which has the
responsibility for administering the Qualified Plan.
1.6 "Company" means The Northern Trust Company, an Illinois banking
corporation, and such of its subsidiaries and affiliates as shall, with the
consent of the Board, adopt the Plan, and, to the extent provided
in Section 8.8 below, any successor corporation or other entity resulting
from a merger or consolidation into or with the Company or a
transfer or sale of substantially all of the assets of the Company.
1.7 "Participant" means any employee of the Company who is a participant
under the Qualified Plan as described in Section 2.l of the Plan and to whom
or with respect to whom a benefit is payable under the Plan.
1.8 "Payment Entitlement Date" means either (i) the first of the month
following termination in the case of a Participant eligible for a benefit
under Section 5.4 of the Qualified Plan or, (ii) the day following
termination in the case of a Participant eligible for a benefit under
Sections 5.1, 5.2, or 5.3 of the Qualified Plan.
1.9 "Payment Date" means, with respect to a Participant who is
retirement eligible under the Qualified Plan, the last business day of the
month next following the month in which the Participant's employment with
the Company terminates. With respect to a Vested Terminated Participant as
defined in the Qualified Plan, "Payment Date" means the last day of the
third calendar month following the calendar month in which the Participant
terminates employment.
1.10 "Plan" means the Restated Supplemental Pension Plan for employees of
The Northern Trust Company as further amended and restated effective January
l, l996.
1.11 "Qualified Plan" means The Northern Trust Company Pension Plan as
<PAGE>
amended and restated effective January l, l989, and as further amended from
time to time, and each predecessor, successor or replacement employees'
pension plan.
1.12 "Qualified Plan Pension Benefit" means the aggregate pension benefit
payable to a Participant pursuant to the Qualified Plan, and all annuities
purchased for the Participant under the Qualified Plan (whether or not
terminated) by reason of his termination of employment with the Company and all
affiliates.
1.13 "Qualified Plan Survivor Benefit" means the aggregate survivor benefit
payable to a Beneficiary of a Participant pursuant to Section Section 6.1 of the
Qualified Plan, or any successor section, and all annuities purchased under such
section of the Qualified Plan (whether or not terminated) in the event of death
of the Participant at any time prior to the Participant's Payment Entitlement
Date under the Qualified Plan.
1.14 "Spouse" means the person to whom the Participant was married on the
date of his death.
1.15 "Supplemental Pension Benefit" means the lump sum benefit payable to a
Participant pursuant to the Plan by reason of his termination of employment with
the Company and all affiliates for any reason.
1.16 "Supplemental Survivor Benefit" means the lump sum benefit payable to the
Beneficiary of a Participant pursuant to the Plan.
1.17 Except as otherwise expressly provided herein, all words and phrases in the
Qualified Plan shall have the same meaning in the Plan.
ARTICLE II
ELIGIBILITY
2.1 Participant. An employee of the Company who is eligible in any Plan Year to
receive a Qualified Plan Pension Benefit, the amount of which is reduced by
reason of the application of the limitations on benefits imposed by either or
both of Section 40l(a)(17) and Section 415 of the Code on the Qualified Plan,
shall be a Participant and shall be eligible to receive a Supplemental Pension
Benefit for such Plan Year.
ARTICLE III
SUPPLEMENTAL PENSION BENEFIT
3.1 Amount. The Supplemental Pension Benefit payable to an eligible Participant
shall be the difference between (a) the lump sum value of the Participant's
Qualified Plan Pension Benefit based on a straight life annuity over the
lifetime of the Participant only (i) after considering Code Section 401(a)(17)
and Section 415 restrictions, and (ii) compensation for any period of time
considered in computing such
<PAGE>
Benefit is determined including amounts of base salary and bonus earned with
respect to such period of time and deferred because of Internal Revenue Code
Section 162(m) limitations under the Northern Trust Corporation Annual
Performance Plan, and (b) the lump sum value of the Participant's Qualified Plan
Pension Benefit, based on the Participant's qualified joint and survivor lump
sum benefit (without consideration of such statutory restrictions).
(a) If a Participant dies following his termination of employment with the
Company but prior to his Payment Entitlement Date the following rules apply:
(i) if he is survived by a Beneficiary who is living on his Payment
Entitlement Date, fifty percent (50%) of the amount that would have been
paid to the Participant on his Payment Date shall be paid in a single lump
sum on such Payment Date to his surviving Beneficiary, and no other benefit
shall be payable hereunder with respect to such Participant, or (ii) if he
is not survived by a Beneficiary who is living on his Payment Entitlement
Date, no benefit shall be payable hereunder with respect to such
Participant.
(b) If a Participant dies following his termination of employment with the
Company but after his Payment Entitlement Date the following rules apply:
(i) if he is survived by a Beneficiary who is living on the Payment Date,
l00% of the amount that would have been paid to the Participant on his
Payment Date shall be paid in a single lump sum on such Payment Date to his
Beneficiary, and no other benefit shall be payable hereunder with respect to
such Participant, or (ii) if he is not survived by a Beneficiary who is
living on his Payment Date, the full benefit shall be payable to his estate.
(c) In the event that a Participant's entire Qualified Plan Pension Benefit
has been distributed due to the payment of a qualified domestic relations
order (QDRO), the Participant will be entitled to the Supplemental Pension
Benefit to which he or she would have been entitled, calculated without
regard to the QDRO. The Participant's Supplemental Pension Benefit will not
replace any amount actually paid to an alternative payee pursuant to the
QDRO.
(d) Notwithstanding anything to the contrary contained herein, the annual
amount to be paid from the Plan in the year of a Participant's termination shall
be limited to an amount which will not cause the total amount of compensation
received from the Company and the amount paid from the Plan to exceed the
maximum amount deductible by the Company under Code Section 162(m). Any amount
which is not paid as the result of this limitation shall be transferred to the
Supplemental Thrift-Incentive Plan for Employees of The Northern Trust Company
as of the end of the month next following the month in which such amount would
have been paid, but for such limitation. Amounts so transferred shall be paid in
subsequent years, to the extent permissible under this limitation, to the
Participant, or in the event of the Participant's death, to the Participant's
Beneficiary, if he or she survives the Participant, and if not, to the
Participant's estate.
3.2 Vesting of Benefit. Each Participant shall vest in his Supplemental Pension
Benefit in accordance with the vesting schedule applicable to his Qualified Plan
Pension Benefit set forth in the
<PAGE>
Qualified Plan. Notwithstanding the preceding sentence or any other provision of
the Plan, each Participant shall become fully vested in his Supplemental Pension
Benefit on the effective date of a Change-in-Control.
3.3 Form of Benefit. The Supplemental Pension Benefit of a Participant whose
employment with the Company terminates for any reason shall be paid in a single
lump sum, which shall be equal to the amount calculated pursuant to Section 3.1
above, as determined by the same actuarial adjustments as those specified in the
Qualified Plan with respect to determination of the amount of the Qualified Plan
Pension Benefit or Qualified Plan Survivor Benefit.
3.4 Commencement of Benefit. Payment to a Participant of his Supplemental
Pension Benefit shall be made on his Payment Date. If such Benefit is paid prior
to the Participant's Normal Retirement Date, it shall be adjusted to reflect
such early payment as determined by the same early retirement adjustment factors
as are specified in the Qualified Plan with respect to the adjustment of the
Qualified Plan Pension Benefit for early commencement.
3.5 Grandfather Provision. Notwithstanding anything to the contrary contained
herein, any Participant who commenced receiving payment of a Supplemental
Pension Benefit hereunder in the form of an annuity prior to September l, l989,
pursuant to the terms of the Plan on the date payment of such Benefit commenced,
shall continue to receive such payments from and after September l, l989 in the
form of such annuity.
Notwithstanding anything to the contrary contained herein, any Beneficiary who
commenced receiving payment of a Supplemental Survivor Benefit hereunder in the
form of an annuity prior to January 1, 1995, pursuant to the terms of the Plan
on the date payment of such Benefit commenced, shall continue to receive such
payments from and after January l, l995 in the form of such annuity.
ARTICLE IV
SUPPLEMENTAL SURVIVOR BENEFIT
4.1 Amount. If a Participant dies prior to termination of employment under
circumstances in which a Qualified Plan Survivor Benefit is payable to his
Beneficiary, then a Supplemental Survivor Benefit is payable to his Beneficiary
as hereinafter provided. The amount of the Supplemental Survivor Benefit payable
to a Participant's Beneficiary shall be equal to the difference between (a) and
(b) below:
(a) the lump sum value of the Qualified Plan Survivor Benefit to which the
Beneficiary would have been entitled under the Qualified Plan if (i) such
Benefit were computed without giving effect to the limitations on benefits
imposed by Sections 401(a)(17) and 415 of the Code, and (ii) Compensation
for any period of time considered in computing such Benefit was determined
including amounts of base salary and bonus which are eligible for computing
such benefit under the Qualified Plan;
<PAGE>
(b) the lump sum value of the Qualified Plan Survivor Benefit actually payable
to the Beneficiary under the Qualified Plan.
4.2 Form and Commencement of Benefit. If a Supplemental Survivor Benefit shall
be payable hereunder, such Benefit shall be payable in one lump sum payment, to
be made according to the schedule for payment of a Qualified Plan Survivor
Benefit as though it had commenced immediately.
ARTICLE V
ADMINISTRATION OF THE PLAN
5.1 Administration by the Committee. The Committee shall be responsible for the
general operation and administration of the Plan and for carrying out the
provisions thereof. The Committe shall have discretion to interpret and construe
the provisions of the Plan.
5.2 General Powers of Administration. All provisions set forth in the Qualified
Plan with respect to the administrative powers and duties of the Committee,
expenses of administration, and procedures for filing claims shall also be
applicable with respect to the Plan. The Committee shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions and reports
furnished by any actuary, accountant, controller, counsel or other person
employed or engaged by the Committee with respect to the Plan.
ARTICLE VI
AMENDMENT OR TERMINATION
6.1 Amendment or Termination. The Company intends the Plan to be permanent but
reserves the right to amend or terminate the Plan when, in the sole discretion
of the Company, such amendment or termination is advisable. Any such amendment
or termination shall be made pursuant to a resolution of the Board and shall be
effective as of the date set forth in such resolution.
6.2 Effect of Amendment or Termination. No amendment or termination of the Plan
shall directly or indirectly deprive any current or former Participant or
Beneficiary of all or any portion of any Supplemental Pension Benefit or
Supplemental Survivor Benefit, payment of which has commenced prior to the
effective date of such amendment or termination, or that would be payable if the
Participant terminated employment for any reason, including death on such
effective date.
ARTICLE VII
GENERAL PROVISIONS
7.1 Funding. The Company may contribute amounts to fund the benefits under the
Plan to a trust ("Trust") established pursuant to a trust agreement between the
Company and Harris Trust & Savings Bank, a bank organized and existing under the
laws of the State of Illinois, as trustee ("Trust Agreement"). If and to the
extent amounts are contributed hereunder by the Company to the Trust, benefits
under the
<PAGE>
Plan shall be payable pursuant to the Trust Agreement. Pursuant to the Trust
Agreement, all assets held thereunder shall remain subject to the general
creditors of the Company. The Plan at all times shall be entirely unfunded and
no provision shall at any time be made with respect to segregating any assets of
the Company for payment of any benefits hereunder. No Participant, Beneficiary
or any other person shall have any interest in any particular assets of the
Company by reason of right to receive a benefit under the Plan and Trust
Agreement and any such Participant, Beneficiary or other person shall have only
the rights of a general unsecured creditor of the Company with respect to any
rights under the Plan and Trust Agreement.
7.2 General Conditions. Except as otherwise expressly provided herein, all
terms and conditions of the Qualified Plan applicable to a Qualified Plan
Pension Benefit or a Qualified Plan Survivor Benefit shall also be applicable to
a Supplemental Pension Benefit or a Supplemental Survivor Benefit payable
hereunder. Any Qualified Plan Pension Benefit or Qualified Plan Survivor
benefit, or any other benefit payable under the Qualified Plan, shall be paid
solely in accordance with the terms and conditions of the Qualified Plan and
nothing in the Plan shall operate or be construed in any way to modify, amend or
affect the terms and provisions of the Qualified Plan.
7.3 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a
guaranty by the Company or any other entity or person that the assets of the
Company will be sufficient to pay any benefit hereunder.
7.4 No Enlargement of Employee Rights. No Participant or Beneficiary shall have
any right to a benefit under the Plan except in accordance with the terms of the
Plan. Establishment of the Plan shall not be construed to give any Participant
the right to be retained in the service of the Company.
7.5 Spendthrift Provision. No interest of any person or entity in, or right to
receive a distribution under, the Plan shall be subject in any manner to sale,
transfer, assignment, pledge, attachment, garnishment, or other alienation or
encumbrance of any kind; nor may such interest or right to receive a
distribution be taken, either voluntarily or involuntarily, for the satisfaction
of the debts of, or other obligations or claims against, such person or entity,
including claims for alimoney, support, separate maintenance and claims in
bankruptcy proceedings.
7.6 Applicable Law. The Plan shall be construed and administered under the laws
of the State of Illinois to the extent not inconsistent with the Employee
Retirement Income Security Act of l974.
7.7 Incapacity of Recipient. If any benefit under the Plan shall be payable to
a minor or a person not adjudicated incompetent but who, by reason of illness or
mental or physical disability, is, in the opinion of the Committee, unable to
properly manage his affairs, such benefit shall be paid in such of the following
ways as the Committee deems best: (a) to the person directly; (b) in the case of
a minor, to a custodian under any Uniform Gift to Minors Act for the person; or
(c)
<PAGE>
to the person's spouse, adult child or blood relative. Any benefit so paid shall
be a complete discharge of any liability of the Company and Plan therefor.
7.8 Successors. The Plan shall not be automatically terminated by a transfer or
sale of assets of the Company or by the merger or consolidation of the Company
into or with any other corporation or other entity, but the Plan shall be
continued after such sale, merger or consolidation only if and to the extent
that the transferee, purchaser or successor entity agrees to continue the Plan.
In the event that the Plan is not continued by the transferee, purchaser or
successor entity, then the Plan shall terminate subject to the provisions of
Section 6.2.
7.9 Unclaimed Benefit. Each Participant shall keep the Committee informed of
his current address and the current address of his Beneficiary. Neither the
Company nor the Committee shall be obligated to search for the whereabouts of
any person. If the location of a Participant is not made known to the Committee
within three (3) years after the date on which payment of the Participant's
Supplemental Pension Benefit may first be made, payment may be made as though
the Participant 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 Participant, neither the Company nor the Committee
is able to locate any Beneficiary of the Participant, then the Company shall
have no further obligation to pay any benefit hereunder to such Participant or
Beneficiary and such benefit shall be irrevocably forfeited; provided, however,
that if the Participant or Beneficiary makes a valid claim for any benefit that
has been so forfeited, the forfeited benefit shall be reinstated.
7.10 Limitations on Liability. Notwithstanding any of the preceding provisions
of the Plan, neither the Company, any member of the Committee, nor any
individual acting as an employee or agent of the Company or Committee shall be
liable to any Participant, former Participant, Beneficiary or any other person
for any claim, loss, liability or expense incurred in connection with the Plan.
7.11 Gender; Headings. Words in the masculine gender shall include the feminine
and the singular shall include the plural, and vice versa, unless qualified by
the context. Any headings used herein are included for ease of reference only,
and are not to be construed so as to alter the terms hereof.
IN WITNESS WHEREOF, The Northern Trust Company has caused this Plan to be signed
by its duly authorized officer as of the 31st day of December, 1995.
THE NORTHERN TRUST COMPANY
BY_______________________
<PAGE>
EXHIBIT NUMBER (10)(xvi)(1)
TO 1995 FORM 10-K
FIRST AMENDMENT TO AGREEMENT OF LEASE
-------------------------------------
THIS AMENDMENT, made and entered into as of August 15, 1986, by and between
American National Bank and Trust Company of Chicago, as Trustee under Trust
Agreement dated August 21, 1986 and known as Trust No. 65287 ("Landlord") and
The Northern Trust Company, an Illinois banking corporation ("Tenant"),
WITNESSETH: THAT
WHEREAS, Landlord and Tenant are parties to a certain Agreement of Lease
dated as of August 27, 1985 (the "Lease"); and
WHEREAS, Landlord and Tenant desire to amend the Lease as hereinafter set
forth;
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment of Lease. Paragraph 5(B)(i) of the Lease is hereby deleted,
and the following inserted in lieu thereof:
"(i) For the Base Year (and first full Lease Year if the Base Year
commences subsequent to July 1 of such year), an amount equal to the lesser
of (a) the product of thirty percent (30%) of the Base Rent paid during the
Base Year multiplied by the percentage change (positive or negative) of the
CPI for the month in which the Term of this Lease commences over the CPI
for the month in which this Lease was executed, and (b) $1.00 per RSF; and"
2. Legal Effect. As amended herein, the Lease shall remain in full force
and effect and, except as expressly amended herein, shall be unaffected hereby.
3. Exculpatory Clause. This Lease is executed by American National Bank
and Trust Company, not personally, but in the exercise of the power and
authority conferred upon and vested in it as Trustee. It is expressly understood
and agreed that nothing herein shall be construed as creating any liability
whatsoever against Trustee personally; and in particular, without limiting the
generality of the foregoing, there shall be no personal liability to pay any
indebtedness accruing hereunder or to perform any covenant, either express or
implied, herein contained, or to keep, preserve, or sequester any property and
all personal liability of every sort, if any, is hereby expressly waived by said
Tenant, and by every person now or hereafter claiming any right or security
hereunder; and that, so far as the Trustee is concerned, the owner of any
indebtedness or liability
<PAGE>
accuring hereunder shall look solely to the assets of said property and the
proceeds thereof for the payment thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
LANDLORD: AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, not individually,
but solely as Trustee under Trust
Agreement dated August 21, 1985 and
known as Trust No. 65287
By: /s/
------------------------------------------
Assistant Vice President
Attest: /s/ J. Michael Whelan
--------------------------------------
Assistant Secretary
TENANT: THE NORTHERN TRUST COMPANY
By: /s/ John B. Snyder
------------------------------------------
Its: Executive Vice President, General Counsel
and Secretary
-----------------------------------------
<PAGE>
CONSENT TO AMENDMENT
--------------------
The undersigned, Madison Plaza II Partnership, the sole beneficiary of
Landlord and a joint obligor with Landlord with respect to certain covenants
imposed upon Landlord pursuant to Lease, and Mellon Bank, N.A., the collateral
assignee of the Lease, hereby consent to the foregoing Amendment.
MADISON PLAZA II PARTNERSHIP,
an Illinois general partnership
By: /s/ Lee A. Miglin
----------------------------------------
Lee A. Miglin, general partner
By: /s/ J. Paul Beitler
----------------------------------------
J. Paul Beitler, general partner
MELLON BANK, N.A.
By: /s/ Paul J. Brown
----------------------------------------
Paul J. Brown
Its: SVP
---------------------------------------
<PAGE>
Exhibit Number (10)(xvi)(2)
to 1995 Form 10-K
C:ACK:6710N:0021
11/6/87-1
SECOND AMENDMENT TO AGREEMENT OF LEASE
--------------------------------------
THIS AMENDMENT, made and entered into as of August 6, 1987 by and between
American National Bank and Trust Company of Chicago, as Trustee under Trust
Agreement dated August 21, 1986 and known as Trust 65287 ("Landlord") and The
Northern Trust Company, an Illinois banking corporation ("Tenant").
WITNESSETH: THAT
WHEREAS, Landlord and Tenant are parties to a certain Agreement of Lease
dated as of August 27, 1985; and
WHEREAS, the Agreement of Lease was amended by that certain First Amendment
to Agreement of Lease dated as of August 15, 1986 (as so amended, the "Lease");
and
WHEREAS, Landlord and Tenant desire to further amend the Lease as
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Paragraph 1A of the Lease is hereby deleted, and the following inserted
in lieu thereof:
"A. The Premises shall be ten (10) contiguous floors in the Building
located in the Low-rise Section of the Building (as defined in Paragraph 1F
hereof) and shall in the aggregate contain approximately 200,000 RSF (as
defined in Paragraph 1D hereof). The lower five (5) floors of the Premises
(floors 3 through 7 of the Building), containing in the aggregate
approximately 100,000 RSF, are sometimes referred to herein as the
"Original Premises". The upper five (5) floors of the Premises (floors 8
through 12 of the Building), containing in the aggregate approximately
100,000 RSF, are sometimes referred to herein as the "Additional Premises".
The "Original Premises" and the "Additional Premises" shall, in the
aggregate, comprise the Premises."
2. Paragraph 1F of the Lease is hereby deleted, and the following inserted
in lieu thereof:
<PAGE>
"F. "Low-Rise Section" shall mean the floors of the Building beginning
with the second floor through and including the fourteenth floor, all of
which shall be accessible by the same bank of elevators."
3. The following is hereby inserted into the Lease as Paragraph 1G:
"G. "Lower Mid-Rise Section" shall mean the floors of the Building
beginning with the fifteenth floor through and including the twenty-fifth
floor, all of which shall be accessible by the same bank of elevators."
4. Paragraph 2B of the Lease is hereby deleted, and the following inserted
in lieu thereof:
"B. Additional Work. Landlord will perform, at Tenant's request, and upon
submission by Tenant of the necessary plans and specifications in
accordance with Paragraph 2C hereof, any additional work in the Premises
over and above that specified in Paragraph 2A above, subject to the terms
and conditions of this Paragraph 2B. If included in Tenant's plans and
specifications, Landlord will supply and install the items described on
Exhibit C attached hereto and made a part hereof (the "Building Standard
Work") in the Premises in Landlord's standard manner. Landlord shall
deliver to Tenant on or before the earlier of (i) October 1, 1988, and (ii)
three (3) months before the anticipated Building Construction Commencement
Date a list of final unit prices, for all items of Building Standard Work
showing the cost per unit for such items. Landlord agrees that the unit
prices for the standard quantities of Building Standard Work shall not
exceed, in the aggregate, Fifteen ($15.00) Dollars per RSF. All work done
pursuant to Paragraph 2B shall be at Landlord's cost to the extent of the
sum of (i) $581,700 plus (ii) Twenty-five ($25.00) Dollars per RSF for the
Premises (the sum of (i) and (ii) is hereinafter referred to as
"Allowance"), and at Tenant's sole cost and expense to the extent of the
cost of such work exceeds the Allowance; the aggregate investment tax
credit, if any, attributable to all such work shall be divided between
Landlord and Tenant in the proportion in which each bears the cost of all
such work. All such cost calculations shall be based on the RSF actually
included in the Premises on the Commencement Date (as hereinafter defined).
Any portion of the Allowance not applied to defray the cost of such
additional work shall, at Tenant's option, either (i) be applied in payment
of the first Rent payable hereunder, or (ii) paid to Tenant in cash on the
Possession Date (as defined in Paragraph 3A hereof.)
5. Paragraph 4A of the Lease is hereby deleted, and the following inserted
in lieu thereof:
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<PAGE>
"A. "Base Rent"
(i) "Original Base Rent". For the Original Premises, the sum equal
to the number of RSF within the Original Premises times $21.00 per RSF for
each twelve month period during the Term of this Lease ("Original Annual
Base Rent"). Such original Annual Base Rent shall be paid in monthly
installments of one-twelfth (1/12) of the then-current original Annual Base
Rent in advance on or before the first day of each and every month during
the Term ("Original Monthly Base Rent"), as the Original Annual Base Rent
or Original Monthly Base Rent may be adjusted pursuant to Paragraph 5 of
this Lease.
(ii) "Additional Base Rent". For the Additional Premises, the sum
equal to the number of RSF within the Additional Premises times (A) $18.50
per RSF for the first (1st) through the fifth (5th) Lease Years (as defined
in Section 5A) during the Term, (B) $22.50 per RSF for the sixth (6th)
through tenth (10th) Lease Years during the Term, and (C) $25.50 per RSF
for the eleventh (11th) through fifteenth (15th) Lease Years during the
Term ("Additional Annual Base Rent"). Such additional Annual Base Rent
shall be paid in monthly installments of one-twelfth (1/12) of the then
current Additional Annual Base Rent in advance on or before the first day
of each and every month during the Term ("Additional Monthly Base Rent"),
as the Additional Annual Base Rent or Additional Monthly Base Rent or may
be adjusted pursuant to Paragraph 5 of this Lease;
(iii) Original Annual Base Rent and Additional Annual Base Rent are
sometimes collectively referred to herein as "Annual Base Rent"; Original
Monthly Base Rent and Additional Monthly Base Rent are sometimes
collectively referred to herein as "Monthly Base Rent"."
6. Paragraph 5B of the Lease is hereby deleted and the following inserted
in lieu thereof:
"B. Rent Adjustments. The Annual Base Rent for each and every Lease Year
during the term of this Lease (the "Subject Lease Year") shall be adjusted
(subject to the limitations hereinafter set forth) by an amount equal to
the following (the "Rent Adjustment"):
(i) For the Base Year (and first full Lease Year if the Base Year
commences subsequent to July 1 of such year), an amount equal to the lesser
of (a) the product of thirty percent (30%) of the Base Rent paid during the
Base Year multiplied by the percentage change (positive or negative) of the
CPI for the month in which the Term of this lease
-3-
<PAGE>
commences over the CPI for the month in which this Lease was executed, and
(b) $1.00 per RSF; and
(ii) For each Lease Year thereafter, an amount equal to the product of
thirty percent (30%) of the Annual Base Rent plus the sum determined by
subparagraph B(i) above multiplied by the percentage change (positive or
negative) of the CPI for January of the Subject Lease Year over the CPI for
the first full month of the Base Year; provided, however, that for any
Lease Year the amount of the annual Rent Adjustment made by reason of
changes in the CPI shall not exceed three percent (3%) of the adjusted
Annual Base Rent for the immediately preceding Lease Year. The limitation
set forth in the immediately preceding sentence shall not affect
adjustments to Rent attributable to causes other than changes in the CPI."
7. Paragraph 16 of the Lease is hereby deleted, and the following inserted
in lieu thereof:
"16. ASSIGNMENT AND SUBLETTING. Tenant may assign or transfer this Lease or
any interest under it, and may sublet the Premises or any part thereof to
(i) an entity controlling, controlled by or under common control with
Tenant or to any successor to Tenant by merger or acquisition (any such
entity or successor being sometimes hereafter referred to as an "affiliate"
of Tenant); or (ii) any financially responsible party approved by Landlord,
(which approval shall not be unreasonably withheld, denied or delayed)
whose stated use of the Premises will not result in a breach of an
exclusive use provision for space in the Building theretofore granted by
Landlord (subject to Landlord's written right to recapture as hereafter set
forth). Not less than thirty (30) days prior to the proposed commencement
of such assignment or sublease to a party other than an affiliate of
Tenant, Tenant shall give Landlord written notice of the proposed
assignment or sublease which notice shall contain the name of the proposed
assignee or sublessee and proposed principal terms thereof and shall be
accompanied by the last available financial statement of such proposed
assignee of sublessee. Within ten (10) days of Landlord's receipt of such
written notice and financial statement Landlord shall approve or disapprove
of the proposed assignee or sublessee, or if such proposed transfer is (i)
a sublease to other than an affiliate (A) for more than three (3) floors of
the Premises, and (B) for longer than either five (5) years or seventy-five
(75%) percent of the remainder of the Term, whichever is less, or during
the first three (3) years of the Term, or (ii) an assignment to other than
an affiliate, Landlord may terminate this Lease as to such proposed
subleased space in the case of a proposed sublease, or all of the Premises
in
-4-
<PAGE>
the case of a proposed assignment. If Landlord does not terminate as
aforesaid, Landlord may withhold its consent to such proposed assignee or
sublessee only for reasonable reasons related to the financial
responsibility of the proposed party but such disapproval may not be given
because (a) vacant space exists in the Building, (b) such proposed assignee
or sublessee is a tenant in the Building or has discussed tenancy in the
Building or any other building with the Landlord, or (c) the price or
rental rate of the proposed assignment or sublease. Failure of Landlord to
respond within such ten (10) day period shall constitute Landlord's
approval of such proposed assignee or sublessee. Upon the assignment of all
of Tenant's interest in this Lease to an assignee wherein the Rent to be
paid by the assignee equals, or exceeds the Rent payable under this Lease,
which assignment is approved by Landlord as aforesaid (including an
assignment to an affiliate, if such an affiliate is approved by Landlord,
although Tenant is not required to obtain approval of an assignment to an
affiliate [but if Tenant elects not to, it shall not be relieved of its
obligations under this Lease]), and delivery of a written assumption of
this Lease and the obligations hereunder by such assignee, Tenant shall be
relieved of all further obligations under this Lease except the obligation
to pay to the Landlord excess rent as provided in the next paragraph.
If Tenant shall assign or transfer its interest in this Lease or sublet the
Premises pursuant to this Section 16, then Tenant shall pay to Landlord as
additional rent immediately upon receipt under any such assignment or in
the case of a sublease on the first day of each month during the term of
any such sublease, one-half (1/2) of the excess of all rent over the sum of
(x) Base Rent plus Rent Adjustment then payable to Landlord under this
Lease for said month (or if only a portion of the Premises is being sublet,
the portion of the Base Rent plus Rent Adjustment then payable to Landlord
under this Lease for said month which is allocable on a square foot basis
to the space sublet) plus (y) an amount equal to the quotient of "Tenant's
Costs" as hereinafter defined incurred by Tenant in connection with said
sublease divided by the number of months in the term of such sublease. As
used in the preceding sentence, Tenant's Costs for such assignment or
sublease shall include the unamortized amount of improvements made at
Tenant's expense, alterations to the Premises in connection with such
assignment or sublease made at Tenant's expense, and leasing commissions,
rent concessions, advertising cost, and legal expenses in connection with
such assignment or sublease."
8. Paragraph 27 is hereby deleted and the following inserted in lieu
thereof:
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<PAGE>
"27. PARKING. Landlord represents to Tenant that the Building will include
approximately 56 parking spaces located in the Building's underground
garage. Tenant shall have the right to lease for the full term Tenant's
Proportionate Share of such parking spaces (which share shall be not less
than 12 spaces), at regular annual Building rates therefor, and in
locations designated by Landlord, such right to remain exercisable until
the Commencement Date, and to include the right to sublease to any
sublessee of space in the Premises or to employees or partners of such
sublessees or of Tenant. In addition, Tenant shall be entitled, at regular
annual Building rates therefor, to any parking spaces which were rented by
the immediately preceding tenants in space added to the Premises after the
Commencement Date. Tenant may give up such parking spaces, or any thereof,
so leased at any time(s) on not less than sixty (60) days' notice and shall
not have any rights for the number of spaces so given up at any time
thereafter. Notwithstanding the immediately preceding sentence, Tenant
shall have the right to sublease any parking spaces leased hereunder to
parties (including, but not limited to, car rental entities) selected by
Tenant, provided that (i) the rent charged for any parking spaces so
subleased is less than or equal to the rent charged Tenant by Landlord
therefor, and (ii) the use of the subleased parking spaces by the
sublessees thereof does not interfere with Landlord's operation of the
garage or use of the garage by other parking lessees."
9. Paragraphs 30A and 30B of the Lease are hereby deleted and the
following inserted in lieu thereof:
"A. Landlord hereby grants to Tenant the option to lease three additional
floors contiguous to the Premises designated by Landlord and located in the
Low-rise Section or Lower Mid-rise Section of the Building (as defined in
Sections 1F and 1G of this Lease) (the "6th Year Option Floors"). Tenant
may lease any or all of the 6th Year Option Floors commencing at some point
during the 6th Lease Year as determined by Landlord.
B. Landlord hereby grants to Tenant the further option to lease an
additional three floors contiguous to the Premises designated by Landlord
and located in the Low-rise Section or Lower Mid-rise Section of the
Building (as defined in Sections 1F and 1G of this Lease) ("11th Year
Option Floors"), which Option may be exercised whether or not Tenant has
taken any, all or none of the 6th Year Option Floors. Tenant may lease any
or all of the 11th Year Option Floors commencing at some point during the
11th Lease Year as determined by Landlord."
-6-
<PAGE>
10. The first sentence of Paragraph 30F of the Lease is hereby deleted
and the following inserted in lieu thereof:
"F. The Annual Base Rent for any Option Floor shall be ninety-five (95%)
of the "Market Rent" for such Option Floor as of the Option Commencement
Date for such Option Floor, determined by Landlord in accordance with
subparagraph G of this Paragraph 30."
11. Paragraph 31A of the Lease is hereby deleted and the following
inserted in lieu thereof:
"A. Landlord hereby grants to Tenant the first right of refusal during the
term of this Lease to lease any vacant or vacated rentable space in the
low-rise Section of the Building (as defined in Section 1F hereof), or the
Lower Mid-rise Section of the Building (as defined in Section 1G hereof).
Landlord shall include in any Lease of space in the Low-rise Section of the
Building or the Lower Mid-rise Section of the Building (other than a Lease
to American International Group or any affiliate thereof or entity related
thereto) a provision to the effect that in the event the tenant thereunder
attempts to assign such Lease, or attempts to sublease substantially all of
the space demised thereby for a term of either five (5) years or seventy-
five (75%) percent of the remaining term of such lease, whichever is less,
Landlord may terminate such lease and recapture the space demised thereby.
Any space so recaptured by Landlord shall be subject to the provisions of
this Paragraph 31, and prior to declining to recapture such space, Landlord
will offer such space to Tenant in accordance with the provisions of this
Paragraph 31."
12. The first sentence of Paragraph 33C of the Lease is hereby deleted
and the following inserted in lieu thereof:
"C. The Annual Base Rent during each such extended term shall be 95% of
the "Market Rent" for such Option Floor as of the commencement of such
extended Term, determined by Landlord in accordance with subparagraph D of
this Paragraph 33.
13. Paragraph 38 of the Lease is hereby deleted and the following inserted
in lieu thereof:
"38. TENANT'S RIGHT TO CONSTRUCT BRIDGES. Landlord in constructing the
Building and Premises pursuant to Paragraph 2A of this Lease shall insure
that at least one floor of the Premises will be capable of being connected
to roughly the equivalent floor of Tenant's own building commonly known at
50 South LaSalle Street ("50 S. LaSalle") by an enclosed
-7-
<PAGE>
pedestrian bridge whose slant and floor pitch will meet commonly accepted
standards for pedestrian traffic. Provided that (i) Tenant complies with
the provisions of Paragraph 8B of the Lease (except for Landlord's consent
to construction of a bridge, which consent is hereby given provided Tenant
complies with the provisions of this Paragraph 38, (ii) the design of each
such bridge is formulated in consultation with the Building engineer and
the Building architect, (iii) the structural integrity of each such bridge
is approved by the Building engineer (which approval shall not be
reasonably withheld), and (iv) the aesthetics of each such bridge are
approved by the Building architect (which approval shall not be
unreasonably withheld), who may not specify glass as being aesthetically
required, Tenant shall have the right to construct at its cost one or more
fully enclosed pedestrian bridges between a floor in the Premises and an
equivalent floor at 50 S. LaSalle. Tenant shall be responsible for
installing all necessary Building systems in the bridges and for heating,
cooling, insuring and maintaining the bridges and providing all necessary
security. Landlord shall cooperate with Tenant in obtaining the necessary
municipal and governmental permits, licenses and consents that may be
required in connection with construction of said bridges. The bridge space
shall not be included in Rentable Area for any purpose under the Lease. At
the end of the Lease term by lapse of time or otherwise, Tenant shall at
its sole expense remove each bridge in its entirety and repair the floor in
the Premises to which it was connected so that it is fully enclosed in like
manner to the other floors. In addition to the construction allowance
granted to Tenant pursuant to Paragraph 2C hereof, Landlord shall provide
Tenant an additional construction allowance of $125,000 to be applied in
reduction of the cost to Tenant of constructing one or more bridges
pursuant to this Section 38."
14. The following paragraph is hereby inserted in the Lease as Section 40:
"40. ADDITIONAL WORK TO BE PERFORMED BY LANDLORD.
A. Cafeteria. Landlord and Tenant acknowledge that Tenant may elect to
construct a cafeteria in the Premises for use by Tenant's employees and
invitees. Notwithstanding the provisions of Section 9M hereof, Landlord
shall not grant to any other lessee of space in the Building, or enter into
any other contract granting, an exclusive right to dispense food or
provide food service to the Building which limits or impairs in any way the
right of Tenant to operate a cafeteria or similar food service facilities
for its employees and invitees. Not less than four (4) months prior to the
Construction Commencement Date, Tenant shall
-8-
<PAGE>
designate one floor of the Premises which Tenant is considering using as a
cafeteria by written notice to Landlord, and shall specify in such notice
(i) the proposed size of the cafeteria, and (ii) the maximum number of
persons who will be permitted to occupy the cafeteria at any time. Landlord
and Tenant acknowledge that as a result of Tenant's election to construct a
cafeteria, Landlord may have to make certain modifications to its Base
Building plans and specifications to accommodate Tenant's cafeteria use of
a portion of the Premises, including provision for such items as one or
more additional exit stairways down from the floor on which the cafeteria
is located. The area of any floor space (whether within or outside of the
Premises) within the Building which is rendered unusable by reason of the
use of a portion of the Premises as a cafeteria, including the floor area
occupied by any additional exit stairways required to be constructed in
connection with such cafeteria, shall be included in the RSF of the
Premises. Landlord shall, at its expense, install a black iron duct with
dimensions of not less than two (2) feet by four (4) feet serving the floor
designated by Tenant, which Tenant shall be permitted to use in connection
with the operation of a cafeteria in the Premises. Except as expressly
provided in the immediately preceding sentence, any and all costs and
expenses associated with the installation of a cafeteria in the Premises,
including without limitation (i) changes or modifications to plans for the
Building previously prepared for Landlord, or (ii) increases in the cost of
constructing the Building occasioned by the use of a portion of the
Premises as a cafeteria (whether or not included in the direct cost of the
installation of the cafeteria), shall be deducted from the Allowance
granted Tenant pursuant to Section 2B hereof or paid by Tenant as provided
in Section 2E hereof."
B. Humidification. Landlord shall install a humidification system in the
Building serving the Premises (including, without limiting the generality
of the foregoing, the 6th year option floors, the 11th year option floors
and the right of first refusal floors described in Paragraph 31 hereof)
capable of maintaining a relative humidity level in the Premises of thirty
percent (30%). The cost of installing such a humidification system for the
Premises (or, if Landlord elects to install such a system serving the
entire Building, the pro rata share of the cost of such a system allocable
to the Premises) shall be deducted from the Allowance granted Tenant
pursuant to Section 2B hereof or paid by Tenant as provided in Section 2E
hereof.
C. Sprinkler Heads. Sprinkler heads, in the quantity provided for in the
description of Building Standard Work
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<PAGE>
attached hereto as Exhibit C, shall be positioned within the Premises as
provided in the Plans as part of the Building Standard Work; provided,
however, that the cost of any additional sprinkler heads required by the
Plans or by applicable law in excess of the building standard quantity
shall be deducted from the Allowance granted Tenant pursuant to Section 2B
hereof or paid by Tenant as provided in Section 2E hereof.
D. Underfloor Duct System. Landlord shall install an underfloor duct
system (the "Duct System") throughout the Premises, including, without
limiting the generality of the foregoing, the 6th year option floors, the
11th year option floors and the right of first refusal floors described in
Paragraph 31 hereof. The design of the Duct System and the plans and
specifications therefor shall be submitted to Tenant for its approval in
accordance with the Schedule. Tenant shall have the right to approve the
subcontractors for, and to require competitive bids for, the installation
of the Duct System in accordance with the provisions of Section 2F hereof.
The first Two Hundred Fifty Thousand Dollars ($250,000) of costs and
expenses associated with the design and installation of the Duct System,
including without limitation (i) the cost of preparing additional plans or
making changes or modifications to plans for the Building previously
prepared for Landlord required for the Duct System, or (ii) increases in
the cost of constructing the Building occasioned by the installation of the
Duct System but not included in the bids for the installation of the Duct
System such as structural changes or additional fireproofing work, shall be
borne and paid by Landlord; the balance of such costs and expenses
associated with the design and installation of the Duct System shall be
deducted from the Allowance granted Tenant pursuant to Section 2B hereof or
paid by Tenant as provided in Section 2E hereof. In the event this Lease is
terminated pursuant to Section 17 hereof, that portion of the cost of the
Duct System so deducted from the Allowance or paid by Tenant shall be
included in the Tenant Casualty Amount. Alterations to that portion of the
interior electrical system for the Premises installed in the Duct System
which do not affect the ceilings, the HVAC system, or any other system
servicing the Premises or any other portion of the Building, shall not
require the consent of Landlord hereunder. The wiring installed in the Duct
System shall, for purposes of Section 15C of the Lease, be deemed to be
equipment of Tenant that Landlord and Tenant have agreed may be removed
from the Premises by Tenant upon the termination of this Lease.
E. Secured Vertical Shaft. Landlord will install, for the exclusive use
of Tenant, a secured vertical shaft with dimensions of not less than
eighteen (18) inches by twenty-
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<PAGE>
four (24) inches accessible from each floor in the Low-Rise Section and the
Lower Mid-Rise Section of the Building. The location of such vertical shaft
shall be agreed upon by Landlord and Tenant as provided in the Schedule.
The area of any floor space (whether within or outside of the Premises)
within the Building which is rendered unusable by reason of the
installation of such vertical shaft shall be included in the RSF of the
Premises. All costs and expenses associated with the design and
installation of such vertical shaft, including without limitation (i)
changes or modifications to plans for the Building previously prepared for
Landlord, or (ii) increases in the cost of constructing the Building
occasioned by the installation of the vertical shaft but not included in
the direct cost of the installation of the vertical shaft, shall be
deducted from the Allowance granted Tenant pursuant to Section 2B hereof or
paid by Tenant as provided in Section 2E hereof."
15. The following paragraph is hereby inserted in the Lease as Section 41:
"41. TENANT CONCESSION ACCOUNT. Upon the opening of the construction loan
for the Building, Landlord shall establish a non-interest bearing account
with The Northern Trust Company, or such other bank as may be designated by
Tenant, and shall deposit the sum of Three Million Dollars ($3,000,000)
therein. The funds held in such account shall be used to pay any and all
expenses and obligations of Tenant (including without limitation rent
payments) under that certain Lease dated November 27, 1987 by and between
Harris Trust and Savings Bank Trust No. 40649, as Landlord, and Tenant, as
tenant. Landlord shall cause any such expenses to be promptly paid from
such account upon the submission to Landlord by Tenant of a statement,
invoice or other written request of Tenant that such payment be made;
provided, however, that nothing in this Paragraph 41 shall be deemed or
construed as the assumption by Landlord of the obligations of Tenant as
tenant under the Lease described in this Section 41."
16. The following paragraph is hereby inserted in the Lease as Section 42:
"42. CONSTRUCTION SUPERVISION SERVICES.
A. Landlord and Tenant acknowledge that prior to and during the
construction of the Premises, Landlord will provide Tenant with certain
construction supervision services including review and approval of the
Plans and supervision of the construction of the Premises and the
installation of the tenant improvements for the Premises; in the event
that, after completion of the Premises, Tenant
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<PAGE>
determines to make alterations or additions to the Premises as provided in
Section 8B hereof, Landlord shall also provide construction supervision
services in connection with such alterations or additions.
B. Prior to the issuance of the building permit for the construction of the
Premises, such construction supervision services shall be performed by
Landlord and its employees and representatives at no cost to Tenant. After
the issuance of the building permit for the Premises, Landlord shall charge
Tenant a reasonable fee for such construction supervision services;
provided, however, that the total fees payable to Landlord by Tenant for
such construction supervision services shall not exceed one and one-half
percent (1 1/2%) of the cost of construction of the Premises and the
installation of the tenant improvements therein. In the event that an
affiliate of Landlord shall act as the general contractor for the
construction of the Premises, the fee for construction supervision services
payable pursuant to this Section 42B shall be in addition to, and not in
lieu of, the fee payable to such general contractor.
C. In the event that, after the completion of the Premises, Tenant
determines to make alterations or additions to the Premises as provided in
Section 8B, Landlord shall charge Tenant a reasonable fee for construction
supervision services associated with such alterations or additions;
provided, however, that the total fees payable to Landlord by Tenant for
such construction supervision services shall not exceed fifteen percent
(15%) of the cost of construction of such alterations or additions. In the
event that an affiliate of Landlord shall act as the general contractor for
such alterations or additions, the fee for construction supervision
services payable pursuant to this Section 42C shall be in addition to, and
not in lieu of, the fee payable to such general contractor. In addition, if
at any time Tenant requests additional or special services such as
cleaning, after hours air conditioning, or the like, Landlord's fee for
furnishing these services shall not exceed 15% of the cost of furnishing
such services."
17. The following paragraph is hereby inserted in the Lease as Paragraph
43:
"43. RIGHT OF FIRST OFFER UPON SALE OF THE BUILDING.
A. Unsolicited Offer from Third Party.
(i) In the event Landlord shall receive (other than pursuant to
Subparagraph 43C) an offer from a third party to purchase the Building and
Land (hereinafter in this Paragraph 43 jointly referred to as "Real
Estate") which
-12-
<PAGE>
Landlord desires to accept ("Third Party Offer"), Landlord shall by written
notice to Tenant (accompanied by a true, correct and complete copy of the
Third Party Offer) offer the same Real Estate for sale to Tenant ("Tenant
Offer") for the same price, on the same terms and subject to the same
conditions as is set forth in the third Party Offer.
(ii) Tenant shall have a period of fifteen (15) days after delivery of
the Tenant Offer in which to deliver to Landlord a written notice of
Tenant's election to purchase the Real Estate for the purchase price, on
the terms and subject to the conditions set forth in the Tenant Offer;
provided, however, if within said 15-day period, Tenant delivers to
Landlord written approval by Tenant's management committee, subject to
appraisal and board approval, that Tenant will elect to purchase the Real
Estate for the purchase price and on the terms and conditions set forth in
the Tenant Offer, such 15-day period shall be extended by an additional
period of fifteen (15) days. During said 15-day or 30-day period, as the
case may be, Landlord shall not accept the Third Party Offer unless its
acceptance shall be expressly subject to the rights of Tenant under this
Paragraph 43A. If Tenant elects to accept the Tenant Offer, it shall submit
to Landlord within said 15-day or 30-day period, as the case may be, a
purchase and sale agreement executed by Tenant pursuant to which Tenant
shall agree to purchase the Real Estate for the price, upon the terms and
subject to the conditions provided in the Tenant Offer, which purchase and
sale agreement shall be accompanied by an earnest money deposit if and to
the extent so provided in the Third Party Offer, whereupon Landlord shall
promptly execute and return to Tenant a counterpart of said purchase and
sale agreement.
(iii) If Tenant fails to deliver such notice of acceptance, executed
purchase agreement and earnest money within said 15-day or 30-day period,
as the case may be, then, in such event, Tenant's rights under
Subparagraphs 43A and 43B shall terminate and be of no further force and
effect, and Landlord may sell the Real Estate in accordance with the Third
Party Offer and consummate a sale in accordance with the Third Party Offer
free of any rights of Tenant under this Paragraph 43; provided, however, if
Landlord fails to consummate a sale of the Real Estate before the later of
(a) the date set for closing in the Tenant Offer, or (b) six months after
the expiration and termination of Tenant's rights under this Subparagraph
43A, then, unless Landlord shall have complied with the procedure set forth
in Paragraph 43B, in which event each of Landlord and Tenant shall have
only the rights set forth in said Paragraph 43B, Tenant's rights under this
Subparagraph 43A shall be reinvested.
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<PAGE>
B. Offering of the Real Estate for Sale.
(i) In the event that, at any time during the term of this Lease,
Landlord intends to sell the Real Estate, Landlord shall deliver written notice
of its intention ("Notice of Intent") to Tenant in advance of any such offering.
Tenant shall have a period of thirty (30) days following delivery of the Notice
of Intent to Tenant within which to advise Landlord by written notice ("Notice
of Interest") that Tenant is interesting in negotiating with Landlord for the
purchase the Real Estate, and up to 60 days following delivery of the Notice of
Intent within which to execute a real estate purchase contract for the Real
Estate with Purchaser, and during said 60-day period: (a) Landlord shall refrain
from actively marketing the Real Estate for sale to a third party; (b) Landlord
shall furnish to Tenant such information as Tenant may reasonably request
relative to the Real Estate, including the status of title and a then current
operating statement and rent roll, copies of all tenant leases and a preliminary
title report for the Real Estate; and (c) Landlord and Tenant shall attempt in
good faith to agree upon terms and conditions upon which Landlord shall sell and
Tenant shall purchase the Real Estate, and to memorialize such agreement in a
real estate sale contract for the Real Estate.
(ii) If (a) Tenant fails to deliver the Notice of Interest within
thirty (30) days following delivery of the Notice of Intent, or (b) Landlord and
Tenant are unable to agree for any reason upon the terms upon which Landlord
shall sell and Tenant shall purchase the Real Estate within sixty (60) days
following delivery of the Notice of Intent, or (c) Landlord and Tenant are
unable to agree for any reason upon the terms of a real estate sale contract for
the Real Estate within sixty (60) days following delivery of the Notice of
Intent, or (d) Tenant fails to execute and deliver the negotiated real estate
sale contract for the Real Estate, together with the earnest money required
thereunder, within sixty (60) days following delivery of the Notice of Intent,
Landlord may within one hundred eighty (180) days thereafter offer the Real
Estate for sale in accordance with subparagraph (iii) below. If Landlord fails
to offer the Real Estate for sale in accordance with subparagraph 3 below within
such 180-day period then, subject to Paragraph 43A, Tenant's rights under this
Paragraph 43B shall be reinstated.
(iii) Prior to offering to sell the Real Estate to a third party, Landlord
shall advise Tenant of the price and the other terms and conditions upon which
Landlord intends to offer the Real Estate for sale ("Offered Terms") by
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<PAGE>
delivery to Tenant of a real estate sale contract for the Real Estate
setting forth Offered Terms, whereupon Tenant may elect, within three (3)
days after receipt of such notice from Landlord, to purchase the Building
upon the Offered Terms by executing and delivering to Landlord such real
estate sale contract containing the Offered Terms, together with the
earnest money required thereunder. If Tenant shall fail to timely elect to
purchase the Building on the Offered Terms aforesaid, Tenant's rights under
Subparagraph 43A and Subparagraph 43B shall terminate and be of no further
force and effect and Landlord may offer the Real Estate for sale and
contract for and consummate a sale of the Real Estate (whether upon the
Offered Terms or otherwise) free of any rights of Tenant under this
Paragraph 43; provided, however, if Landlord fails to consummate a sale of
the Real Estate within twenty-four (24) months after the expiration and
termination of Tenant's rights under this Subparagraph 43B, then, subject
to Subparagraph 43A, Tenant's rights under this Subparagraph 43B shall be
reinstated.
C. The restrictions set forth in this Paragraph 43 shall not apply to a
proposed sale of the Real Estate to American International Group, or any
other joint venture partner in the ownership of the Building, or mortgage
of the Real Estate having a participating mortgage or similar right to
share in profits derived from the sale or refinancing of the Real Estate
(each such party being hereinafter referred to as a "Participant"), or any
entity controlled by, controlling or under common control with any
Participant, or to any sale or transfer between any of any Participant, Lee
Miglin and J. Paul Beitler or any affiliates thereof."
18. The following paragraph is hereby inserted in the Lease as Section 44:
"44. LEASING COMMISSIONS. Landlord and Tenant acknowledge that Scribcor,
Inc. ("Scribcor") has acted as an intermediary in connection with this
Lease and the lease of space in the Building from Landlord to Tenant
hereunder. Any and all leasing commissions payable to Scribcor on account
of the lease of the Original Premises from Landlord to Tenant shall be paid
by Landlord. The leasing commissions payable to Scribcor in connection with
the lease by Tenant of the Additional Premises total $581,700, as set forth
in a letter dated April 21, 1987, a copy of which is attached hereto as
Exhibit 1; Tenant hereby assumes any and all liability for the leasing
commissions payable to Scribcor on account of Tenant's lease of the
Additional Premises, and agrees to indemnify Landlord and hold Landlord
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<PAGE>
harmless from and against any and all liability which may be asserted or
recovered against landlord by Scribcor for leasing commissions arising out
of Tenant's lease of the Additional Premises, including reasonable
attorneys fees."
19. Neither Tenant, nor Landlord and its beneficiaries shall issue any
press release or make any other public disclosure or announcement of the
transactions which are the subject of this Amendment without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld or delayed; provided, however, that the foregoing
shall not be construed to limit or impair the rights of Landlord or its
beneficiary to disclose the transactions which are the subject of this
Amendment to prospective lenders, attorneys, accountants and other parties
consulted or retained by Landlord in connection with the development of the
Building.
20. As amended herein, the Lease shall remain in full force and effect
and, except as expressly amended herein, shall be unaffected hereby. In the
event of any conflict between the provisions of this Amendment and the
provisions of the Lease, the provisions of this Amendment shall control.
21. This Second Amendment to Agreement of Lease is executed by
American National Bank and Trust Company, not personally, but in the
exercise of the power and authority conferred upon and vested in it as
Trustee. It is expressly understood and agreed that nothing herein shall be
construed as creating any liability whatsoever against Trustee personally;
and in particular, without limiting the generality of the foregoing, there
shall be no personal liability to pay any indebtedness accruing hereunder
or to perform any covenant, either express or implied, herein contained, or
to keep, preserve, or sequester any property and all personal liability of
every sort, if any, is hereby expressly waived by said Tenant, and by every
person now or hereafter claiming any right or security hereunder; and that,
so far as the Trustee is concerned, the owner of any indebtedness or
liability accruing hereunder shall look solely to the assets of said
property and the proceeds thereof for the payment thereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
LANDLORD: AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, not individ-
ually, but solely as Trustee under
Trust Agreement dated August 21,
1985 and known as Trust No. 65287
By: /s/ J. MICHAEL WHELAN
------------------------------
Title: Vice President
Attest: /s/
--------------------------
Assistant Secretary
TENANT: THE NORTHERN TRUST COMPANY
By: /s/ STEPHEN KARDEL
------------------------------
Title: Vice President
-17-
<PAGE>
CONSENT TO AMENDMENT
The undersigned, Madison Plaza II Partnership, the sole beneficiary of
Landlord and a joint obligor with Landlord with respect to certain covenants
imposed upon Landlord pursuant to the Lease, and Mellon Bank, N.A., the
collateral assignee of the Lease, hereby consent to the foregoing Amendment.
MADISON PLAZA II PARTNERSHIP,
an Illinois general partnership
By: /s/ LEE A. MIGLIN
------------------------------
Lee A. Miglin, general partner
By: /s/ J. PAUL BEITLER
------------------------------
J. Paul Beitler, general partner
MELLON BANK, N.A.
By: /s/ MARTHA LIA FROST
-------------------------------
Title: Assistant Vice President
<PAGE>
EXHIBIT 1
Madison Plaza
200 West Madison Street
Chicago, Illinois 60606
312-726-1700
REGISTRATION AND COMMISSION AGREEMENT
April 21, 1987
Mr. Richard Ross, Jr.
Vice President
Scribcor, Inc.
120 W. Madison St.
Suite 1200
Chicago, IL 60602
Dear Dick:
The following is our Registration and Commission Agreement with regard to the
Madison Plaza Three Building, Chicago, Illinois.
If your prospective tenant, The Northern Trust Co., registered by Scribcor, Inc.
consummates a lease for space in the Madison Plaza Three Building, through your
efforts, Madison Plaza Corporation will pay or cause the owner to pay a
brokerage commission at a rate of seven percent (7%) of the first year's rent
and two percent (2%) of the aggregate rent for the remainder of the lease term.
For purposes of this Agreement, the first year's rent shall be deemed to be the
average annual base rent payable over the entire term of the lease after
deductions of rent abatement if any, and any further concessions granted to the
tenant, and without regard to rental adjustment or rental escalation payments
for increases in operating expenses or real estate taxes.
One half of the commission shall be payable within 30 days from execution of the
lease document and start of building construction and the remainder payable 30
days after occupancy by the tenant.
This Agreement will be null and void and of no further force or effect in the
event any of the following does not occur:
1. The prospect is brought to the property or sales office for a personal
inspection by the registrant in the presence of the building leasing
agent.
2. That active and meaningful negotiations take place culminating in the
consummation of the lease.
<PAGE>
April 21, 1987
Page Two
3. That the registrant is the procurring cause for said lease.
4. That the prospect agrees to recognize the registrant by indemnifying
Madison Plaza Corporation and the owner against any future commission,
claims or litigation as a result of the lease transaction.
5. Notwithstanding the above, if another licensed broker or duly
authorized individual is properly designated by the prospect to
represent them, and said party claims or is entitled to a commission,
Madison Plaza Corporation will recognize only that licensed broker or
duly authorized individual having a letter or authorization signed by
the prospect.
If for any reason that tenant fails to occupy the premises, you agree to return
all commission monies paid at the time of lease execution.
No commission will be paid on options for additional space, unless said space is
taken prior to initial occupancy by the tenant, nor will commissions be paid on
lease renewals.
No commission will be paid on charges factored into the rent, i.e. electricity,
periods of free rent, or any above building standard allowances or concessions
amortized over the term of the lease to accommodate the tenant.
Commissions will only be paid for the initial term of the lease, and in no event
for a period longer than fifteen (15) years. In the event the tenant has an
option to terminate the lease, commissions will only be paid to the termination
date.
The commission which will become due and payable under this agreement covers
space to be leased by Northern Trust in addition to the space provided for in
the lease agreement dated August 21, 1985.
Your further act in submitting your prospect will acknowledge your acceptance of
our commission policy.
Sincerely
MIGLIN-BEITLER DEVELOPMENTS
/s/ J. PAUL BEITLER
J. Paul Beitler
President
JPB:pam
cc: Lee Miglin
<PAGE>
EXHIBIT NUMBER (10)(xvi)(3)
TO 1995 FORM 10-K
GG8224A-348/mbr
5/11/88
THIRD AMENDMENT TO AGREEMENT OF LEASE
-------------------------------------
THIS AMENDMENT, made and entered into as of May 20, 1988 by and
between American National Bank and Trust Company of Chicago, as Trustee under
Trust Agreement, dated August 21, 1985 and known as Trust 65287 ("Landlord")
and The Northern Trust Company, an Illinois banking corporation ("Tenant").
WITNESSETH: THAT
WHEREAS, Landlord and Tenant are parties to a certain Agreement of
Lease dated as of August 27, 1985; and
WHEREAS, the Agreement of Lease was amended by that certain First
Amendment to Agreement of Lease dated as of August 15, 1986 and by that certain
Second Amendment to Agreement of Lease dated as of August 6, 1987 (as so
amended, the "Lease"); and
WHEREAS, Landlord and Tenant desire to further amend the Lease as
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The following is inserted at the end of, and as part of, the last
full paragraph of Paragraph 2C of the Lease:
"Notwithstanding Tenant's right to exclude certain portions of the Premises
from the Plans for improvement at a future date (the "Excluded Space"), the
Term (as defined in Paragraph 3 hereof) of this Lease shall be deemed to
have commenced as to the Excluded Space on the earlier to occur of (a) the
date Tenant has received the certificate of the Architect that the Building
has been substantially completed and Tenant has received the certificate of
the Architect and Tenant's Space Planner that the Premises other than the
Excluded Space have been substantially completed pursuant to the Plans; or
(b) the date Tenant takes occupancy of the Excluded Space."
<PAGE>
2. The last three lines of Paragraph 6 of the Lease are hereby
deleted, and the following inserted in lieu thereof:
"and, provided further, Tenant has delivered to Landlord certificates
evidencing insurance (which insurance shall in all respects and at all
times comply with the provisions of Paragraph 17C hereof) against any
liability of Landlord arising from serving of alcoholic beverages in the
Premises."
3. Paragraph 21 of the Lease is hereby deleted, and the following
inserted in lieu thereof:
"21. Subordination. This Lease shall be prior to any mortgage or ground or
underlying lease, provided, however, Tenant agrees to subordinate its
rights hereunder at all times to (i) the lien of any mortgage or mortgages
designated by Landlord and all advances made or thereafter made upon the
security thereof, and (ii) to all future ground or underlying leases of the
Land and the Building designated by the Landlord and to execute any such
agreements evidencing such subordination as may be required by the
mortgagee or ground or underlying lessor, as the case may be, and to attorn
to and to recognize, as Landlord, the purchaser at a foreclosure sale or
the mortgagee or its nominee in the event the mortgagee or such nominee
accepts a deed in lieu of foreclosure, or the ground or underlying lessor
in the event of termination of such underlying or ground lease in return
for and upon delivery to Tenant by such purchaser or such mortgagee or its
nominee or the ground or underlying lessor, as the case may be, of an
agreement providing that in the event of a foreclosure of such mortgage or
the giving of the deed in lieu of foreclosure or a termination of such
ground or underlying lease, this Lease shall not be terminated and Tenant
may remain in possession of the Premises pursuant to the terms of this
Lease and retain all the rights, options and privileges granted to it
hereunder as long as Tenant is not in default hereunder and continues to
perform its obligations hereunder and further providing that the purchaser
at a foreclosure sale or transferee in the case of a deed given in lieu of
foreclosure or ground or underlying lessor, as the case may be, will assume
all of the obligations of the Landlord in such case; provided, however,
that in no event shall the mortgagee, said purchaser at a foreclosure sale,
said transferee in the case of a deed given in lieu of foreclosure or
ground or
-2-
<PAGE>
underlying lessor, as the case may be, have any personal liability
whatsoever hereunder for its own acts or omissions or obligations; and
further provided that the mortgagee, said purchaser at a foreclosure sale
or said transferee in the case of a deed given in lieu of foreclosure or
ground or underlying lessor, as the case may be, shall also have no
personal liability for the acts or omissions or obligations of Landlord
arising or to be performed prior to any such sale or transfer of the Land
or Building to such party including, without limitation, any liability for
any deposits made by the Tenant hereunder, unless such deposits have been
transferred to such party; and provided, further, that the mortgagee, said
purchaser at a foreclosure sale, said transferee in the case of a deed
given in lieu of foreclosure or ground or underlying lessor, as the case
may be, shall be subject to any offsets or defenses which Tenant might have
against any prior Landlord pursuant to Tenant's rights as set forth in
Paragraph 35 hereof. Such agreement may, among other things, require the
Tenant to notify the mortgagee or the ground or underlying lessor of any
default by the Landlord and afford such a mortgagee a reasonable
opportunity to cure such default prior to any termination of this Lease by
Tenant provided that the Premises are reasonably usable by Tenant for its
normal business activities. Tenant further agrees that, except as to
secondary mortgage financing expressly permitted in such mortgage or ground
or underlying lease, it will not, without the consent of the mortgagee or
ground or underlying lessor, as the case may be, voluntarily subordinate
this Lease to any lien or encumbrance without the consent of said mortgagee
or ground or underlying lessor, as the case may be. To fulfill Tenant's
obligations under the provisions of this Paragraph 21, Tenant agrees that
it will execute a Subordination, Non-Disturbance and Attornment Agreement
in the form attached to this Lease as Exhibit G."
4. The second full paragraph of Paragraph 25 of the Lease is hereby
deleted, and the following inserted in lieu thereof:
"The term "Landlord" as used in this Lease means only the owner or the
mortgagee in possession (including anyone claiming any title or any
interest in the Land or the Building by, through or under said mortgagee)
for the time being of the Land and the Building (or the owner of a lease of
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<PAGE>
the Building or of the Land and the Building) of which the Premises form a
part, so that in the event of any sale or sales (including a sale or
transfer arising by virtue of a foreclosure of any mortgage of the Land or
the Building or any deed given in lieu of foreclosure thereof) of the Land
and the Building or of said lease, or in the event of a lease of the
Building, or the Land and the Building, except for the obligations set
forth in Paragraph 36, Landlord shall be and hereby is entirely free and
relieved of all covenants and obligations of Landlord thereafter to be
performed hereunder, provided any purchaser, transferee or lessee of the
Building, or of the Building and the Land has, subject to the provisions of
Paragraph 21 hereof, assumed and agreed to carry out any and all covenants
and obligations of Landlord hereunder thereafter to be performed."
5. The following sentence is hereby added at the end of and as a part
of Paragraph 36B of the Lease:
"Notwithstanding the foregoing provisions of this paragraph, Tenant shall
have no right to terminate this Lease as aforesaid provided in the event
Landlord's interest in the Land or Building or this Lease, or all of the
aforesaid, is transferred and Landlord or its affiliate does not remain the
developer and manager of the Building, all as a result of a mortgage
foreclosure sale of any mortgage of the Land or the Building or a deed
given in lieu of foreclosure thereof during the period commencing on the
date of execution of this Lease and expiring one (1) year after the
Commencement Date of this Lease."
6. The following sentence is inserted at the end of and as part of
Paragraph 43C of the Lease:
"Further, the rights of Tenant and restrictions set forth in this Paragraph
43 shall also not apply to any sale or transfer of the Land or Building
pursuant to a mortgage foreclosure sale of any mortgage of the Land or
Building or any deed given in lieu of foreclosure thereof but shall
thereafter apply to any transfer by the purchaser who took title at said
mortgage foreclosure sale including the holder of said mortgage or its
nominee who took title by virtue of said mortgage foreclosure sale or deed
in lieu of foreclosure thereof."
-4-
<PAGE>
7. As amended herein, the Lease shall remain in full force and effect
and, except as expressly amended herein, shall be unaffected hereby. In the
event of any conflict between the provisions of this Amendment and the
provisions of the Lease, the provisions of this Amendment shall control.
8. This Third Amendment to Agreement of Lease is executed by American
National Bank and Trust Company, not personally, but in the exercise of the
power and authority conferred upon and vested in it as Trustee. It is expressly
understood and agreed that nothing herein shall be construed as creating any
liability whatsoever against Trustee personally; and in particular, without
limiting the generality of the foregoing, there shall be no personal liability
to pay any indebtedness accruing hereunder or to perform any covenant, either
express or implied, herein contained, or to keep, preserve, or sequester any
property and all personal liability of every sort, if any, is hereby expressly
waived by said Tenant, and by every person now or hereafter claiming any right
or security hereunder; and that, so far as the Trustee is concerned, the owner
of any indebtedness or liability accruing hereunder shall look solely to the
assets of said property and the proceeds thereof for the payment thereof.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
LANDLORD:
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, not individ-
ually, but solely as Trustee under
Trust Agreement dated August 21,
1985 and known as Trust No. 65287
By: /s/ J. MICHAEL WHELAN
------------------------------
Title: Vice President
-----------------------
Attest:
/s/ RICHARD ANDERSON
- -----------------------------------
Asst. Secretary
TENANT:
THE NORTHERN TRUST COMPANY
By: /s/ STEPHEN KARDEL
------------------------------
Title: Vice President
Attest:
/s/ JOHN B. SNYDER
- -----------------------------------
Secretary
-6-
<PAGE>
(TRUSTEE ACKNOWLEDGMENT)
STATE OF )
) SS
COUNTY OF )
I, KULA DAVIDSON, a Notary Public in and for said County in the State
aforesaid, DO HEREBY CERTIFY THAT J. MICHAEL WHELAN and RICHARD ANDERSON
personally known to me and known by me to be the Vice President and Assistant
Secretary, respectively, of American National Bank and Trust Company, in whose
name, as Trustee, the above and foregoing instrument is executed, appeared
before me this day in person and acknowledged that they signed and delivered the
said instrument as their free and voluntary act and as the free and voluntary
act of said American National Bank and Trust Company, as Trustee as aforesaid,
for the uses and purposes therein set forth, and the said Vice President and
Assistant Secretary then and there acknowledged that they, as custodian of the
corporate seal of said American National Bank and Trust Company did affix the
said corporate seal to said instrument as their free and voluntary act and as
the free and voluntary act of said American National Bank and Trust Company, as
Trustee as aforesaid, for the uses and purposes therein set forth.
GIVEN under my hand and Notarial Seal this seventh day of July, 1988.
/s/ KULA DAVIDSON
---------------------------------
Notary Public
My Commission Expires:
- ----------------------------------
____________________________________
| "OFFICIAL SEAL" |
| Kula Davidson |
| Notary Pubic, State of Illinois |
| My Commission Expires 12/26/90 |
|__________________________________|
-7-
<PAGE>
(DOMESTIC CORPORATION ACKNOWLEDGEMENT)
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, VICTORIA ANTONI, a Notary Public in and for said County, in the
State aforesaid, DO HEREBY CERTIFY THAT STEPHEN KARDEL and JOHN B. SNYDER
personally known to me to be the Vice President and Secretary, respectively, of
The Northern Trust Company, an Illinois banking corporation, and 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 said instrument as Vice President and
Secretary of said corporation, and caused the corporate seal of said corporation
to be affixed thereto, pursuant to the authority given by the Board of Directors
of said corporation, as their free and voluntary act and as the free and
voluntary act and deed of said corporation, for the uses and purposes therein
set forth.
GIVEN under my hand and Notarial Seal this 20th day of May, 1988.
/s/ Victoria Antoni
---------------------------------
Notary Public
My Commission Expires:
7-25-91
- ----------------------------------
________________________________________
| "OFFICIAL SEAL" |
| Victoria Antoni |
| Notary Public, Cook County, Illinois |
| My Commission Expires July 25, 1991 |
|_______________________________________|
-8-
<PAGE>
CONSENT TO AMENDMENT
The undersigned, Madison Plaza II Partnership, the sole beneficiary of
Landlord and a joint obligor with Landlord with respect to certain covenants
imposed upon Landlord pursuant to the Lease, and Mellon Bank, N.A., a national
banking association, the collateral assignee of the Lease, hereby consent to the
foregoing Amendment.
MADISON PLAZA II PARTNERSHIP,
an Illinois general partnership
By: /s/ Lee A. Miglin
-----------------------------------
Lee A. Miglin, general partner
By: /s/ J. Paul Beitler
-----------------------------------
J. Paul Beitler, general partner
MELLON BANK, N.A., a national
banking association
By: /s/ Carol A. Bertocchi
------------------------------------
Title: Officer
Attest:
/s/ Bruce A. Ostrom
- ----------------------------------
Assistant Vice President
-9-
<PAGE>
(DOMESTIC CORPORATION ACKNOWLEDGEMENT)
COMMONWEALTH OF PENNSYLVANIA )
) SS.
OF ALLEGHENY )
I, , a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY THAT CAROL A. BERTOCCHI and BRUCE A. OSTROM
personally known to me to be the Officer and Asst. Vice President, respectively,
of Mellon Bank, N.A., a national banking association, and 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 said instrument as Officer and Asst. Vice President of
said association, and caused the corporate seal of said association to be
affixed thereto, pursuant to authority given by the Board of Directors of said
association as their free and voluntary act and as the free and voluntary act
and deed of said association for the uses and purposes therein set forth.
Given under my hand and Notarial Seal this 24th day of June, 1988.
/s/ Doris Jean Black
----------------------------------
Notary Public
My Commission Expires:
DORIS JEAN BLACK, NOTARY PUBLIC
PITTSBURGH, ALLEGHENY COUNTY
MY COMMISSION EXPIRES APRIL 9, 1990
Member, Pennsylvania Association of Notaries
-10-
<PAGE>
GG8228A-348/mbr
5/11/88
EXHIBIT G
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT, made this day of , 19 between The Northern
Trust Company, an Illinois banking corporation with offices at
(hereinafter called "Tenant"), CIGNA Investments, Inc., a Connecticut
corporation having its principal office and place of business at 900 Cottage
Grove Road, Bloomfield, Connecticut or its nominee (hereinafter called
"Lender"), and American National Bank and Trust Company of Chicago, not
personally, but as Trustee under Trust Agreement dated August 21, 1985 and known
as Trust No. 65287 (hereinafter referred to as "Landlord").
WITNESSETH:
----------
WHEREAS, the Tenant has entered into a certain lease (the "Lease") dated
, with Landlord covering premises within a certain building known
as (the "Premises"); and more particularly described in
Exhibit "A" attached hereto and incorporated herein; and
WHEREAS, the Lender has agreed to make a loan secured by a mortgaged (the
"Mortgage") to the Landlord, (is currently the holder of a mortgage covering the
Premises pursuant to a Mortgage Deed dated , and recorded
in Mortgage Book , Page in (the "Mortgage")
securing a loan to the Landlord); and
WHEREAS, it is to the mutual benefit of the parties hereto that Lender make
such loan to Landlord; and
WHEREAS, it is a condition precedent to obtaining said loan or was a
condition of said loan, that said Mortgage securing said loan be a lien or
charge upon the Premises unconditionally prior and superior to the Lease and
leasehold interest of Tenant; and
WHEREAS, Tenant acknowledges when it is recorded that said Mortgage
constitutes, or will constitute, a lien or charge upon the Premises which is, or
should be, unconditionally prior and superior to the Lease and leasehold
interest of Tenant; and
<PAGE>
WHEREAS, Lender has been requested by Tenant and by Landlord to enter into
a non-disturbance agreement with Tenant;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties hereto mutually covenant and agree as
follows:
1. The Lease and any extensions, renewals, replacements or modifications
thereof, and all of the right, title and interest of the Tenant in and to said
Premises are and shall be subject and subordinate to the Mortgage and to all of
the terms and conditions contained herein, and to any renewals, modifications,
replacements, consolidations and extensions thereof; and, pursuant to Paragraph
43C of the Lease, Lender may exercise its right to purchase the Premises
pursuant to the Mortgage before Tenant may exercise its right to purchase the
Premises pursuant to Paragraph 43 of the Lease. In the event that Lender shall
not elect to exercise its prior right to purchase the Premises pursuant to the
Mortgage, and Tenant thereafter does elect to purchase the Premises pursuant to
Paragraph 43 of the Lease, then such exercise by Tenant of its right to purchase
the Premises pursuant to Paragraph 43 of the Lease shall in all events be
subject and subordinate to the terms and conditions of the Mortgage. Tenant
agrees that Tenant's right to purchase the Premises set forth in Paragraph 43 of
the Lease shall not apply to any transfer of the Premises pursuant to a mortgage
foreclosure sale or deed given in lieu of foreclosure thereof. Lender agrees
that Tenant's right to purchase the Premises as set forth in Paragraph 43 of the
Lease shall apply to (a) any subsequent transfer by Lender of the Premises in
the event Lender has acquired title to the Premises pursuant to Lender's right
to purchase the Premises as set forth in the Mortgage (and in the event Tenant
does so then exercise its right to purchase the Premises, such exercise shall in
all events be subject and subordinate to the Mortgage if said Mortgage is then
in effect); and (b) any subsequent transfer by the purchaser who took title to
the Premises at said mortgage foreclosure sale including the holder of the
Mortgage or its nominee who took title by virtue of said mortgage foreclosure
sale or deed in lieu of foreclosure thereof (and in the event Tenant does so
then exercise its right to purchase the Premises, such exercise shall in all
events be subject and subordinate to the Mortgage if said Mortgage is then in
effect).
2. Lender consents to the Lease and, in the event of foreclosure of said
Mortgage, or in the event Lender comes into possession or acquires title to the
Premises as a result of the enforcement of foreclosure of the Mortgage or the
note secured thereby, or as a result of any other means, Lender agrees to
recognize Tenant and
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<PAGE>
further agrees that it will not terminate the Lease nor disturb Tenant's
possession of the Premises so long as Tenant is not in default under any of the
terms, covenants or conditions of the Lease.
3. Tenant agrees with Lender that if the interests of Landlord in the
Premises shall be transferred to and owned by Lender by reason of foreclosure or
other proceedings brought by it, or any other manner, or shall be conveyed
thereafter by Lender or shall be conveyed pursuant to a foreclosure sale of the
Premises (and for purposes of this paragraph, the term "Lender" shall be deemed
to include any grantee of the lender or purchaser at foreclosure sale), Tenant
shall be bound to Lender under all of the terms, covenants and conditions of the
Lease for the balance of the term thereof remaining and any extensions or
renewals thereof which may be effected in accordance with any option therefor in
the Lease, with the same force and effect as if Lender were the Landlord under
the Lease, and Tenant does hereby attorn to Lender as its Landlord, said
attornment to be effective and self-operative without the execution of any
further instruments on the part of any of the parties hereto immediately upon
Lender succeeding to the interest of the landlord in the Premises. Tenant
agrees, however, upon the election of and written demand by Lender within twenty
(20) days after Lender receives title to the Premises, to execute an instrument
reasonably satisfactory in form and substance to Tenant, in confirmation of the
foregoing provisions, in which Tenant shall acknowledge such attornment and
shall set forth the terms and conditions of its tenancy.
4. Tenant and Lender agree that if Lender shall succeed to the interest of
Landlord under the Lease, Lender shall assume all of the obligations of the
Landlord under the Lease which arise and are to be performed by the landlord
prior to and during the period Lender is the Landlord under the Lease; provided,
however, that in no event shall the Lender (a) have any personal liability
whatsoever under the Lease for the performance of the Landlord's obligations
thereunder (whether such performance or failure of performance shall be that of
Lender or any prior Landlord), or (b) bound by an security deposit which Tenant
may have paid to any prior landlord, unless such deposit is in an escrow fund
available to Lender, or (c) be bound by any amendment or modification of the
Lease made without Lender's consent. Tenant further agrees with Lender that
except as to secondary mortgage financing expressly permitted in the Mortgage,
Tenant will not voluntarily subordinate the Lease to any lien or encumbrance
without Lender's consent, and in no event shall Tenant voluntarily subordinate
the Lease to any lien or encumbrance unless Lender shall have first approved the
form and substance of the instrument by which such
-3-
<PAGE>
subordination is accomplished, which approval Lender agrees not to withhold
unreasonably.
5. In the event that the landlord shall default in the performance or
observance of any of the terms, conditions or agreements in the Lease, Tenant
shall give written notice thereof to the Lender and the Lender shall have the
right (but not the obligation) to cure such default. Tenant shall not take any
action with respect to such default under the Lease including without limitation
any action in order to terminate, rescind or void the Lease (provided the
Premises are reasonably usable by Tenant for its normal business activities) or
to withhold any rental thereunder, for a period of 10 days after receipt of such
written notice thereof by the Lender with respect to any such default capable of
being cured by the payment of money and for a period of 30 days after receipt of
such written notice thereof by the Lender with respect to any other such default
(provided, that in the case of any default which cannot be cured by the payment
of money and cannot with diligence be cured within such 30-day period because of
the nature of such default or because Lender requires time to obtain possession
of the Premises in order to cure the default, if the Lender shall proceed
promptly to attempt to obtain possession of the Premises, where possession is
required, and to cure the same and thereafter shall prosecute the curing of
such default with diligence and continuity, then the time within which such
default may be cured shall be extended for such period as may be necessary to
complete the curing of the same with diligence and continuity).
6. This Agreement shall bind and inure to the benefit of the parties
hereto, their successors and assigns. As used herein the term "Tenant" shall
include the Tenant, its successors and assigns; the words "foreclosure" and
"foreclosure sale" as used herein shall be deemed to include the acquisition of
Landlord's estate in the Premises by voluntary deed (or assignment) in lieu of
foreclosure, and the word "Lender" shall include the Lender herein specifically
named and any of its successors and assigns, including anyone who shall have
succeeded to Landlord's interest in the Premises by, through or under
foreclosure of the Mortgage.
7. This Agreement shall be the whole and only agreement between the parties
hereto with regard to the subordination of the Lease and leasehold interest of
Tenant to the lien or charge of the Mortgage in favor of Lender, and shall
supersede and cancel any prior agreements as to such, or any, subordination,
including, but not limited to, those provisions, if any, contained in the Lease,
which provide for the subordination of the Lease and leasehold interest of
Tenant to a deed or deeds of trust or to a mortgage or mortgages to be
thereafter executed, and shall
-4-
<PAGE>
not be modified or amended except in writing signed by all parties hereto.
8. The use of the neuter gender in this Agreement shall be deemed to
include any other gender, and words in the singular number shall be held to
include the plural, when the sense requires.
IN WITNESS WHEREOF, the parties hereto have placed their hands and seals
the day and year first above written.
Signed and acknowledged in TENANT:
the presence of us:
THE NORTHERN TRUST COMPANY
By
- ------------------------------------ ------------------------------------
Typed Name: Typed Name:
Title:
Attest:
- ------------------------------------ -------------------------------
Typed Name: Typed Name:
Title:
LENDER:
CIGNA Investments, Inc.
By
- ------------------------------------ ------------------------------------
Typed Name: Typed Name:
Title:
Attest:
- ------------------------------------ -------------------------------
Typed Name: Typed Name:
Title:
LANDLORD:
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO, as
Trustee aforesaid
By
- ------------------------------------ ------------------------------------
Typed Name: Typed Name:
Title:
Attest:
- ------------------------------------ -------------------------------
Typed Name: Typed Name:
Title:
-5-
<PAGE>
Exhibit A
(SNDA-MTG)
Description of Premises
-----------------------
Beneficiary's Initials: -----
Lender's Initials: -----
-6-
<PAGE>
EXHIBIT NUMBER (10)(xvi)(4)
To 1995 Form 10-K
FOURTH AMENDMENT TO AGREEMENT OF LEASE
--------------------------------------
THIS FOURTH AMENDMENT TO AGREEMENT OF LEASE (this "Amendment"), made and
entered into as of May 1, 1990 by and between American National Bank and Trust
Company of Chicago, as Trustee under Trust Agreement dated April 5, 1990 and
known as Trust 110513-07 ("Landlord") and The Northern Trust Company, an
Illinois banking corporation ("Tenant"),
WITNESSETH: THAT
WHEREAS, American National Bank and Trust Company of Chicago Trust No.
65287 and Tenant are parties to a certain Agreement of Lease dated as of August
27, 1985; and
WHEREAS, the Agreement of Lease was amended by (i) that certain First
Amendment to Agreement of Lease dated as of August 15, 1986, (ii) that certain
Second Amendment to Agreement of Lease dated as of August 6, 1987, and (iii)
that certain Third Amendment to Agreement of Lease dated as of May 20, 1988 (as
so amended, the "Lease"); and
WHEREAS, the Lease was assigned by American National Bank and Trust Company
of Chicago Trust No. 65287 to Landlord by Assignment dated April 6, 1990; and
WHEREAS, Landlord and Tenant desire to further amend the Lease as
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Paragraph 1A of the Lease is hereby deleted, and the following inserted
in lieu thereof:
"A. The Premises shall be all of the 5th through 14th floors of the
Building and a portion of each of the 15th and 16th floors of the Building,
and shall in the aggregate contain approximately 215,952 RSF (as defined in
Paragraph 1D hereof). The portion of the Premises located on floors 5
through 9 of the Building, containing in the aggregate approximately
100,000 RSF, is sometimes referred to herein as the "Original Premises".
The portion of the Premises located on floors 10 through 15 of the
Building, containing in the aggregate approximately 100,000 RSF, is
sometimes referred to herein as the "Additional Premises". The portion of
the Premises located on the 16th floor of the Building, containing
approximately 15,952 RSF, is sometimes referred to herein as the "16th
Floor Premises". The "Original Premises", the "Additional Premises" and the
<PAGE>
"16th Floor Premises" shall, in the aggregate, comprise the Premises."
2. The following is hereby inserted into the Lease as Paragraph 2BB,
immediately following Paragraph 2B and preceding Paragraph 2C:
"BB. 16th Floor Additional Work.
Landlord will perform, at Tenant's request, and upon submission by
Tenant of the necessary plans and specifications in accordance with the terms
hereof, any additional work in the 16th Floor Premises over and above that
specified in Paragraph 2A above, subject to the terms and conditions of this
Paragraph 2BB. If included in Tenant's plans and specifications, Landlord will
supply and install the Building Standard Work in the Premises in Landlord's
standard manner; provided, however, that regardless of whether Tenant elects to
have Landlord supply and install the Building Standard Work, all materials
specified for use in the additional work requested by Tenant for the 16th Floor
Premises shall be of quality at least equal to the materials specified by
Landlord for the Building Standard Work. All work done pursuant to this
Paragraph 2BB shall be at Landlord's cost to the extent of the sum of Thirty-one
and 35/100 ($31.35) Dollars per RSF for the 16th Floor Premises (hereinafter
referred to as the "16th Floor Allowance"), and at Tenant's sole cost and
expense to the extent the cost of such work exceeds the 16th Floor Allowance;
the aggregate investment tax credit, if any, attributable to all such work shall
be divided between Landlord and Tenant in the proportion which each bears to the
cost of all such work. All such cost calculations shall be based on the RSF
actually included in the 16th Floor Premises on the 16th Floor Premises
Commencement Date (as hereinafter defined). Any portion of the 16th Floor
Allowance not applied to defray the cost of such additional work shall, at
Tenant's option, either (i) be applied in payment of the first Rent payable
hereunder, or (ii) be paid to Tenant in cash on the 16th Floor Premises
Commencement Date (as defined in Paragraph 3A hereof.)
3. The following is hereby inserted into the Lease as Paragraph 3I:
-2-
<PAGE>
"I. Notwithstanding the foregoing provisions of this Paragraph 3, the
"Commencement Date" with respect to the 16th Floor Premises (sometimes
referred to herein as the "16th Floor Premises Commencement Date") shall be
the later of (i) August 1, 1990 or (ii) the date the work to be performed
by Landlord for the 16th Floor Premises pursuant to Paragraph 2BB is
substantially complete (excluding any delay in substantial completion
caused by Tenant Delay). Tenant's obligations to pay Rent and Operating
Expenses allocable to the 16th Floor Premises shall commence as of the 16th
Floor Premises Commencement Date. In the event that the 16th Floor Premises
shall be ready for occupancy by Tenant prior to the 16th Floor Premises
Commencement Date, Tenant shall be entitled to occupy the 16th Floor
Premises until the 16th Floor Premises Commencement Date without payment of
Base Rent or Operating Expenses allocable thereto.
4. Paragraph 4A of the Lease is hereby deleted, and the following inserted
in lieu thereof:
"A. "Base Rent"
(i) "Original Base Rent". For the Original Premises, the sum equal
to the number of RSF within the Original Premises times $21.00 per RSF for
each twelve month period during the Term of this Lease ("Original Annual
Base Rent"). Such Original Annual Base Rent shall be paid in monthly
installments of one-twelfth (1/12) of the then-current Original Annual Base
Rent in advance on or before the first day of each and every month during
the Term ("Original Monthly Base Rent"), as the Original Annual Base Rent
or Original Monthly Base Rent may be adjusted pursuant to Paragraph 5 of
this Lease.
(ii) "Additional Base Rent". For the Additional Premises, the sum
equal to the number of RSF within the Additional Premises times (A) $18.50
per RSF for the first (1st) through the fifth (5th) Lease Years (as defined
in Section 5A) during the Term, (B) $22.50 per RSF for the sixth (6th)
through tenth (10th) Lease Years during the Term, and (C) $25.50 per RSF
for the eleventh (11th) through fifteenth (15th) Lease Years during the
Term ("Additional Annual Base Rent"). Such Additional Annual Base Rent
shall be paid in monthly installments of one-twelfth (1/12) of the then
current Additional Annual Base Rent in advance on or before the first day
of each and every month during the Term ("Additional
-3-
<PAGE>
Monthly Base Rent"), as the Additional Annual Base Rent or Additional
Monthly Base Rent may be adjusted pursuant to Paragraph 5 of this Lease;
(iii) "16th Floor Base Rent". For the 16th Floor Premises, annual
Base Rent ("16th Floor Annual Base Rent") shall be payable at the rate
of (A) $29.00 per RSF for the first sixty-six (66) months following the
16th Floor Premises Commencement Date, and (B) $29.89 per RSF for the
remainder of the initial Term. Such additional 16th Floor Annual Base Rent
shall be paid in monthly installments of one-twelfth (1/12) of the then
current 16th Floor Annual Base Rent in advance on or before the first day
of each and every month during the Term ("16th Floor Monthly Base Rent"),
as the 16th Floor Annual Base Rent or 16th Floor Monthly Base Rent may be
adjusted pursuant to Paragraph 5BB of this Lease;
(iv) Original Annual Base Rent, Additional Annual Base Rent and 16th
Floor Annual Base Rent are sometimes collectively referred to herein as
"Annual Base Rent"; Original Monthly Base Rent, Additional Monthly Base
Rent and 16th Floor Monthly Base Rent are sometimes collectively referred
to herein as "Monthly Base Rent"."
5. Paragraph 5A(iv) of the Lease is hereby amended by deleting the phrase
"prior to the end of the third full Lease Year means the sum of $9.00 per
rentable square foot of the Building per annum and thereafter"
which appears in the first through the third lines of Paragraph 5A(iv).
6. Paragraph 5B of the Lease is hereby deleted and the following inserted
in lieu thereof:
"B. Rent Adjustments. The Annual Base Rent (excluding the 16th Floor
Annual Base Rent) for each and every Lease Year during the term of this
Lease (the "Subject Lease Year") shall be adjusted (subject to the
limitations hereinafter set forth) by an amount equal to the following
(the "Rent Adjustment"):
(i) For the Base Year (and first full Lease Year if the Base Year
commences subsequent to July 1 of such year), an amount equal to the
lesser of (a) the product
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<PAGE>
of thirty percent (30%) of the Base Rent (excluding the 16th Floor Annual
Base Rent) paid during the Base Year multiplied by the percentage change
(positive or negative) of the CPI for the month in which the Term of this
lease commences over the CPI for the month in which this Lease was
executed, and (b) $1.00 per RSF; and
(ii) For each Lease Year thereafter, an amount equal to the product
of thirty percent (30%) of the Annual Base Rent (excluding the 16th Floor
Annual Base Rent) plus the sum determined by subparagraph B(i) above
multiplied by the percentage change (positive or negative) of the CPI for
January of the Subject Lease Year over the CPI for the first full month of
the Base Year; provided, however, that for any Lease Year the amount of the
annual Rent Adjustment made by reason of change in the CPI shall not exceed
three percent (3%) of the adjusted Annual Base Rent (excluding the 16th
Floor Annual Base Rent) for the immediately preceding Lease Year. The
limitation set forth in the immediately preceding sentence shall not affect
adjustments to Rent attributable to causes other than changes in the CPI."
"BB. 16th Floor Rent Adjustments. The 16th Floor Annual Base Rent shall
be adjusted by an amount equal to the following (the "16th Floor Rent
Adjustment"):
For each Lease Year commencing with the Lease Year beginning January 1,
1997, an amount equal to the product of $29.89 per RSF, multiplied by 35%
of the percentage increase (if any) of the CPI for January of the Subject
Lease Year over the CPI for the 66th month following the 16th Floor
Premises Commencement Date."
7. Paragraph 5C of the Lease is hereby deleted, and the following inserted
in lieu thereof:
"C. Partial Rent Abatement. Notwithstanding anything in this Lease
to the contrary, Annual Base Rent and any Rent Adjustment (excluding 16th
Floor Annual Base Rent and the 16th Floor Rent Adjustment) shall be abated
by one-half (50%) until the beginning of the forty-ninth (49th) month of
the Term. 16th Floor Annual Base Rent and the 16th Floor Rent Adjustment
shall not be abated as provided in this Paragraph 5C."
8. The following is hereby inserted at the end of, and as part of,
Paragraph 5D of the Lease:
-5-
<PAGE>
"Notwithstanding the foregoing, Operating Expenses payable hereunder shall
be limited as follows:
(x) Operating Expenses payable with respect to the Original Premises and
the Additional Premises shall be fixed at $9.00 per RSF per year through
the end of the third (3rd) full Lease Year (regardless of the actual
Operating Expenses for such period).
(y) Operating Expenses payable with respect to the 16th Floor Premises (i)
shall be abated entirely during the first 12-month period following the
16th Floor Premises Commencement Date, (ii) shall not exceed $10.50 per RSF
per annum for the second 12-month period (i.e. the 13th through 24th
months) following the 16th Floor Premises Commencement Date, and (iii)
shall not exceed $13.00 per RSF per annum for the third 12-month period
(i.e. the 25th through 36th months) following the 16th Floor Premises
Commencement Date.
9. Paragraph 27 is hereby deleted and the following inserted in lieu
thereof:
"27. PARKING. Landlord represents to Tenant that the Building will include
approximately 56 parking spaces located in the Building's underground
garage. Tenant shall have the right to lease for the full term Tenant's
Proportionate Share of such parking spaces (which share shall be not less
than 13 spaces), at regular annual Building rates therefor, and in
locations designated by Landlord, such right to remain exercisable for 12
spaces until the Commencement Date, and for one space until the 16th Floor
Commencement Date, and to include the right to sublease to any sublessee of
space in the Premises or to employees or partners of such sublessees or of
Tenant. In addition, Tenant shall be entitled, at regular annual Building
rates therefor, to any parking spaces which were rented by the immediately
preceding tenants in space added to the Premises after the Commencement
Date. Tenant may give up such parking spaces, or any thereof, so leased at
any time(s) on not less than sixty (60) days' notice and shall not have any
rights for the number of spaces so given up at any time thereafter.
Notwithstanding the immediately preceding sentence, Tenant shall have the
right to sublease any parking spaces leased hereunder to parties
(including, but not limited to, car rental entities) selected by Tenant,
provided that (i) the rent charged for any parking spaces
-6-
<PAGE>
so subleased is less than or equal to the rent charged Tenant by Landlord
therefor, and (ii) the use of the subleased parking spaces by the sublessees
thereof does not interfere with Landlord's operation of the garage or use of the
garage by other parking lessees."
10. Paragraphs 30A and 30B of the Lease are hereby deleted and the
following inserted in lieu thereof:
"A. Landlord hereby grants to Tenant the option to lease the entire fourth
(4th) floor of the Building, the balance of the fifteenth (15th) and sixteenth
(16th) floors of the Building, and the entire seventeenth (17th) floor of the
Building (the "6th Year Option Floors"). Tenant may lease any or all of the
6th Year Option Floors contiguous to the Premises, as designated by Landlord,
commencing at some point during the 6th Lease Year as determined by Landlord.
B. Landlord hereby grants to Tenant the further option to lease three (3)
additional floors contiguous to the Premises (subject to the last sentence of
this Paragraph 30B) designated by Landlord ("11th Year Option Floors"), which
Option may be exercised whether or not Tenant has taken any, all or none of the
6th Year Option Floors. Tenant may lease any or all of the 11th Year Option
Floors commencing at some point during the 11th Lease Year as determined by
Landlord.
11. The following is hereby inserted in the Lease as Paragraph 45:
"45. ASSUMPTION OF CERTAIN FINANCIAL OBLIGATIONS OF TENANT. In
consideration of Tenant's Lease of the 16th Floor Premises, Landlord hereby
agrees to assume (i) from and after April 1, 1990, all of the financial
obligations and financial liabilities of Tenant, as the tenant, arising after
April 1, 1990 under the First, Second and Third Expansion Amendments to that
certain Lease dated November 27, 1985, demising approximately 13,000 RSF on the
5th Floor of Madison Plaza, and (ii) from and after September 1, 1990, one-half
(1/2) of the financial obligations and financial liabilities of The Griffin
Group (now known as The Northern Investment Management Co.), an affiliate of
Tenant, as the tenant, arising after September 1, 1990 under that certain Lease
dated May 1, 1984 (as amended by the Expansion Amendment thereto) demising
approximately 10,300 RSF on the 27th
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<PAGE>
floor of Madison Plaza (collectively the "200 Madison Leases"). The
aforesaid assumption by Landlord relates only to the financial obligations
and financial liabilities of Tenant as the tenant under the 200 Madison
Leases; nothing herein shall be deemed or construed to be an assumption by
Landlord of any other obligations of Tenant under the 200 Madison Leases,
and in no event shall Landlord be obligated to perform any act or do any
thing other than the payment of money required of Tenant as the tenant
under the 200 Madison Leases. Tenant warrants and represents to Landlord
that it has delivered to Landlord true and correct copies of the 200
Madison Leases, and there are no additional agreements between the landlord
thereunder and Tenant, whether written or oral, pertaining to the 200
Madison Leases, or the subject matter or terms thereof. Tenant covenants
and agrees (i) to permit Landlord to assign, or to sublease all or any
portion of the premises demised by, the 200 Madison Leases, upon such terms
and conditions as are acceptable to Landlord in its sole and uncontrolled
discretion, and (ii) to cooperate in all respects with Landlord in
Landlord's efforts to assign, or sublease the premises demised by, the 200
Madison Leases, including without limitation the execution of any required
documents of assignment or sublease (provided such documents are in form
reasonably acceptable to Tenant.) All rent or other consideration received
for or on account of the 200 Madison Leases or the premises demised thereby
from and after April 1, 1990 shall be the sole property of Landlord
(regardless of whether such amounts exceed the financial obligations
assumed by Landlord with respect to the 200 Madison Leases), and Tenant
shall in no event be entitled to share therein.
12. As amended herein, the Lease shall remain in full force and effect
and, except as expressly amended herein, shall be unaffected hereby. In the
event of any conflict between the provisions of this Amendment and the
provisions of the Lease, the provisions of this Amendment shall control.
13. This Fourth Amendment to Agreement of Lease is executed by American
National Bank and Trust Company, not personally, but in the exercise of the
power and authority conferred upon and vested in it as Trustee. It is expressly
understood and agreed that nothing herein shall be construed as creating any
liability whatsoever against Trustee personally; and in particular, without
limiting the generality of the foregoing, there shall be no personal liability
to pay any indebtedness accruing hereunder or
-8-
<PAGE>
to perform any covenant, either express or implied, herein contained, or to
keep, preserve, or sequester any property and all personal liability of every
sort, if any, is hereby expressly waived by said Tenant, and by every person now
or hereafter claiming any right or security hereunder; and that, so far as the
Trustee is concerned, the owner of any indebtedness or liability accruing
hereunder shall look solely to the assets of said property and the proceeds
thereof for the payment thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
LANDLORD: AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO, not individually, but solely
as Trustee under Trust Agreement dated
April 5, 1990 and known as Trust No.
110513-07
By: /s/ J. Michael Whelan
----------------------------------------
Title: Vice President
----------------------------------
Attest: /s/
------------------------------------
Assistant Secretary
------------------------------------
TENANT: THE NORTHERN TRUST COMPANY
By: /s/ Roy Bronson
----------------------------------------
Title: Senior Vice President
----------------------------------
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<PAGE>
EXHIBIT NUMBER (10)(xvi)(5)
TO 1995 FORM 10-K
FIFTH AMENDMENT TO AGREEMENT OF LEASE
-------------------------------------
THIS FIFTH AMENDMENT TO AGREEMENT OF LEASE (this "AMENDMENT"), made and
entered into as of January 12, 1995, by and between AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO, not individually, but solely and only as Trustee under
a certain Trust Agreement dated the 5th day of April, 1990 and known as Trust
No. 110513-07 ("LANDLORD") and The Northern Trust Company, an Illinois banking
corporation ("TENANT"),
WITNESSETH: THAT
----------------
WHEREAS, American National Bank and Trust Company of Chicago Trust No.
65287 and Tenant are parties to a certain Agreement of Lease dated as of August
27, 1985; and
WHEREAS, the Agreement of Lease was amended by (i) that certain First
Amendment to Agreement of Lease dated as of August 15, 1986, (ii) that certain
Second Amendment to Agreement Lease dated as of August 6, 1987, (iii) that
certain Third Amendment to Agreement of Lease dated as of May 20, 1988, and (iv)
that certain Fourth Amendment to Agreement of Lease dated as of May 1, 1990 (as
amended, the "LEASE"); and
WHEREAS, the Lease was assigned by American National Bank and Trust
Company of Chicago Trust No. 65287 to Landlord by Assignment dated April 6,
1990; and
WHEREAS, Landlord and Tenant desire to further amend the Lease as
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Paragraph 1A of the Lease is hereby deleted, and the following
inserted in lieu thereof:
"A. The Premises shall be all of the 4th through 14th floors of the
Building and a portion of each of the 15th and 16th floors of the
Building, and shall in the aggregate contain approximately 232,443 RSF (as
defined in Paragraph 1D hereof). The portion of the Premises located on
floors 5 through 9 of the Building, containing in the aggregate
approximately 102,110 RSF, is sometimes referred to herein as the
"ORIGINAL PREMISES". The portion of the Premises located on floors 10
through 15 of the Building, containing in the aggregate approximately
97,890 RSF, is sometimes referred to herein as the "ADDITIONAL PREMISES".
The portion of the Premises located on the 16th floor of the Building,
containing approximately 15,952 RSF, is sometimes referred to herein as
the "16TH FLOOR PREMISES". The portion of the Premises located on the 4th
Floor of the Building containing approximately 16,491 RSF, is sometimes
referred to herein as the "4TH FLOOR PREMISES". The "Original Premises",
the
<PAGE>
"Additional Premises" and the "16th Floor Premises" and the 4th Floor
Premises shall, in the aggregate, comprise the Premises."
2. The following is hereby inserted into the Lease as subsection 2.01,
immediately following Paragraph 2H and preceding Section 3:
"2.01 Construction of the 4th Floor Premises.
A. Tenant's Plans. The Tenant shall, at Tenant's sole cost and
expense (subject to the credit hereinafter granted), cause to be prepared
and submitted to the Landlord at such time as Tenant desires plans and
specifications (the "Tenant's Plans"), including, but not limited to, all
space plans, working drawings, mechanical and engineering drawings for
Landlord's prior approval, disclosing all construction to be performed to
build out the entire 4th Floor Premises. The Landlord agrees to review and
either approve or disapprove (and noting with such disapproval the specific
items not approved) Tenant's Plans within ten (10) business days of
Landlord's receipt of a complete set of Tenant's Plans. In the event
Tenant's Plans are disapproved, Tenant shall revise and resubmit Tenant's
Plans expeditiously and Landlord shall review the same and notify the
Tenant of its approval or disapproval within five (5) business days
thereafter in the same manner as required for the initial submittal.
Landlord's approval shall not be unreasonably withheld or delayed.
B. General Contractor. The Tenant is hereby granted the right to
utilize contractors of Tenant's own choice to build out the 4th Floor
Premises, subject to Landlord's reasonable approval as to the
qualifications of such contractor. Only qualified contractors shall be
permitted to bid on the Work. The contractor chosen by the Tenant as the
successful bidder is hereinafter referred to as "Tenant's Contractor". The
Tenant, before commencing any work on or to the 4th Floor Premises, shall
submit Tenant's Plans and written contracts for such work by Tenant's
Contractor to Landlord for approval. The Landlord may impose such
reasonable conditions as Landlord, in its reasonable judgment, deems
appropriate, including, without limitation, conditions which will assure
Landlord that all work will be performed lien-free (including performance
and payment bonds) and with proper insurance coverage. All installations,
alterations and additions shall be constructed in a good and workmanlike
manner and only new and good grades of material shall be used. Such work
performed by Tenant's Contractor shall comply with all insurance
requirements and all other ordinances and regulations of the City of
Chicago or any department or agency thereof and with the requirements of
all statutes and regulations of the State of Illinois or any department or
agency thereof. Tenant shall permit Landlord (or an architect designated by
Landlord) to supervise all construction operations within the 4th Floor
Premises performed by Tenant's Contractor. Tenant shall pay to the Landlord
the cost of any materials purchased from Landlord at Landlord's actual
invoice cost for said items, the reasonable and actual cost incurred by
Landlord in supervising the construction (which shall not exceed an amount
equal to one and one-half (1 1/2%) percent of the cost of construction)
2
<PAGE>
and all hoisting charges (the "Reimbursables"). Such supervision by
the Landlord of the Tenant's Contractor shall be solely and only for
the benefit of the Landlord. No silence or statement by the Landlord's
supervisor shall be deemed or construed as an assumption by said
supervisor or Landlord of any responsibility for or in relation to the
construction of the 4th Floor Premises or any guarantee that the work
completed within the 4th Floor Premises complies with Laws, complies
with Tenant's Plans, or is suitable or acceptable to the Tenant for
Tenant's intended business purposes. If the Tenant elects to build out
the 4th Floor Premises with Tenant's Contractor, Tenant shall furnish
to Landlord prior to commencement thereof building permits and
certificates of appropriate insurance and bonds and upon completion of
any installations, alterations or additions, contractor's affidavits
and full and final waivers of lien covering all labor and material
expended and used in constructing the 4th Floor Premises. Tenant shall
hold Landlord harmless and indemnify Landlord from all claims and
costs, damages, liens and expenses which may arise out of or are
connected in any way with said construction by Tenant's Contractor.
C. Construction Credit. The cost of all work (the "Work")
necessary to build out all of the 4th Floor Premises (including, but
not limited to, all labor, material, permits and working drawings,
design costs and Reimbursables) shall, subject to the credit granted
herein, be the responsibility of Tenant. The Landlord does hereby
grant to the Tenant a credit (the "Construction Credit") equal to
Eight Hundred Forty-Two Thousand Seven Hundred Twenty-Five and 56/100
($842,725.56) Dollars. The Construction Credit shall be paid in
installments by Landlord to the Tenant as the Work progresses within
thirty (30) days of Tenant's request indicating the dollar amount of
the draw Tenant desires; provided that the Tenant, together with such
request, presents to Landlord, reasonable documentation evidencing (i)
the amounts of payments previously made by Tenant, in relation to the
Work, to the general contractor and any subcontractors and
materialmen, including, but not limited to, general contractor's
statement and partial and final lien waivers, as the case may be,
covering all Work (including design costs and Reimbursables) for which
Tenant is requesting payment; and (ii) the percentage of the Work
completed. Tenant shall be responsible for obtaining and submitting to
Landlord all documentation reasonably required by the Landlord in
relation to Construction Credit draw requests made by Tenant.
Construction Credit draw amounts shall never exceed, in the aggregate,
the lesser of: (i) the remaining unpaid amount of the Construction
Credit, minus any then unpaid Reimbursables, or (ii) that amount equal
to the cost of all Work completed in accordance with the Tenant's
Plans and paid for by Tenant, as evidenced by the documentation
furnished with such request (including lien waivers). Any unused
portion of the Construction Credit shall be credited by the Landlord
against Monthly Base Rent next due under the Lease, until exhausted.
Notwithstanding anything to the contrary expressed in, or implied
by this Fifth Amendment to Agreement of Lease, Tenant, at its sole
election, may choose not to build out the 4th Floor Premises for and
as office space but instead, may choose to utilize the 4th Floor
Premises as office storage space and consequently, the work may
consist only of labor, materials, permits, and working drawings
necessary to prepare and equip the 4th Floor Premises for such use.
Any such change in the Work and/or Tenant's use of the 4th Floor
Premises shall in no way affect (i) Tenant's right to the receipt of
the Construction Credit provided for herein, (ii) Tenant's obligations
regarding the Work set forth in paragraph 2.01 of this Amendment, and
(iii) Landlord's rights set forth in paragraph 2.01 of this Amendment
including, but not limited to, approval of contractor qualifications,
approval of Tenant's Plans, and the right to supervise all
construction operations on the 4th Floor Premises.
D. Construction Status and Confirmation. The Landlord reserves
the right from time to time, but not more often than monthly, to
require Tenant to furnish partial or final lien waivers (as
applicable) and sworn contractors'
3
<PAGE>
statements and all other reasonable information Landlord may request,
in writing, so as to enable Landlord to determine the status of
(i) the preparation or modification of Tenant's Plans; (ii) all
contracts let or to be let in relation to the Work; (iii) the cost of
all Work, including the cost of any extras or modifications requested
by Tenant after Landlord's approval of Tenant's Plans; (iv) the status
of completion of the Work; (v) the status of payment to all
contractors, subcontractors and materialmen in relation to the Work;
(vi) the status of Tenant's obligations to obtain partial and final
lien waivers, as the situation may require, from all contractors,
subcontractors and materialmen in relation to the Work; and (vii) the
status of any adverse claims or disputes with contractors,
subcontractors or materialmen in relation to the Work. The Tenant
shall furnish such information as Landlord may reasonably require to
evidence the foregoing no later than fifteen (15) days subsequent to
the date the Landlord requests the same, in writing.
E. Non-Applicable Provisions. The provisions of subparagraphs 2A
through 2H of the Lease shall not be applicable to the construction of
the 4th Floor Premises."
3. The following is hereby inserted into the Lease as Paragraph 3J and 3K:
"J. Notwithstanding the foregoing provisions of this Paragraph
3, the "Commencement Date" with respect to the 4th Floor Premises
(sometimes referred to herein as the "4th Floor Premises Commencement
Date") shall be January 12, 1995. Tenant's obligation to pay Rent and
Operating Expenses allocable to the 4th Floor Premises shall commence
as of the 4th Floor Premises Commencement Date.
K. The Term, which is currently scheduled to expire on March 31,
2005, shall be coterminous with respect to the entire Premises."
4. Paragraph 4A of the Lease is hereby deleted, and the following inserted
in lieu thereof:
"A. "Base Rent"
(i) "Original Base Rent". For the Original Premises, the sum
equal to the number of RSF within the Original Premises times $21.00
per RSF for each twelve month period during the Term of this Lease
("Original Annual Base Rent"). Such Original Annual Base Rent shall
be paid in monthly installments of one-twelfth (1/12) of the
then-current Original Annual Base Rent in advance on or before the
first day of each and every month during the Term ("Original Monthly
Base Rent"), as the Original Annual Base Rent or Original Monthly Base
Rent may be adjusted pursuant to Paragraph 5 of this Lease.
(ii) "Additional Base Rent". For the Additional Premises, the
sum equal to the number of RSF within the Additional Premises (A)
$18.50 per
4
<PAGE>
RSF for the first (1st) through the fifth (5th) Lease Years (as
defined in Section 5A) during the Term (B) $22.50 per RSF for the
sixth (6th) through tenth (10th) Lease Years during the Term and
(C) $25.50 per RSF for the eleventh (11th) through fifteenth (15th)
Lease Years during the Term ("Additional Annual Base Rent"). Such
Additional Annual Base Rent shall be paid in monthly installments
of one-twelfth (1/12) of the then current Additional Annual Base
Rent in advance on or before the first day of each and every month
during the Term ("Additional Monthly Base Rent"), as the Additional
Annual Base Rent or Additional Monthly Base Rent may be adjusted
pursuant to Paragraph 5 of this Lease;
(iii) "16th Floor Base Rent". For the 16th Floor Premises
(15,952 RSF), Annual Base Rent ("16th Floor Annual Base Rent") shall
be payable at the rate of (A) $29.00 per RSF for the first sixty-six
(66) months following the 16th Floor Premises Commencement Date, and
(B) $29.89 per RSF for the remainder of the initial Term. Such 16th
Floor Annual Base Rent shall be paid in monthly installments of
one-twelfth (1/12) of the then current 16th Floor Annual Base Rent
in advance on or before the first day of each and every month during
the Term ("16th Floor Monthly Base Rent"), as the 16th Floor Annual
Base Rent or 16th Floor Monthly Base Rent may be adjusted pursuant to
Paragraph 5BB of this Lease;
(iv) "4th Floor Base Rent". For the 4th Floor Premises (16,491
RSF), Annual Base Rent ("4th Floor Annual Base Rent") shall be payable
at the rate of $10.38 per RSF for the period commencing January 12,
1995, throughout the remainder of the Term. Such 4th Floor Annual Base
Rent shall be paid in monthly installments of one-twelfth (1/12) of
the 4th Floor Annual Base Rent in advance, on or before, the first day
of each and every month during the Term (the "4th Floor Monthly Base
Rent").
(v) Original Annual Base Rent, Additional Annual Base Rent, 16th
Floor Annual Base Rent and 4th Floor Annual Base Rent are sometimes
collectively referred to herein as "Annual Base Rent"; Original
Monthly Base Rent, Additional Monthly Base Rent, 16th Floor Monthly
Base Rent and 4th Floor Monthly Base Rent are sometimes collectively
referred to herein as "Monthly Base Rent"."
5. Paragraph 5B of the Lease is hereby deleted and the following inserted
in lieu thereof:
"B. Rent Adjustments. The Annual Base Rent (excluding the 16th Floor
Annual Base Rent and the 4th Floor Annual Base Rent) for each and
every Lease Year during the term of this Lease (the "Subject Lease
Year") shall be adjusted (subject to the limitations hereinafter set
forth) by an amount equal to the following (the "Rent Adjustment"):
(i) For the Base Year (and first full Lease Year if the Base
Year commences subsequent to July 1 of such year), an amount equal to
the lesser of
5
<PAGE>
(a) the product of thirty percent (30%) of the Base Rent (excluding
the 16th Floor Annual Base Rent and the 4th Floor Annual Base Rent)
paid during the Base Year multiplied by the percentage change
(positive or negative) of the CPI for the month in which the Term of
this Lease commences over the CPI for the month in which this Lease
was executed, and (b) $1.00 per RSF; and
(ii) For each Lease Year thereafter, an amount equal to the
product of thirty percent (30%) of the Annual Base Rent (excluding the
16th Floor Annual Base Rent and the 4th Floor Annual Base Rent) plus
the sum determined by subparagraph B(i) above multiplied by the
percentage change (positive or negative) of the CPI for January of the
Subject Lease Year over the CPI for the first full month of the Base
Year; provided, however, that for any Lease Year the amount of the
annual Rent Adjustment made by reason of changes in the CPI shall not
exceed three percent (3%) of the adjusted Annual Base Rent (excluding
the 16th Floor Annual Base Rent and the 4th Floor Annual Base Rent)
for the immediately preceding Lease Year. The limitation set forth in
the immediately preceding sentence shall not affect adjustments to
Rent attributable to causes other than changes in the CPI.
BB. 16th Floor Rent Adjustments. The 16th Floor Annual Base Rent shall
be adjusted by an amount equal to the following (the "16th Floor Rent
Adjustment"):
For each Lease Year commencing with the Lease Year beginning
January 1, 1997, an amount equal to the product of $29.89 per RSF,
multiplied by 35% of the percentage increase (if any) of the CPI for
January of the Subject Lease Year over the CPI for the 66th month
following the 16th Floor Premises Commencement Date.
BBB. 4th Floor Rent Adjustments. The 4th Floor Annual Base Rent shall
not be subject to Rent Adjustment."
6. As amended herein, the Lease shall remain in full force and effect and,
except as expressly amended herein, shall be unaffected hereby. In the event of
any conflict between the provisions of this Amendment and the provisions of the
Lease, the provisions of this Amendment shall control.
7. This Fifth Amendment to Agreement of Lease is executed by American
National Bank and Trust Company, not personally, but in the exercise of the
power and authority conferred upon and vested in it as Trustee. It is expressly
understood and agreed that nothing herein shall be construed as creating any
liability whatsoever against Trustee personally; and in particular, without
limiting the generality of the foregoing, there shall be no personal liability
to pay any indebtedness accruing hereunder or to perform any covenant, either
express or implied, herein contained, or to keep, preserve, or sequester any
property and all personal liability of every sort, if any, is hereby expressly
waived by said Tenant, and by every person now or hereafter claiming any right
or security hereunder; and that, so far as the Trustee is
6
<PAGE>
concerned, the owner of any indebtedness or liability accruing hereunder shall
look solely to the assets of said property and the proceeds thereof for the
payment thereof.
8. BROKERS. Tenant represents that except for MIGLIN-BEITLER MANAGEMENT
CORPORATION, it has not dealt with any real estate brokers in connection with
this Fifth Amendment and, to its knowledge, no broker other than MIGLIN-BEITLER
MANAGEMENT CORPORATION initiated or participated in the negotiation of this
Fifth Amendment, submitted or showed the Fifth Expansion Space or any other
space in the Building to Tenant or is entitled to any commission or fee in
connection with this Fifth Amendment. Tenant hereby agrees to indemnify, defend,
and hold Landlord harmless from and against any and all claims of any other real
estate brokers for commissions or fees in connection with this Fifth Amendment
who claim to have dealt with the Tenant. Landlord represents and warrants to
Tenant that Landlord is not obligated to pay a real estate broker's fee or
commission to anyone which could cause the rent hereunder or any rental rate
applicable to the Premises to increase.
9. MERGER. All negotiations, considerations, representations and
understandings between Landlord and Tenant relating to this Fifth Amendment are
incorporated herein and may be modified or altered only by agreement, in
writing, between Landlord and Tenant. No modification, termination, or
surrender of the Lease, as modified by this Fifth Amendment, or surrender of the
Premises (including the 4th Floor Premises) or any part thereof or of any
interest therein by Tenant shall be valid or effective unless agreed to and
accepted, in writing, by the Landlord and no act by any representative or agent
of the Landlord other than delivery of such a written agreement and acceptance
by the Landlord shall constitute agreement to and acceptance thereof. Any prior
negotiations or intentions of the parties relating to this Fifth Amendment,
whether oral or evidenced by written documentation dated prior to the date of
this Fifth Amendment, are null and void, unless specifically incorporated herein
by reference.
10. LANDLORD'S EXONERATION. Landlord's exoneration clause, as set forth
in Section 39 of the Lease, is hereby incorporated herein by reference, as if
fully set forth.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
LANDLORD: AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, not individually, but
solely as Trustee under Trust Agreement
dated April 5, 1990 and known as Trust
No. 110513-07
By: /s/ J. Michael Whelan
_____________________________
Title: VP
_______________________
Attest: /s/
_________________________
Asst. Secretary
_______________
TENANT: THE NORTHERN TRUST COMPANY
By: /s/ Joseph M. Jarosz
_____________________________
Title: Sr. Vice President
_______________________
8
<PAGE>
EXHIBIT NUMBER (10)(xvi)(6)
TO 1995 FORM 10-K
SIXTH AMENDMENT TO AGREEMENT OF LEASE
This Sixth Amendment to Agreement of Lease (the "Amendment") is entered
into by and between American National Bank and Trust Company of Chicago, not
individually, but solely as Trustee under Trust Agreement dated April 5, 1990
and known as Trust No. 110513-07 ("Landlord") and The Northern Trust Company, an
Illinois banking corporation ("Tenant") as of this 30th day of November, 1995.
WITNESSETH: THAT
WHEREAS, American National Bank and Trust Company of Chicago, Trust No.
65287 and Tenant are parties to a certain Agreement of Lease dated August 27,
1985; and
WHEREAS, the Agreement of Lease was amended by (i) that certain First
Amendment to Agreement of Lease dated as of August 15, 1986, (ii) that certain
Second Amendment to Agreement of Lease dated as of August 6, 1987, (iii) that
certain Third Amendment to Agreement of Lease dated as of May 20, 1988, (iv)
that certain Fourth Amendment to Agreement of Lease dated as of May 1, 1990, and
(v) that certain Fifth Amendment to Agreement of Lease dated as of January 12,
1995 (as amended, the "Lease"); and
WHEREAS, the Lease was assigned by American National Bank and Trust Company
of Chicago, Trust No. 65287 to Landlord by assignment dated April 6, 1990; and
WHEREAS, a dispute has arisen between Tenant and Landlord concerning the
proper interpretation of the Rent Adjustment provisions in paragraph 5B of the
Lease; and
WHEREAS, Landlord and Tenant desire to further amend the Lease as
hereinafter set forth to clarify paragraph 5B and to resolve their disputes with
respect thereto.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Paragraph 5A of the Lease is hereby amended to add the following
subparagraphs 5A(x) and 5A(xi):
(x) "Adjusted Annual Base Rent" means Annual Base Rent as
adjusted by the Rent Adjustment made pursuant to paragraph 5 of the
Lease.
(xi) "Incremental Rent Adjustment" means the portion of the Rent
Adjustment for the Subject Lease Year which is in excess of the Rent
Adjustment that was added to Annual Base Rent the preceding Lease
Year.
2. Paragraph 5B of the Lease is hereby deleted and the following inserted
in lieu thereof:
B. Rent Adjustments. The Annual Base Rent (excluding the 16th floor
Annual Base Rent and the 4th floor Annual Base Rent) for each and every
Lease Year during the term of this Lease (the "Subject Lease Year") shall
be adjusted (subject to the limitations herein set forth ) as follows (the
"Rent Adjustment"):
(i) For the Base Year, an amount equal to an increase of $1.00
per RSF, which is a one time adjustment that shall be added to Annual
Base Rent in the Base Year only; and
(ii) For each Lease Year thereafter, an amount equal to $.90 per
RSF plus thirty percent (30%) of the product of (a) the Annual Base
Rent (excluding the 16th floor Annual Base Rent and the 4th floor
Annual Base Rent) plus $.90 per RSF, multiplied by (b) the percentage
change (positive or negative) of the CPI for January of the Subject
Lease Year over the CPI for the first full month of the Base Year;
provided, however, that for any Lease Year the Incremental Rent
Adjustment shall not exceed three percent (3%) of the Adjusted Annual
Base Rent (excluding the 16th floor Annual Base Rent and the 4th floor
Annual Base Rent) for the immediately preceding Lease Year. Any
abatement in Annual Base Rent or Rent Adjustments provided by this
Lease
-2-
<PAGE>
shall be applied to reduce the amount due and owing by Tenant after the
amount of the Rent Adjustment for the Subject Year has been determined
without regard to any past or present abatements. Neither the
calculation of the amount of any Rent Adjustment nor the calculation of
any limit on the amount of the Rent Adjustment provided in this
paragraph shall include consideration of abatements in any component of
the calculation.
3. As an aid to the interpretation of paragraph 5B of the Lease, attached
as Exhibit A to this Amendment are sample calculations of the CPI adjustment.
4. As amended herein, the Lease shall remain in full force and effect and,
except as expressly amended herein, shall be unaffected hereby. In the event of
any conflict between the provisions of this Amendment and the provisions of the
Lease, the provisions of this Amendment shall control.
5. This Sixth Amendment to Agreement of Lease is executed by American
National Bank and Trust Company of Chicago, not personally, but in the exercise
of the power and authority conferred upon and vested in it as Trustee of Trust
No. 110513-07. It is expressly understood and agreed that nothing herein shall
be construed as creating any liability whatsoever against Trustee, personally;
and in particularly, without limiting the generality of the foregoing, there
shall be no personal liability to pay any indebtedness accruing hereunder or to
perform any covenant, either express or implied, herein contained, or to keep,
preserve, or sequester any property and all personal liability of every sort, if
any, is hereby expressly waived by said Tenant and by every person now or
hereafter claiming any right or security hereunder; and that, so far as
the Trustee is concerned, the owner of any indebtedness or liability accruing
hereunder shall look solely to the assets of said Property and the proceeds
thereof for the payment thereof.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
executed as of the day and year first above written.
LANDLORD: TENANT:
AMERICAN NATIONAL BANK AND THE NORTHERN TRUST COMPANY
TRUST COMPANY OF CHICAGO, not
individually, but solely as
Trustee under Trust Agreement
dated April 5, 1990 and known
as Trust No. 110513-07 By: /s/ Wayne LaChance
--------------------------
By: Title: Vice President
----------------------------- -----------------------
Title:
-------------------------
Attest:
------------------------
Secretary
--------------
-4-
<PAGE>
Exhibit A to Sixth Amendment to Agreement of Lease
Sample CPI Rent Adjustment Calculation for Paragraph 5 of the Lease, as amended
<TABLE>
<CAPTION>
Year Year Year Year
1 2 3 4
-------------------------------------------------------
<S> <C> <C> <C> <C>
A. Annual Base Rent 4,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00
B. Para 5Bi Annual Rent Adjustment 200,000.00 180,000.00 180,000.00 180,000.00
Para 5Bii Annual Rent Adjustment
C. Annual Base Rent + 5Bi Annual Rent -------------------------------------------------------
Adjustment A+B 4,200,000.00 4,180,000.00 4,180,000.00 4,180,000.00
D. Base Year CPI 126.50 126.50 126.50 126.50
E. Current Year CPI NA 135.00 150.00 160.00
-------------------------------------------------------
F. Change in CPI for Subject Lease Year
over Base Year (E-D)/D NA 0.067 0.186 0.265
G. Rent Adjustment (Base Year to Subject
Year) 30% x C x F 84,018.00 233,244.00 332,310.00
Para 5Bii Annual Rent Adjustment Calc:
H. Incremental Rent Adjustment Subject Year G - Prev Year J 84,018.00 149,228.00 120,371.46
I. Annual Cap Amount (3% of Prev. Year
Adj. Annual Base Rent) 3% x Prev Year K 126,000.00 127,920.54 131,758.16
Cap Application If H > I Cap Applies Cap Not Appl Cap Applies Cap Not Appl
-------------------------------------------------------
J. Subject Lease Year Rent Adjustment If Cap Not Appl: G 84,018.00 211,938.54 332,310.00
If Cap Applies: I + Prev. Year J
-------------------------------------------------------
K. Adjusted Annual Base Rent A+B+J 4,200,000.00 4,264,018.00 4,391,938.64 4,512,310.00
=======================================================
</TABLE>
<PAGE>
EXHIBIT NUMBER (10)(xxii)
TO 1995 FORM 10-K
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is entered into as of this 1st day
of October, 1995 between Northern Trust Corporation, a Delaware corporation
having its principal place of business in Chicago, Illinois ("Corporation"), and
David W. Fox ("Consultant").
WHEREAS, Consultant has served the Corporation as its Chief Executive
Officer and Chairman of its Board of Directors, and the Corporation wishes to
enter into a consulting relationship with Consultant upon his retirement from
service to the Corporation; and
WHEREAS, Consultant agrees to make himself available to provide consulting
services to the Corporation, and Consultant desires to enter into a consulting
relationship with the Corporation upon the terms and conditions hereinafter
contained;
NOW THEREFORE, in consideration of the covenants and agreements herein set
forth and of the mutual benefits accruing to the Corporation and to Consultant
from the consulting relationship to be established between the parties by the
terms of this Agreement, the Corporation and Consultant agree as follows:
1. Consulting Relationship.
Following Consultant's retirement and commencing on October 1, 1995,
the Corporation hereby retains Consultant, and Consultant hereby agrees to be
retained by the Corporation, as an independent consultant and not as an
employee.
2. Consulting Services.
Consultant agrees that during the term of this Agreement:
A. He will devote his best efforts to his position as an independent
consultant to the Corporation and will perform such duties and
execute the policies of the Corporation as determined by its Chief
Executive Officer; provided that such duties and policies will not
be inconsistent with the nature of the duties performed by
Consultant during his active service with the Corporation as an
officer and employee thereof;
B. Consultant shall exercise a reasonable degree of skill and care in
performing the services referred to in paragraph A above;
<PAGE>
C. Consultant shall be available to render services to the
Corporation under this Agreement but shall not be obligated to
render in excess of 30 days of service per year during the term of
this Agreement. Consultant shall not be obligated to render any
services under this Agreement when he is unable to do so due to
illness, disability or injury; and
D. Consultant shall be available for service hereunder upon receipt
of five days' written notice from the Corporation.
E. Consultant will be paid at a rate of $1,000 for each day of
service rendered to the Corporation during the term of this
Agreement.
3. Other Conditions.
The Corporation shall, at its expense, provide Consultant with
appropriate and sufficient office space and secretarial help in order to allow
Consultant to perform his duties hereunder. Consultant shall have no authority
over any employee or officer of the Corporation, except as may be necessary in
the routine performance of his duties hereunder, nor shall the Corporation be
required in any manner to implement any plans or suggestions Consultant may
provide. Consultant shall also be entitled to reimbursement for reasonable out
of pocket expenses incurred by Consultant in the performance of his duties
hereunder.
4. Term.
The term of this Agreement shall begin on October 1, 1995, and shall
terminate on October 1, 2000; provided that in the event of Consultant's death
or total disability this Agreement shall terminate as of the date of death or
disability.
5. Renewal.
This Agreement may be renewed for an additional term by the mutual
written agreement of the parties.
6. Noncompete.
During the term of this Agreement, Consultant shall not be associated,
directly or indirectly as employee, proprietor, partner, agent, representative,
officer, or otherwise, with the operation of any business that is competitive
with the financial services industry or any other business of the Corporation or
its affiliates in the State of Illinois or any state contiguous with the State
of Illinois. Notwithstanding the foregoing, Consultant may participate in the
affairs of any governmental, educational or other charitable institution, may
continue to serve as a director or
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officer of all organizations which he served in any of those capacities at the
time of his retirement, may engage in professional speaking and writing
activities and may serve as a member of the board of directors of publicly held
corporations as long as the Chief Executive Officer of the Corporation, in good
faith, does not determine that such activities unreasonably interfere with the
business of the Corporation or diminish Consultant's duties and obligations to
the Corporation, and Consultant shall be entitled to retain all fees, royalties
and other compensation derived from such activities; and provided further, that
this Agreement shall not be construed to prevent Consultant from investing his
personal funds in any form or manner he may choose that will not require any
services on his part in the operation of or the affairs of the companies in
which such investments are made which are competitive with the financial service
industry or any other business of the Corporation or its affiliates in the State
of Illinois or any state contiguous with the State of Illinois.
7. Confidentiality.
Consultant acknowledged that, following his retirement from the
Corporation, he continues to be bound by the terms of the "Northern Trust
Corporation Statement of Policies and Procedures Regarding Confidential
Information, Securities Trading by Employees and Related Matters" (the
"Confidential Information Policy") and the "Northern Trust Corporation
Information Asset Security Policy" (the "Information Asset Security Policy") and
agrees that these policies will also apply to any information learned by him in
connection with the performance of his duties under this Agreement. Consultant
will not disclose to or discuss with any person not employed by the Corporation
or its affiliates any information of a type described as "confidential
information" in the Confidential Information Policy or as "information assets"
in the Information Asset Security Policy. This restriction will cease to apply
to information that has become generally known or is already known to the person
or persons with whom it is to be discussed, other than through a breach of the
Confidentiality Information Policy or the Information Asset Security Policy.
8. Relief.
In the event of a breach or a threatened or intended breach of Section
5 or Section 6 of this Agreement by Consultant, the Corporation shall be
entitled, in addition to remedies otherwise available to the Corporation at law
or in equity, to injunctions, both preliminary and permanent, enjoining such
breach or threatened or intended breach, and Consultant hereby consents to the
issuance thereof forthwith in any court of competent jurisdiction. In addition,
Consultant agrees to pay to the Corporation any costs and attorneys' fees
reasonably incurred by the Corporation in connection therewith.
The taking of any action by the Corporation or the forbearance of the
Corporation to take any action shall not constitute a waiver by the Corporation
of any of its rights to remedies or relief under this Agreement or under law or
equity.
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9. Complete Agreement.
This Agreement represents the complete Agreement between the
Corporation and Consultant concerning the subject matter hereof and supersedes
all prior agreements or understandings, written or oral. No attempted
modification or waiver of any of the provisions hereof shall be binding on
either party unless in writing and signed by both Consultant and the
Corporation.
10. Notices.
Any notice required or permitted to be given hereunder shall be in
writing and shall be effective three business days after it is properly sent by
registered or certified mail, if to the Corporation to its Secretary at the
principal place of business of the Corporation, or if to Consultant to the
address set forth beneath his signature to this Agreement, or to such other
address as either party may from time to time designate by notice.
11. Assignability.
This Agreement may not be assigned by either party without the prior
written consent of the other party, except that no consent is necessary for the
Corporation to assign this Agreement to a corporation succeeding to
substantially all the assets or business of the Corporation, whether by merger,
consolidation, acquisition or otherwise. This Agreement shall be binding upon
Consultant, his heirs and permitted assigns and the Corporation, its successors
and permitted assigns.
12. Severability.
Each of the sections contained in this Agreement shall be enforceable
independently of every other section in this Agreement, and the invalidity or
nonenforceability of any section shall not invalidate or render nonenforceable
any other section contained herein. If any section or provision in a section is
found invalid or unenforceable, it is the intent of the parties that a court of
competent jurisdiction shall reform the section or provision to produce its
nearest enforceable economic equivalent.
13. Applicable Law.
It is the intention of the parties hereto that all questions with
respect to the construction and performance of this Agreement and the rights and
liabilities of the parties hereto shall be determined in accordance with the
laws of the State of Illinois. The parties hereto submit to the jurisdiction of
the courts of Illinois in respect of any matter or thing arising out of this
Agreement or pursuant thereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and the year first above written.
Northern Trust Corporation
By: /s/ Peter L. Rossiter
___________________________
Executive Vice President
/s/ David W. Fox
_________________________
Consultant
Address of Consultant:
1201 Burr Ridge Club Drive
Burr Ridge, Illinois 60521
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EXHIBIT NUMBER (10)(xxiii)
TO 1995 FORM 10-K
NORTHERN TRUST CORPORATION
ANNUAL PERFORMANCE PLAN
1995
I. Purpose of Plan
The purpose of the Annual Performance Plan (the "Plan") is to promote the
achievement of superior financial and operating performance of the
Northern Trust Corporation and its subsidiaries (hereinafter referred to
as the "Corporation"), and further the objective of delivering unrivaled
service quality to its clients and partners through the awarding of cash
incentive payments to selected officers.
II. Plan Year
The Plan is effective from January 1, 1995 to December 31, 1995.
III. Eligibility and Participation
Eligibility to participate in the Plan is restricted to officers with the
title of Vice President and above and who are not eligible for
participation in a Specialized Incentive Plan. Plan participation is
reviewed each year, and participation in one year does not automatically
indicate participation in subsequent Plan years. Participation in the
Plan is based upon recommendation from the respective Business Unit Head.
IV. Award Funding and Determination
At the beginning of each Plan year, the Compensation and Benefits
Committee of the Board of Directors of the Corporation will determine a
Corporate Earnings Target and profit plan funding for awards under the
Annual Performance Plan. The allocation of the Plan award funding to each
respective Business Unit will be based on the salaries of eligible
officers with the Business Unit. Within each Business Unit, one-half of
the available funding for awards under the Plan will be based on the
Corporation's financial achievement versus the Corporate Earnings Target.
The other half of the award funding is based on the financial achievement
of the Business Unit versus the Business Unit's earnings target. For
staff support personnel, the available funding for awards will be based
entirely on the financial achievement of the Corporation versus the
Corporate Earnings Target. The formula determining the pool level funding
based on Corporate and Business Unit performance is described in
Attachment I.
V. Individual Award Determination
Individual participant awards will be discretionary. They will be
determined by Business Unit Management based on an assessment of
individual performance, relative to performance expectations,
contribution, competitive level of total compensation, and available
award pool funding.
<PAGE>
VI. Payment of Awards
Awards will be paid in cash as soon as practicable following the
completion of the Plan year. Awards payable because of a Change in
Control of the Corporation pursuant to Paragraph VIII (h) shall be paid
in cash as soon as practicable following such Change in Control.
VII. Administration
The Plan shall be administered by the Management Committee of the
Corporation (the "Committee"). Subject to the provisions of the Plan, the
Committee shall be authorized to interpret the Plan, to establish, amend
and rescind any rules and regulations relating to the Plan, and to make
all other determinations necessary or advisable for the administration
of the Plan. The determinations of the Committee in the effective
administration of the Plan, as described herein, shall be final and
conclusive.
The Board of Directors of the Corporation, by written resolution, may
amend, suspend, or terminate any or all provisions of the Plan at any
time.
VIII. Other Provisions
The following miscellaneous provisions are applicable to the Plan:
(a) Awards paid under the provisions of the Plan are considered
pensionable earnings when paid.
(b) Termination of employment by a participant during the Plan year,
either voluntary or involuntary with cause, and for reasons other
than death, disability, or retirement shall result in immediate
exclusion from the Plan.
(c) Except in the event of the death of a participant, the rights and
interests of a participant under the Plan shall not be assigned,
encumbered, or transferred.
(d) No employee or other person shall have any claim or right to be
granted an award under the Plan. Neither the Plan, nor any action
taken thereunder, shall be construed as giving any employee or other
person any right to be retained in the employ of the Corporation.
(e) The Corporation shall have the right to deduct from all payments
made under the Plan any taxes required by law to be withheld with
respect to such payment.
(f) All questions pertaining to the validity, construction and
administration of the Plan and any award hereunder shall be
determined in conformity with the laws of the State of Illinois.
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(g) Each participant shall designate a beneficiary (the "Designated
Beneficiary") to receive the award, if any, allocated to a
participant, in the event of such participant's death. If no
Designated Beneficiary survives the participant, it shall be the
surviving spouse of the participant or, if there is no surviving
spouse, it shall be the participant's estate.
(h) Notwithstanding any other terms contained herein, in the event of a
Change in Control of the Corporation, discretionary awards shall be
paid in accordance with the last sentence of Section V of this Plan
and as if the Corporation and Business Units had achieved the
respective earnings targets, as described in Section IV. For
purposes of this paragraph, a "Change in Control" of the Corporation
shall be deemed to occur on the earliest of:
(i) The receipt by the Corporation of a Schedule 13D or other
statement filed under Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
indicating that any entity, person, or group has acquired
beneficial ownership, as that term is defined in Rule 13d-3
under the Exchange Act, or more than 30% of the outstanding
capital stock of the Corporation entitled to vote for the
election of directors ("voting stock");
(ii) The commencement by any entity, person, or group (other than
the Corporation or a subsidiary of the Corporation) of a
tender offer or an exchange offer for more than 20% of the
outstanding voting stock of the Corporation;
(iii) The effective time of (A) a merger or consolidation of the
Corporation with one or more other corporations as a result
of which the holders of the outstanding voting stock of the
Corporation immediately prior to such merger or consolidation
hold less than 80% of the voting stock of the surviving or
resulting corporation, or (B) a transfer of substantially all
of the property of the Corporation other than to an entity of
which the Corporation owns at least 80% of the voting stock;
or
(iv) The election to the Board of Directors of the Corporation,
without the recommendation or approval of the incumbent Board
of Directors of the Corporation, or the lesser of (A) three
directors or (B) directors constituting a majority of the
number of directors of the Corporation then in office.
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EXHIBIT NUMBER (10)(xxiv)
To 1995 FORM 10-K
EMPLOYMENT SECURITY AGREEMENT
-----------------------------
THIS EMPLOYMENT SECURITY AGREEMENT is entered into this ____________ day of
__________________, 1996, between NORTHERN TRUST CORPORATION, a Delaware
corporation (the "Company"), and
____________________________________________________ (the "Executive").
WITNESSETH THAT:
---------------
WHEREAS, Executive is employed by the Company or one of its wholly-owned
subsidiaries (referred to collectively as the "Company") and the Company desires
to provide certain security to Executive in connection with any potential change
in control of the Company; and
WHEREAS, the Company and the Executive entered into an Employment Security
Agreement dated as of ________________, 19__ with respect to the Executive's
employment following a change in control of the Company (which agreement, as it
has been amended from time to time and supplemented by subsequent letter
agreements, is referred to in this Agreement as the "Prior Agreement"); and
WHEREAS, the Executive and the Company wish to supersede the Prior
Agreement with this Agreement;
NOW, THEREFORE, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. Payments and Benefits Upon a Change in Control. If within two (2) years
after a Change in Control (as defined below) or during the Period Pending a
Change in Control (as defined below), (i) the Company shall terminate
Executive's employment with the Company without Good Cause (as defined
below), or (ii) Executive shall voluntarily terminate such employment with
Good Reason (as defined below), the Company shall, within 30 days of
Executive's Employment Termination (as defined below), make the payments
and provide the benefits described below.
(a) Cash Payment. The Company shall make a lump sum cash payment to
Executive equal to three times the Executive's Annual Compensation
(as defined below).
(b) Short-Year Bonus. The Company shall make a lump sum cash payment to
Executive equal to a pro rata portion (based on the date on which
Executive's Employment Termination occurs) of the average of the
annual amounts paid to Executive under the Management Performance Plan
or any successor plan (the "MPP"), the Annual Performance Plan or any
successor plan (the "APP"), the Specialized Incentive Plans or any
successor plans (the "SIP") and any other cash-based incentive or
bonus plans, with respect to the last three full fiscal years of
Executive's participation in such plans prior to Employment
Termination or, if higher, prior to the Change in Control. For
purposes of the preceding sentence, if Executive's number of full
fiscal years of participation in the MPP, APP, SIP, and other cash-
based plan prior to the Change in Control is less than three, the
average amount shall be calculated as the average of the annual
amounts paid to Executive over the number of full fiscal years of
Executive's participation in the MPP, APP, SIP, and other plans prior
to the
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Change in Control, or the number of full fiscal years of Executive's
participation in the MPP, APP, SIP, and other plans prior to
Employment Termination, whichever produces a higher average annual
amount.
(c) Welfare Benefit Plans. With respect to each Welfare Benefit Plan (as
defined below), for the period beginning on Executive's Employment
Termination and ending on the earlier of (i) three years following
Executive's Employment Termination, or (ii) the date Executive becomes
covered by a welfare benefit plan or program maintained by an entity
other than the Company which provides coverage or benefits at least
equal, in all respects, to such Welfare Benefit Plan, Executive shall
continue to participate in such Welfare Benefit Plan on the same basis
and at the same cost to Executive as was the case immediately prior to
the Change in Control (or, if more favorable to Executive, as was the
case at any time hereafter), or, if any benefit or coverage cannot be
provided under a Welfare Benefit Plan because of applicable law or
contractual provisions, Executive shall be provided with substantially
similar benefits and coverage for such period. Immediately following
the expiration of the continuation period required by the preceding
sentence, Executive shall be entitled to continued group health
benefit plan coverage (so-called "COBRA coverage") in accordance with
Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code"), it being intended that COBRA coverage shall be consecutive to
the benefits and coverage provided for in the preceding sentence.
Executive's eligibility for, and premium contribution level under, The
Northern Trust Retiree Medical Care Plan and The Northern Trust
Medicare Supplemental Plan and any similar or successor plans or
programs maintained or contributed to by the Company, shall be
determined by adding three years to Executive's age and years of
service at Executive's Employment Termination.
(d) Supplemental Retirement Plans. All amounts accrued or accumulated on
behalf of Executive under the Supplemental Pension Plan for Employees
of The Northern Trust Company (the "SERP"), the Supplemental Thrift-
Incentive Plan for Employees of The Northern Trust Company (the
"Supplemental TIP") and the Supplemental Employee Stock Ownership Plan
for Employees of The Northern Trust Company (the "Supplemental ESOP")
will immediately be fully vested upon the Change in Control, and the
Company shall promptly pay or distribute all such amounts to Executive
in accordance with the terms of such plans as in effect on the date of
this Agreement (or as of Executive's Employment Termination, if more
favorable to Executive).
(e) Stock Incentive Plans. All stock options granted under the Northern
Trust Corporation Amended 1985 Incentive Stock Plan (the "1985 ISP"),
the Northern Trust Corporation 1992 Incentive Stock Plan (the "1992
ISP"), the Northern Trust Corporation Amended 1992 Incentive Stock
Plan (the "1995 ISP") and any other stock plan or program
(collectively referred to as the "ISPs"), will immediately become
fully vested and exercisable upon the Change in Control. All
restricted stock granted under the ISPs will immediately be fully
vested and distributed to Executive upon the Change in Control. With
respect to performance shares granted under the ISPs pursuant to the
Northern Trust Corporation Long Term Incentive Plan ("LTIP") or
otherwise, upon the Change in Control: (i) all performance shares
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credited to Executive's performance share account will be immediately
distributed to Executive (together with any other amounts then
credited to Executive's performance share account); (ii) a pro rata
portion of all performance shares awarded to Executive but not then
credited to Executive's performance share account will be immediately
distributed to Executive; and (iii) Executive will remain eligible for
crediting to Executive's performance share account as of the end of
the performance period, in accordance with the provisions of the LTIP
in effect as of the Change in Control, any remaining performance
shares awarded to Executive but not distributed in accordance with
this paragraph.
(f) Salary to Date of Employment Termination. The Company shall pay to
Executive any unpaid salary or other compensation of any kind earned
with respect to any period prior to Executive's Employment Termination
and a lump sum cash payment for accumulated but unused vacation earned
through such Employment Termination.
2. Definitions. For purposes of this Agreement:
(a) "Good Cause" shall mean: (i) Executive's conviction of any criminal
violation involving dishonesty, fraud, or breach of trust; (ii)
Executive's willful engagement in any misconduct in the performance of
Executive's duty that materially injures the Company; (iii)
Executive's performance of any act which, if known to the customers,
clients, stockholders or regulators of the Company or any of its
subsidiaries, would materially and adversely impact on the business of
the Company or any of its subsidiaries; (iv) any act or omission by
Executive that causes a regulatory body with jurisdiction over the
Company or any of its subsidiaries, to demand, request, or recommend
that Executive be suspended or removed from any position in which
Executive serves with the Company or any of its subsidiaries; or (v)
Executive's willful and substantial nonperformance of assigned duties,
provided that such nonperformance has continued more than ten days
after the Company has given written notice of such nonperformance and
of its intention to terminate Executive's employment because of such
nonperformance.
(b) "Good Reason" shall exist if, without Executive's express written
consent:
(i) The Company shall materially reduce the nature, scope, level or
extent of Executive's responsibilities from the nature, scope,
level or extent of such responsibilities prior to the Change in
Control, or shall fail to provide Executive with adequate
office facilities and support services to perform such
responsibilities;
(ii) The Company shall reduce Executive's salary below that in
effect as of the date of this Agreement (or as of the Change in
Control, if greater);
(iii) The Company shall require Executive to relocate Executive's
principal business office or his principal place of residence
outside the ______________, ______________ Standard
Metropolitan Statistical Area (the "Geographical Employment
Area"), or assign to Executive duties that would reasonably
require such relocation;
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(iv) The Company shall require Executive, or assign duties to
Executive which would reasonably require Executive, to spend
more than fifty normal working days away from the Geographical
Employment Area during any consecutive twelve-month period; or
(v) The Company shall fail to continue in effect any cash or stock-
based incentive or bonus plan, retirement plan, welfare benefit
plan, or other benefit plan, program or arrangement, unless the
aggregate value (as computed by an independent employee
benefits consultant selected by the Company) of all such
compensation, retirement and benefit plans, programs and
arrangements provided to Executive is not materially less than
their aggregate value as of the date of this Agreement (or as
of the Change in Control, if greater).
(c) "Change in Control" shall be deemed to occur on the earliest of:
(i) The receipt by the Company of a Schedule 13D or other statement
filed under Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), indicating that any
entity, person, or group has acquired beneficial ownership, as
that term is defined in Rule 13d-3 under the Exchange Act, of
more than 30% of the outstanding capital stock of the Company
entitled to vote for the election of directors ("voting
stock");
(ii) The commencement by an entity, person, or group (other than the
Company or a subsidiary of the Company) of a tender offer or an
exchange offer for more than 20% of the outstanding voting
stock of the Company;
(iii) The effective time of (A) a merger or consolidation of the
Company with one or more other corporations as a result of
which the holders of the outstanding voting stock of the
Company immediately prior to such merger or consolidation hold
less than 60% of the voting stock of the surviving or resulting
corporation, or (B) a transfer of substantially all of the
property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock; or
(iv) The election to the Board of Directors of the Company, without
the recommendation or approval of the incumbent Board of
Directors of the Company, of the lesser of: (A) three
directors; or (B) directors constituting a majority of the
number of directors of the Company then in office.
(d) "Annual Compensation" shall mean the sum of: (i) Executive's salary
at the greater of (A) Executive's salary rate in effect on the date of
the Change in Control, or (B) Executive's salary rate in effect on
Executive's Employment Termination; and (ii) the Amounts Payable Under
Any Cash Bonus Plans (as defined below) in which Executive
participates.
(e) "Employment Termination" shall mean the effective date of: (i)
Executive's voluntary termination of employment with the Company with
Good Reason; or (ii) the termination of Executive's employment by the
Company without Good Cause.
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(f) "Welfare Benefit Plan" shall mean each welfare benefit plan maintained
or contributed to by the Company, including, but not limited to a plan
that provides health (including medical and dental), life, accident or
disability benefits or insurance, or similar coverage, in which
Executive was participating at the time of the Change in Control.
(g) "Amounts Payable Under Any Cash Bonus Plans" shall mean the sum of
whichever of the following are applicable to Executive: (i) the
amount that would be awarded to Executive under the MPP, assuming the
target award percentage was applicable and Executive was employed for
the full fiscal year in which Executive's Employment Termination
occurs; (ii) the average of the annual amounts paid to Executive under
the APP with respect to the last three full fiscal years of
Executive's participation in the APP prior to Employment Termination
or, if higher, prior to the Change in Control; (iii) the average of
the annual amounts paid to Executive under the SIPs with respect to
the last three full fiscal years of Executive's participation in the
SIPs prior to Employment Termination or, if higher, prior to the
Change in Control; and (iv) the average of the annual amounts paid to
Executive under any other cash-based incentive or bonus plans in which
Executive participates after the date of this Agreement with respect
to the last three full fiscal years of Executive's participation in
such plans prior to Employment Termination or, if higher, prior to the
Change in Control. For purposes of the preceding sentence, if
Executive's number of full fiscal years of participation in the APP,
SIP, or other cash-based plan prior to the Change in Control is less
than three, the amount under clause (ii), (iii) or (iv) of this
paragraph shall be calculated as the average of the annual amounts
paid to Executive over the number of full fiscal years of Executive's
participation in the APP, SIP, or other plans prior to the Change in
Control, or the number of full fiscal years of Executive's
participation in the APP, SIP, or other plans prior to Employment
Termination, whichever produces a higher average annual amount.
(h) "Period Pending a Change in Control" shall mean the period after the
approval by the Company's stockholders and prior to the effective time
of (A) a merger or consolidation of the Company with one or more other
corporations as a result of which the holders of the outstanding
voting stock of the Company immediately prior to such merger or
consolidation hold less than 60% of the voting stock of the surviving
or resulting corporation, or (B) a transfer of substantially all of
the property of the Company other than to an entity of which the
Company owns at least 80% of the voting stock.
3. Certain Additional Payments by the Company.
(a) Gross-Up. Anything in this Agreement to the contrary notwithstanding,
in the event that any payment or distribution by or on behalf of the
Company to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments
required under this Section 3) (the "Payments") is determined to be an
"excess parachute payment" pursuant to Code Section 280G or any
successor or substitute provision of the Code, with the effect that
Executive is liable for the payment of the excise tax described in
Code Section 4999 or any successor or substitute provision of the
Code, or any interest or penalties are
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incurred by Executive with respect to such Payments (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Executive shall be
entitled to receive an additional payment (the "Gross-Up Payment") in
an amount such that after payment by Executive of all taxes imposed
upon the Gross-Up Payment, including, without limitation, federal,
state, local or other income taxes, FICA taxes, and additional Excise
Tax (and any interest and penalties imposed with respect to such
taxes), Executive retains a portion of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
(b) Determination of Gross-Up. Subject to the provisions of Section 3(c),
all determinations required to be made under this Section 3, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by the public accounting firm that
serves as the Company's auditors (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and
Executive within 15 business days of the receipt of notice from the
Company or Executive that there have been Payments, or such earlier
time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or
group effecting the Change in Control, Executive shall designate
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 3, shall be
paid by the Company to Executive within five days after the receipt by
the Company and Executive of the Accounting firm's determination. If
the Accounting Firm determines that no Excise Tax is payable by
Executive, it shall furnish Executive with a written opinion that
failure to report the Excise Tax on Executive's applicable federal
income tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and Executive, except as provided in
paragraph (c) below.
(c) IRS Claims. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that the Internal
Revenue Service or other agency will claim that a greater Excise Tax
is due, and thus a greater amount of Gross-Up Payment should have been
made by the Company than that determined pursuant to paragraph (b)
above (an "Underpayment"). In the event that Executive is required to
make a payment of any such Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred, if any,
and such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. Executive shall notify the Company in
writing of any claim by the Internal Revenue Service or other agency
that, if successful, would require the payment by the Company of the
Gross-Up Payment or an Underpayment.
4. Mitigation and Set-Off. Executive shall not be required to mitigate
Executive's damages by seeking other employment or otherwise. The
Company's obligations under this Agreement shall not be reduced in any way
by reason of any compensation or benefits received (or foregone) by
Executive from sources other than the Company after Executive's Employment
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Termination, or any amounts that might have been received by Executive in
other employment had Executive sought such other employment. Executive's
entitlement to benefits and coverage under this Agreement shall continue
after, and shall not be affected by, Executive's obtaining other employment
after his Employment Termination, provided that any such benefit or
coverage shall not be furnished if Executive expressly waives the specific
benefit or coverage by giving written notice of waiver to the Company.
5. Litigation Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including attorneys' fees, incurred by Executive in the event
Executive successfully enforces any provision of this Agreement in any
action, arbitration or lawsuit.
6. Assignment; Successors. This Agreement may not be assigned by the Company
without the written consent of Executive but the obligations of the Company
under this Agreement shall be the binding legal obligations of any
successor to the Company by merger, consolidation or otherwise, and in the
event of any business combination or transaction that results in the
transfer of substantially all of the assets or business of the Company, the
Company will cause the transferee to assume the obligations of the Company
under this Agreement. This Agreement may not be assigned by Executive
during Executive's life, and upon Executive's death will inure to the
benefit of Executive's heirs, legatees and legal representatives of
Executive's estate.
7. Interpretation. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Illinois,
without regard to the conflict of law principles thereof. The invalidity
or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
8. Withholding. The Company may withhold from any payment that it is required
to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state or local law.
9. Amendment or Termination. This Agreement may be amended at any time by
written agreement between the Company and Executive. The Company may
terminate this Agreement by written notice given to Executive at least two
years prior to the effective date of such termination, provided that, if a
Change in Control occurs prior to the effective date such termination, the
termination of this Agreement shall not be effective and Executive shall be
entitled to the full benefits of this Agreement. Any such amendment or
termination shall be made pursuant to a resolution of the Board.
10. Financing. Cash and benefit payments under this Agreement shall constitute
general obligations of the Company. Executive shall have only an unsecured
right to payment thereof out of the general assets of the Company.
Notwithstanding the foregoing, the Company may, by agreement with one or
more trustees to be selected by the Company, create a trust on such terms
as the Company shall determine to make payments to Executive in accordance
with the terms of this Agreement.
11. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
-7-
<PAGE>
12. Other Agreements. This Agreement supersedes and cancels the Prior
Agreement, and all prior written or oral agreements and understandings
relating to the terms of this Agreement or the Prior Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
NORTHERN TRUST CORPORATION
By:_________________________
______________________________
Its:_______________________ Executive
-8-
<PAGE>
EXHIBIT NUMBER (11)
TO 1995 FORM 10-K
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
Computations Required by Regulation S-K
- ---------------------------------------
Primary Earnings Per Share
- --------------------------
Net Income Applicable to Common Shares $211,461,135 $174,917,377 $161,572,474
------------ ------------ ------------
Weighted Average Number of
Common and Common Equivalent Shares Outstanding
Common Shares 55,368,671 53,866,513 53,019,436
Diluted Effect of Common Equivalent Shares (A)
Stock Options 609,254 863,506 1,177,972
Long Term Performance Stock Plan 345,251 405,626 391,025
Other 14,741 8,569 1,500
------------ ------------ ------------
56,337,917 55,144,214 54,589,933
============ ============ ============
Net Income Per Common and Common Equivalent Share $3.75 $3.17 $2.96
----- ----- -----
</TABLE>
(A) Determined by application of the treasury stock method.
1
<PAGE>
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
Computations Required by Regulation S-K
- ---------------------------------------
Fully Diluted Earnings Per Share
- --------------------------------
Net Income Applicable to Common Shares $211,461,135 $174,917,377 $161,572,474
Add Back: Dividend on Series E Convertible Preferred Stock 3,125,000 3,125,000 3,129,199
------------ ------------ ------------
$214,586,135 $178,042,377 $164,701,673
============ ============ ============
Weighted Average Number of
Common and Common Equivalent Shares Outstanding
Common Shares 55,368,671 53,866,513 53,019,436
Diluted Effect of Common Equivalent Shares (A)
Stock Options 1,109,533 866,356 1,223,468
Long Term Performance Stock Plan 365,635 406,022 399,331
Other 20,124 8,664 1,754
Other Potentially Dilutive Securities Equivalent Shares
Assuming Conversion of Series E Convertible
Preferred Stock 1,204,820 1,204,820 1,204,820
------------ ------------ ------------
58,068,783 56,352,375 55,848,809
============ ============ ============
Net Income Per Common and Common Equivalent Share $3.70 $3.16 $2.95
----- ----- -----
</TABLE>
(A) Determined by application of the treasury stock method.
2
<PAGE>
EXHIBIT NUMBER (13)
TO 1995 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 with its headquarters located in the
Chicago financial district. The Corporation also owns banks in each of the
states of Arizona, California, Florida and Texas, and various other nonbank
subsidiaries, including a securities brokerage firm, a futures commission
merchant, an international investment consulting firm and a retirement benefit
plan services company. The Corporation's three other Illinois banks were merged
into the Bank on February 29, 1996. 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 Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with Northern Trust's Consolidated Fi-
nancial Statements and Consolidated Financial Statistics included herein.
RESULTS OF OPERATIONS
OVERVIEW. Net income for 1995 totaled a record $220.0 million, a 20.8% increase
from the $182.2 million earned in 1994 which in turn was 8.5% greater than the
$167.9 million earned in 1993.
On a fully diluted basis, net income per common share increased 17% to $3.70 in
1995, compared with net income per common share of $3.16 in 1994 and $2.95 in
1993.
The record 1995 net income performance, together with strong growth in equity,
produced a return on average common stockholders' equity of 17.6% compared with
16.6% in 1994 and 17.9% in 1993. The return on average assets was 1.13% in 1995
compared with 1.02% in 1994 and 1.07% in 1993.
1995 marks the eighth consecutive year of record earnings. Trust fees reached a
new high, surpassing $500 million, while trust assets under administration
reached $614 billion at December 31, 1995, up $115 billion from 1994. The
record earnings resulted from excellent growth in all of Northern Trust's
diversified revenue sources combined with strong expense control.
Primarily through the retention of earnings, stockholders' equity grew to $1.5
billion as compared to $1.3 billion at December 31, 1994 and $1.2 billion at
December 31, 1993.
The Board of Directors increased the quarterly dividend per common share 19.2%
in November 1995, to $.31 from $.26, for a new annual rate of $1.24. This is
the ninth 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 service
quality, cost containment and the maximization of the benefits derived from its
investments in technology. Expense growth and capital expenditures are also
closely monitored to ensure that short- and long-term business strategies are
effectively supported. In early 1995, Northern Trust committed to control its
expense growth rate by taking approximately $50 million out of base expenses
over the next three years. Northern Trust met its goal for 1995 and now expects
to meet the balance of the three-year goal during 1996.
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(In Millions Except Per
Share Amounts) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 357.6 $ 334.6 $ 327.9 $ 310.3 $ 281.1
Provision for Credit
Losses 6.0 6.0 19.5 29.5 31.0
Noninterest Income
Trust Fees 505.0 453.4 404.8 368.4 303.1
Other Noninterest Income 173.1 180.0 149.0 141.9 110.5
Noninterest Expenses 709.2 700.5 628.2 584.6 500.1
Provision for Income Taxes 100.5 79.3 66.1 57.0 36.2
- -----------------------------------------------------------------------------
NET INCOME $ 220.0 $ 182.2 $ 167.9 $ 149.5 $ 127.4
- -----------------------------------------------------------------------------
Net Income Applicable to
Common Stock $ 211.5 $ 174.9 $ 161.6 $ 142.7 $ 121.4
- -----------------------------------------------------------------------------
PER COMMON SHARE
Net Income-Primary $ 3.75 $ 3.17 $ 2.96 $ 2.64 $ 2.29
- -Fully Diluted 3.70 3.16 2.95 2.64 2.27
Dividends Declared 1.09 .92 .775 .665 .58
- -----------------------------------------------------------------------------
Average Total Assets $19,409.5 $17,885.8 $15,700.2 $13,418.0 $12,182.5
Senior Notes at Year-End 17.0 547.0 817.0 312.0 2.0
Notes Payable at Year-End 334.6 244.8 326.8 233.2 264.1
</TABLE>
12 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
represents 63% of its total taxable equivalent revenue, compared with 62% one
year ago, exclusive of the $28.5 million 1994 pretax gain on the sale of the
Corporation's 21% interest in Banque Scandinave en Suisse (BSS). Noninterest
income totaled $678.1 million in 1995, $633.4 million in 1994 and $553.8
million in 1993.
TRUST FEES. Trust fees accounted for nearly 75% of total noninterest income and
47% of total taxable equivalent revenue in 1995. Trust fees for 1995 increased
11% to $505.0 million from $453.4 million in 1994 which was up 12% from $404.8
million in 1993. Trust fees have increased at a compound growth rate of 13% for
the last five years. The increase in 1995 trust fees is principally the result
of growth in business from new and existing clients, particularly for
investment management, custody, retirement services and securities lending
services coupled with growth in stock and bond market values. The March 31,
1995 acquisition of The Beach Bank of Vero Beach, Florida (Beach Bank) and the
October 31, 1995 acquisition of RCB International, Inc. (RCB), an international
provider of institutional investment management services, contributed
approximately $6.1 million in trust fees in 1995. Contributing to the 1994 fee
growth were new business results in addition to the incremental impact of fees
contributed by Hazlehurst & Associates, Inc. (Hazlehurst), an April 1994
acquisition.
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 $4.6 billion in 1995
and $3.9 billion in 1994.
Northern Trust's fiduciary 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 (C&IS) and Personal Financial
Services (PFS). The discussion of trust activities in each of these business
units follows.
CORPORATE AND INSTITUTIONAL SERVICES. At December 31, 1995 trust assets under
administration in C&IS totaled $550.5 billion, an increase of 23% from $447.2
billion a year ago. Trust fees in C&IS increased 12% in 1995 to $257.5 million
from $230.1 million in 1994 which was up 18% from $195.0 million in 1993.
Northern Trust is a leading provider of Master Trust and Master Custody
services to large U.S. corporate, middle market, institutional and
international clients, and public and union retirement funds. In addition to
Master Trust and Master Custody, C&IS offers a comprehensive array of
retirement service and investment service products.
Large U.S. Corporate. Trust fees from the large U.S. corporate market segment
totaled $86.1 million in 1995. Trust fees for this segment in 1994 and 1993
totaled $81.4 million and $77.3 million, respectively. Assets under
administration totaled $186.5 billion at December 31, 1995 compared with $152.9
billion a year ago.
Much of the anticipated 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, its family of institutional funds, and
the services offered through Hazlehurst.
Middle Market. Trust fees from the middle market segment totaled $25.3 million
in 1995. Trust fees for this segment in 1994 and 1993 totaled $25.1 million and
$22.4 million, respectively. Assets under administration totaled $19.0 billion
at December 31, 1995 compared with $17.1 billion a year ago. New business has
primarily been attributable to the sale of investment service products.
Effective January 1, 1996, the trust and banking activities of the middle
market segment transferred to the PFS business unit.
Institutional. This market segment, which includes insurance companies,
foundations and endowments, and correspondent trust services, 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. Three of
the ten largest foundations are clients as are many of the largest endowment
funds in the United States. Northern Trust leverages its investment in
technology by providing smaller bank trust departments with custody, systems,
and investment services through its correspondent trust services offerings.
Trust fees from the institutional market segment in 1995, 1994 and 1993 totaled
$50.1 million, $48.0 million
Northern Trust Corporation 13
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
and $43.4 million, respectively. Assets under administration at December 31,
1995 increased to $141.6 billion from $118.9 billion at December 31, 1994.
International. This segment is composed of non-U.S. clients from eighteen
countries and has had the highest compound growth rate for the last three years
when measured in terms of assets under administration and trust fees. At
December 31, 1995 assets under administration totaled $67.3 billion, up 40%
from $48.1 billion at year-end 1994, which in turn was up 51% over the previous
year-end. Trust fees for 1995 increased 18% to $33.9 million. This compares
with $28.8 million in 1994 which was up 56% from $18.4 million in 1993.
Northern Trust continues to invest in the required systems capabilities and
sub-custodial network necessary to capitalize on the growth opportunities
presented by the development of worldwide financial markets.
Retirement Services. Public and union retirement funds and the operations of
Hazlehurst are included in retirement services. In 1995 these activities
contributed $58.3 million in trust fees, compared with $46.8 million in 1994
and $33.5 million in 1993. At December 31, 1995, $104.7 billion of assets were
under administration versus $83.8 billion at December 31, 1994. Growth in this
area 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 the public and union retirement funds market
segment tends to be 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. The services offered through Hazlehurst include
retirement plan design, participant recordkeeping, and actuarial and consulting
services that complement Northern Trust's custody, fiduciary and investment
management capabilities in the strategically important retirement services
market.
Investment Services. Investment management activities, securities lending, and
the operations of RCB are included in investment services. This group is
responsible for the managed portion of trust assets under administration that
are shown within the various market segments. Fees associated with these
activities, with the exception of RCB-related fees, are also shown within the
market segments. Total assets under management grew from $51.5 billion at year-
end 1994 to $67.2 billion at year-end 1995; $35.8 billion was direct asset
management while the remaining $31.4 billion was securities lending collateral.
Northern Trust accelerated in 1995 its positioning as a global, multi-asset
class manager with an expanded array of investment service and product
capabilities. Advisory services assist clients in defining and evaluating their
investment strategy. Investment products, developed by Northern Trust and
selected partners, help clients implement their investment strategies.
Information products, delivered through Passport, provide assistance in
monitoring conformance with investment policy guidelines. Northern Trust
continues to be ranked by Pensions and Investments magazine as one of the
largest institutional money managers in the U.S.
On October 31, 1995, Northern Trust completed its acquisition of RCB
International, Inc., which had $5.0 billion in assets under management at year-
end 1995 and provided $3.8 million in trust fees in 1995. RCB provides value-
added U.S. and international multiple manager programs to complement the
capabilities of Northern Trust in the fixed income, equity and short-term
markets.
Clients who utilize trust services may elect to have their securities lent to
generate revenues, thereby improving 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 and included in trust assets under management. The
growth in domestic and international lending fees, up 19% over 1994, reflects
an increase in the volume of securities loaned. The cash collateral totaled
$31.4 billion and $26.4 billion at December 31, 1995 and 1994, respectively.
During the first quarter of 1995, Northern Trust commenced operations in its
new Hong Kong subsidiary to better facilitate the lending of securities from
its clients' global portfolios. Also in 1995, additional investment options
were made 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 the basic custody service product, 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 basic custody, economies of scale and
technological innovation.
In terms of assets under administration, global custody is one of the fastest
growing products within C&IS. This product provides the necessary service
capabilities 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
66 countries, Northern Trust had global assets of approximately $85 billion
under administration at December 31, 1995 which is 30% greater than last year.
14 Northern Trust Corporation
<PAGE>
CONSOLIDATED TRUST ASSETS UNDER ADMINISTRATION
<TABLE>
<CAPTION>
Percent Five-Year
December 31 Change Compound
---------------------------------- ------- Growth
($ In Billions) 1995 1994 1993 1992 1991 1995/94 Rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Corporate $ 67.2 $ 51.5 $ 46.6 $ 41.7 $ 36.0 30% 12%
Personal 38.3 30.8 30.5 27.9 22.7 24 15
- -------------------------------------------------------------------------------
TOTAL MANAGED TRUST
ASSETS $105.5 $ 82.3 $ 77.1 $ 69.6 $ 58.7 28% 13%
- -------------------------------------------------------------------------------
Corporate $483.3 $395.7 $379.9 $323.2 $287.8 22% 19%
Personal 25.1 20.6 19.5 18.9 14.8 22 15
- -------------------------------------------------------------------------------
TOTAL NON-MANAGED TRUST
ASSETS $508.4 $416.3 $399.4 $342.1 $302.6 22% 18%
- -------------------------------------------------------------------------------
CONSOLIDATED TRUST ASSETS
UNDER ADMINISTRATION $613.9 $498.6 $476.5 $411.7 $361.3 23% 17%
</TABLE>
PERSONAL FINANCIAL SERVICES. At December 31, 1995 trust assets under
administration in PFS totaled $63.4 billion, an increase of 23% from $51.4
billion at December 31, 1994. Trust fees increased 11% in 1995 to $247.5
million while 1994 trust fees totaled $223.3 million, an increase of 7% from
$209.8 million in 1993. Although all geographic markets contributed to the 1995
increase, the strongest fee growth occurred in the Wealth Management Group and
the Florida and Texas markets.
Northern Trust has positioned itself in states having significant
concentrations of wealth and growth potential, with a network of 52 locations
in Illinois, Florida, California, Arizona, and Texas as of February 1996. 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 8% to $124.0 million in
1995 from $114.7 million in 1994, which was up 5% from $109.8 million in 1993.
Over 40% of the increase in Illinois-based PFS fees is attributable to the
rapid growth in services provided by the Wealth Management Group. Northern
Trust's Wealth Management Group provides customized products and services to
meet the complex financial needs of families throughout the country with assets
typically exceeding $100 million. The moderate rate of growth in other trust
fees in Illinois 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. Northern
Trust has the leading market share in the Chicago area personal trust market.
Including the Wealth Management Group, total trust assets under administration
totaled $40.1 billion at December 31, 1995 compared with $32.8 billion a year
ago. Over the years clients have been attracted by both the quality of trust
services and the financial strength and stability which Northern Trust has
consistently 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 1995 totaled
$65.9 million, up 15% from $57.2 million in 1994 which was up 9% from $52.2
million in 1993. Included in the 1995 results is $2.3 million of fees
contributed by Beach Bank, a March 31, 1995 acquisition. Trust assets under
administration were $13.2 billion at December 31, 1995, and $10.3 billion at
year-end 1994. The five-year compound growth rates for trust fees and trust
assets have been 13% and 15%, respectively. With two new offices in Vero Beach
and one each in Bradenton, Bonita Springs and Delray Beach, Northern Trust now
has twenty-one offices located in coastal communities encompassing the southern
half of the state. Management believes there remains significant opportunity
for growth in the markets currently served in Florida.
California. Northern Trust's California subsidiary has six offices
strategically located throughout the state to reach the California trust
market. Trust fees for 1995 increased 9% to $37.0 million from $34.0 million in
1994 which was up 5% from $32.3 million in 1993. Trust assets under
administration totaled $6.1 billion at December 31, 1995 and $5.3 billion at
December 31, 1994.
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 includes providing private banking and trust services to targeted high
net worth individuals. Trust fees from this market were $13.7 million in 1995,
$12.8 million in 1994 and $11.9 million in 1993. Assets under administration at
December 31, 1995 and 1994 totaled $2.1 billion and $1.7 billion, respectively.
Northern Trust Corporation 15
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Texas. Northern Trust expanded its presence in Texas during 1995 with the
acquisition of Tanglewood Bancshares, Inc., parent company of Tanglewood Bank
N.A. of Houston, in the third quarter. The two banking locations acquired now
provide trust services and complement Northern Trust's existing facilities,
positioning Northern Trust as a premier provider of personal trust and
financial services in this attractive market. 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 six
offices since its entry into the Texas market in 1989. Trust fees for 1995,
1994 and 1993 were $6.9 million, $4.6 million and $3.6 million, respectively.
Trust assets under administration were $1.9 billion at December 31, 1995 and
$1.3 billion at December 31, 1994.
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 bond accounts
remains in the top quartile for every cumulative performance period from one
through nine years ended December 31, 1995, as measured by SEI, a nationally
recognized plan sponsor consultant. Investment management performance for
equity accounts was solidly above the median for every cumulative performance
period from six through ten years ended December 31, 1995, as measured by SEI.
Northern Trust leveraged its investment expertise with the establishment in
1994 of a second mutual fund family, the Northern Funds. Assets in this family
of funds reached $3.6 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 other selected upscale personal
markets. In Florida, expansion into additional counties is planned over the
next three to five years. This expansion will be achieved primarily de novo,
but may include selective acquisitions. 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 $21.7 million in 1995, compared with $22.0 million in 1994 and
$21.3 million in 1993. 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. The 1995 results reflect
modest growth in security brokerage activities offset by a decline in the
clearing volume of futures contracts.
OTHER OPERATING INCOME. Other operating income in 1995 totaled $150.4 million
compared with $158.1 million in 1994 and $125.9 million in 1993. The 1994
results included a $28.5 million pretax gain on the 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 Bank's
London branch. The principal items included in other operating income are
foreign exchange trading profits and treasury management fees. Foreign exchange
trading profits totaled a record $55.3 million, up 54% from the $35.9 million
reported a year ago, which was up from $32.4 million in 1993. A substantial
component of foreign exchange profits resulted from transactions associated
with the growing global custody business. As custodian, Northern Trust provides
foreign exchange services in the normal course of business. Active management
of currency positions, within established limits, produced an ancillary
component of aggregate trading profits. The fee portion of treasury management
revenues totaled $49.6 million in 1995, a 7% increase from the $46.3 million
reported in 1994 compared with $49.0 million in 1993. Total treasury management
revenues, which, in addition to fees, include the value of compensating deposit
balances, increased 6% to $77.5 million from $73.0 million in 1994 and $72.4
million in 1993. Other operating income in 1995 reflected losses of $.5 million
from the sale of mortgage loans, compared with gains of $.1 million in 1994 and
$3.9 million in 1993. Other operating income in 1995 also benefited from higher
fees on trust-related overnight advances offset by lower revenues from
operating other real estate owned (OREO) 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 $90 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 gains totaling $1.0 million
were realized in 1995 primarily from held to maturity securities that were
called at a premium, in addition to $.1 million in gains from the sale of
securities classified as available for sale. This compares with net losses of
$.1 million in 1994 and $1.8 million in net gains in 1993.
16 Northern Trust Corporation
<PAGE>
ANALYSIS OF NET INTEREST INCOME
(FTE)
<TABLE>
<CAPTION>
Percent Change
---------------
($ In Millions) 1995 1994 1993 1995/94 1994/93
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 1,104.0 $ 848.7 $ 706.4 30.1% 20.2%
Fully Taxable Equivalent
Adjustment 37.6 33.4 34.1 12.6 (2.3)
- ---------------------------------------------------------------------------
Total Interest Income-FTE 1,141.6 882.1 740.5 29.4 19.1
Total Interest Expense 746.4 514.1 378.5 45.2 35.8
- ---------------------------------------------------------------------------
NET INTEREST INCOME--FTE 395.2 368.0 362.0 7.4 1.6
- ---------------------------------------------------------------------------
AVERAGE VOLUME
Earning Assets 17,193.7 15,737.2 13,730.7 9.3 14.6
Interest-Related Funds 14,528.3 13,328.9 11,727.3 9.0 13.7
Noninterest-Related Funds 2,665.4 2,408.3 2,003.4 10.7 20.2
- ---------------------------------------------------------------------------
<CAPTION>
Change in
Percentage
AVERAGE RATE ---------------
<S> <C> <C> <C> <C> <C>
Earning Assets 6.64% 5.61% 5.39% 1.03 0.22
Interest-Related Funds 5.14 3.86 3.22 1.28 0.64
Interest Rate Spread 1.50 1.75 2.17 (.25) (0.42)
Total Source of Funds 4.34 3.27 2.75 1.07 0.52
- ---------------------------------------------------------------------------
NET INTEREST MARGIN 2.30 2.34 2.64 (.04) (0.30)
</TABLE>
Refer to page 60 for detailed analysis of net interest income.
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 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 1995 was a record $357.6 million, up 7% from $334.6
million in 1994, which was up 2% from $327.9 million in 1993. 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 1995 was a
record $395.2 million, an increase of $27.2 million or 7% from $368.0 million
in 1994 which in turn was up 2% from $362.0 million in 1993. The growth in FTE
net interest income was essentially attributable to growth in average earning
assets, due in part to acquisitions, and was partially offset by a decline in
the net interest margin to 2.30% from 2.34% last year and 2.64% in 1993.
Earning assets averaged $17.2 billion, up 9% or $1.5 billion from the $15.7
billion reported in 1994, which was up from $13.7 billion in 1993.
Approximately 15% of the growth in earning assets resulted from the Beach Bank
and Tanglewood Bank acquisitions. Inclusive of these acquisitions, the growth
in average earning assets reflects a 10% or $820 million increase in loans, a
24% or $1.2 billion increase in securities and a 23% or $555 million decline in
money market assets. Loan volume for the year averaged $9.1 billion reflecting
a $921 million or 12% increase in domestic lending while international loans
decreased $101 million. The domestic growth came principally from residential
mortgage activities, up $446 million, and commercial and industrial loans, up
$365 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 $663 million in 1995, up 17% from a
year ago, resulting from domestic activity. Securities averaged $6.2 billion in
1995 versus $5.0 billion in 1994, due primarily to a $1.8 billion increase in
short-term federal agency and other marketable securities, offset in part by a
$554 million reduction in U.S. Government securities. Money market assets
averaged $1.9 billion in 1995 versus $2.4 billion in 1994, reflecting a
decrease in international deposit placement activity.
Northern Trust Corporation 17
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
The increase in average earning assets of $1.5 billion was funded primarily by
growth in interest-bearing time deposits, which averaged $9.3 billion, up $1.0
billion. This growth was principally from savings certificates, up $771 million
due in large part to certificate of deposit marketing campaigns. Global custody
deposit activity in the London branch was up $103 million, while other foreign
time deposits increased $106 million. Other interest-related funds averaged
$5.2 billion, up $163 million, principally from securities sold under
agreements to repurchase (up $325 million) and federal funds purchased (up $213
million), and offset by a $375 million decline in senior notes and all other
borrowings. Average net noninterest-related funds increased $257 million,
mainly due to higher stockholders' equity and demand deposits. Stockholders'
equity for the year averaged $1.4 billion, an increase of $147 million or 12%
from 1994, principally due to strong earnings performance. The increase in
average demand deposits reflects higher levels of trust-related deposits and
balances resulting from acquisitions.
The net interest margin declined to 2.30% from 2.34% last year due primarily to
lower spreads on the higher volume of short-term liquid assets funded by short-
term liabilities, 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.
PROVISION FOR CREDIT LOSSES. Asset quality remained strong which resulted in
the provision for credit losses being unchanged from the prior year at $6.0
million, down from $19.5 million in 1993. For a discussion of the reserve for
credit losses, refer to pages 23 and 24.
NONINTEREST EXPENSES. Noninterest expenses for 1995 totaled $709.2 million, up
$8.7 million or 1% from $700.5 million in 1994, which was up 12% from $628.2
million in 1993. Total expenses included $10.3 million of incremental expenses
resulting from 1995 acquisitions. As a result of a reduction in premium rates,
FDIC insurance expense in 1995 declined by $7.7 million compared to last year.
Also included in the 1995 results is a $4.1 million pension settlement charge.
Noninterest expenses in 1994 included $30.9 million of nonrecurring charges.
Exclusive of all of these items for both years, 1995 noninterest expenses
increased 5% over last year. The majority of this increase was the result of
continued investment in technology and expansion of the personal trust and
banking office network.
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 151% for 1995 compared with 143% in 1994 and 146%
in 1993.
SALARIES AND BENEFITS. Salaries and benefits, which represent 59% of total
noninterest expenses, increased 7% to $419.1 million in 1995 from $391.4
million in 1994, which was up 8% from $361.5 million in 1993. Salary costs, the
largest component of noninterest expenses, totaled $337.6 million, up $21.0
million or 7% from $316.6 million a year ago. Included in the 1994 results was
a $4.2 million addition to salary expense relating to overtime back pay
obligations. The principal items contributing to the change in 1995 were merit
increases, incentive compensation, and staff additions from the Beach Bank,
Tanglewood Bank and RCB acquisitions, and to support Northern Trust's growing
global custody and retirement services activities. The record earnings
performance, together with the price increase in Northern Trust Corporation
stock, increased incentive-based compensation to $43.9 million, a 23% increase
from a year ago. Also contributing to the increase was $3.3 million in
severance costs associated with staff reductions.
Staff on a full-time equivalent (FTE) basis averaged 6,548 compared with 6,420
in 1994 and 6,318 in 1993. The growth in average staff during 1995 is a result
of acquisitions and staff additions in the last half of 1994 to support
Northern Trust's growing global custody, retirement services and mutual fund
activities. These additions were partially offset by staff reductions in other
areas of Northern Trust. As of December 31, 1995 staff levels on a FTE basis
totaled 6,531 compared to 6,608 at the end of last year. Adjusted for 179 posts
added through acquisitions, staff levels declined by approximately 4% during
the year.
Employee benefit costs for 1995 totaled $81.5 million, up $6.7 million or 9%
from $74.8 million in 1994 which was up 10% from $68.1 million in 1993. The
majority of the 1995 increase in benefit costs was attributable to higher
medical expenses, retirement benefit expenses and payroll taxes.
In conjunction with Northern Trust's commitment to control expense growth, a
complete review of all the employee benefit plans was conducted at the end of
1995. As a result of this review, changes, effective January 1, 1996, were made
to the pension, medical and Thrift Incentive plans. The Corporation will also,
subject to an Internal Revenue Service ruling and trustee approval, amend the
Employee Stock Ownership Plan. Although difficult to predict, with these
changes 1996 benefit expenses are expected to decline by approximately 5% from
the 1995 level.
OCCUPANCY EXPENSE. Net occupancy expense totaled $60.2 million, up 5% or $2.8
million from $57.4 million in 1994, which was up 4% from $55.3 million in 1993.
The principal components of the 1995 increase were higher building and
leasehold improvement amortization expenses, rental and operating costs
primarily associated with business expansion in Florida, Texas and Illinois.
18 Northern Trust Corporation
<PAGE>
EQUIPMENT EXPENSE. Equipment expense, which includes depreciation, rental, and
maintenance costs, totaled $48.6 million in 1995, down 14% or $7.8 million from
$56.4 million in 1994, which was 37% higher than the $41.1 million in 1993.
Included in the 1994 expense is $11.2 million of nonrecurring expenses
resulting from the trade-in and the sale and leaseback of mainframe computer
equipment. 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 and banking business expansion.
OTHER OPERATING EXPENSES. Other operating expenses for 1995 totaled $181.3
million, down 7% from $195.3 million in 1994, which was up 15% from $170.3
million in 1993. Included in the 1995 results are a $4.1 million pension
settlement charge and a $.7 million expense for compensation payments pursuant
to a consent decree resolving the investigation by the Department of Justice
into the fair lending practices of Northern Trust's Illinois banking
subsidiaries. Other operating expenses in 1994 included a $9.6 million pension
settlement charge, a $3.5 million expense relating to an agreement between the
Corporation and The Benchmark Funds, and a $2.4 million write-down of older
trust-related software. Excluding all of these items for both years, other
operating expenses decreased slightly from last year. Increases in computer
software amortization, transaction-based depository fees, technical and
consulting services, charitable contributions and postage were offset by lower
levels of FDIC deposit insurance premiums, lower costs associated with
operating other real estate owned assets, and a decline in costs incurred from
processing errors.
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. The depreciation and software
amortization are charged to equipment and other operating expenses,
respectively.
PROVISION FOR INCOME TAXES. The provision for income taxes was $100.5 million
in 1995 compared with $79.3 million in 1994 and $66.1 million in 1993. The
effective tax rate was 31% for 1995 compared with 30% for 1994 and 28% for
1993. The higher tax provision in 1995 resulted from the growth in earnings for
federal income tax purposes while federally tax-exempt income declined
slightly. Partially offsetting this increase was a decline in the state
provision for income taxes resulting from a higher level of state tax-exempt
income.
SUBSEQUENT IMPLEMENTATION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS. Two
recently issued Statements of Financial Accounting Standards (SFAS) were
implemented as of January 1, 1996. The new statements are as follows:
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," establishes accounting standards for the
impairment of such assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for similar assets and certain
identifiable intangibles to be disposed of. This statement requires that those
assets held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable; and,
that those to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell, with certain exceptions. No adjustments to the
carrying value of long-lived assets were required as a result of adopting this
statement.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," applies to entities
that either purchase mortgage servicing rights or originate mortgage loans and
subsequently sell the mortgage loans with servicing rights retained. In either
case, the servicing rights must be capitalized as a separate asset and must be
evaluated for impairment based on their fair value. Since Northern Trust's held
for sale mortgage portfolio totaled $7.6 million as of January 1, 1996, the
impact of adopting this statement was immaterial.
Under SFAS No. 123, "Accounting for Stock-Based Compensation," the accounting
method for stock-based compensation, in particular for stock options, differs
from APB Opinion No. 25, under which most of the accounting requirements for
stock-based compensation were previously contained. The measurement and
recognition provisions of the statement are elective. An entity that continues
to apply Opinion No. 25 will be required to provide pro forma net income and
earnings per share, as if the accounting method in SFAS No. 123 had been used
for stock-based compensation costs. Northern Trust is currently in the process
of developing a stock option model to be used in calculating the pro forma
information required by SFAS No. 123. In 1996 Northern Trust will continue to
account for stock-based compensation in accordance with Opinion No. 25 and will
provide the pro forma information required by SFAS No. 123 for the year ended
December 31, 1995 and 1996 in the 1996 Annual Report.
CAPITAL EXPENDITURES
A committee of Northern Trust's senior officers reviews and approves proposed
capital expenditures which exceed $500,000. This process assures that the major
projects to
Northern Trust Corporation 19
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
which Northern Trust commits its resources produce benefits compatible with
corporate strategic goals.
During 1995, Northern Trust continued to improve its hardware and software
capabilities, especially relating to trust activities. Such improvements help
assure that Northern Trust offers state-of-the-art technology which enables
clients to obtain the highest level of quality service within 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, Northern Trust completed installation of several
significant phases of its new trust management system, including key
improvements in securities processing operations and the creation of new client
statements. The unamortized, capitalized cost of this project at December 31,
1995 was $93 million. In addition, major systems development efforts in 1995
focused on Passport and retirement services products. Passport is Northern
Trust's next generation of on-line desktop delivery services first offered to
clients in 1995. Retirement services bring together a comprehensive array of
Master Trust, participant recordkeeping, retirement plan design and actuarial
services. Northern Trust's 1996 technology initiatives will include
installation of the final phases of the trust management system, and the
continued development of Passport and retirement services products.
Capital expenditures in 1995 also included the leasehold improvements and
furnishings associated with the opening of new offices in Florida and the
construction costs for the Chicago South Financial Center and the new Winnetka,
Illinois office, both scheduled to open by mid-year 1996, as well as expansion
in several existing offices.
Capital expenditures for 1995 totaled $86 million of which $10 million was for
building and leasehold improvements, $3 million for furnishings, $26 million
for hardware and machinery and $47 million for software. During 1996, in
addition to its technology initiatives, Northern Trust will continue to invest
in the expansion of the five-state network of Personal Financial Services
offices.
ASSET QUALITY AND CREDIT RISK
SECURITIES. A high quality securities portfolio is maintained with 87% of the
total portfolio comprised of U.S. Treasury or federal agency securities. The
remainder of the portfolio is comprised of obligations of states and political
subdivisions, preferred stock and other securities. At December 31, 1995, 73%
of these securities were rated triple-A or double-A, 24% were rated single-A
and 3% were below A or not rated by Standard and Poor's and/or Moody's
Investors Service. Other securities consist primarily of privately issued
collateralized mortgage obligations, backed by federal agency securities or
mortgage loans, 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 Northern Trust's 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 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 overall credit risk. These credit management activities also
apply to Northern Trust's use of derivative financial instruments, including
foreign exchange contracts and interest risk management instruments.
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 are
monitored 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
20 Northern Trust Corporation
<PAGE>
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 $1.2 billion at
December 31, 1995 and $945.5 million at December 31, 1994. Nonperforming middle
market loans totaled $1.3 million and $7.8 million at December 31, 1995 and
1994, respectively.
Credit exposure related to customer acceptance liabilities with middle market
companies and small businesses totaled $24.4 million and $20.3 million as of
December 31, 1995 and 1994, 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 $1.2
billion, $405.6 million, and $12.5 million, respectively, as of December 31,
1995, and $917.8 million, $378.7 million, and $17.8 million, respectively, as
of December 31, 1994.
BROKER-DEALERS OF SECURITIES. Broker loans consist primarily of overnight funds
loaned to broker-dealers in the securities industry on both a secured and an
unsecured basis. Broker loans averaged $269.0 million during 1995 and $355.7
million during 1994, and totaled $304.0 million at December 31, 1995 and $274.6
million at December 31, 1994. Securities purchased under agreements to resell
with broker-dealers at year-end totaled $30.0 million at December 31, 1995
compared with zero at December 31, 1994. Standby letters of credit issued on
behalf of broker-dealers and legally binding commitments to extend credit
totaled $148.4 million and $185.5 million, respectively, as of December 31,
1995, and $51.2 million and $161.7 million, respectively, as of December 31,
1994. 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, 1995 and December 31, 1994.
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.
CREDIT EXPOSURE TO BANKS AND BANK HOLDING COMPANIES
<TABLE>
<CAPTION>
December 31
-----------------
(In Millions) 1995 1994
- -------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEET AMOUNTS
Due From Banks $ 950.7 $ 743.1
Money Market Assets
Federal Funds Sold 53.8 687.0
Securities Purchased under Agreements to Resell 78.3 90.0
Time Deposits with Banks
-Domestic .2 .2
-International 1,567.4 1,864.5
Other 44.6 8.8
Commercial Loans-Domestic 158.0 136.1
-International 37.3 77.0
Securities (primarily preferred stock) 27.9 34.9
Customers' Acceptance Liability 7.7 34.0
Foreign Exchange* 75.8 37.6
Interest Risk Management Instruments* 6.3 4.8
Other Assets 7.4 6.7
OFF-BALANCE SHEET AMOUNTS
Contract or Notional Amounts of:
Legally Binding Commitments to Extend Credit 155.0 134.7
Standby Letters of Credit 18.6 32.9
Commercial Letters of Credit 26.0 14.2
</TABLE>
*Represents the amount of credit risk recorded in the consolidated balance
sheet associated with the potential failure of the counterparty to pay
according to the terms of the instrument.
Northern Trust Corporation 21
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
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 the 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 will 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, 1995, are detailed in
the next table.
COMMERCIAL REAL ESTATE LOANS
<TABLE>
<CAPTION>
Interim Commercial
(In Millions) Loans Mortgages Total
- -------------------------------------------------
<S> <C> <C> <C>
Apartments $ 14.4 $ 71.0 $ 85.4
Industrial 23.9 44.2 68.1
Office 71.3 66.3 137.6
Shopping Center/Retail 47.0 53.4 100.4
Land 7.4 14.3 21.7
Other 20.5 78.9 99.4
- -------------------------------------------------
Total $184.5 $328.1 $512.6
</TABLE>
In comparison, commercial real estate loans at December 31, 1994 totaled
$494.1 million. Nonperforming commercial real estate loans totaled $9.0 million
in 1995 and $9.1 million in 1994. At December 31, 1995 commercial real estate
loans 90 days past due and still accruing interest totaled $12.1 million. Not
included in the table above was OREO which totaled $1.8 million and $2.2
million at December 31, 1995 and 1994, respectively.
At December 31, 1995, 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 $21.7 million and $16.5 million,
respectively. At December 31, 1994, legally binding commitments were $25.5
million and standby letters of credit were $47.2 million.
RESIDENTIAL REAL ESTATE. Residential real estate loans totaled $3.9 billion or
41% of total domestic loans at December 31, 1995, compared with $3.3 billion or
40% at December 31, 1994. 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 $3.9 billion in residential real
estate loans, $2.4 billion were in the greater Chicago area with the remainder
distributed throughout the other geographic regions served by Northern Trust.
Legally binding commitments to extend credit, which are primarily equity credit
lines, totaled $372.2 million and $377.0 million as of December 31, 1995 and
1994, respectively.
FOREIGN OUTSTANDINGS. In recent years international banking activities have
been focused on import and export financing for U.S. based clients and on
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.
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 and corporations are included in
these outstandings and are classified according to the country location of the
foreign entities' head office.
Risk related to foreign outstandings is continually monitored and internal
limits are imposed on foreign exposure. The following table provides
information on foreign outstandings by country that exceed 1.00% of Northern
Trust's consolidated assets.
22 Northern Trust Corporation
<PAGE>
FOREIGN OUTSTANDINGS
<TABLE>
<CAPTION>
Commercial
(In Millions) Banks and Other Total
- --------------------------------------------
<S> <C> <C> <C>
AT DECEMBER 31, 1995
Japan $259 $-- $259
- --------------------------------------------
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
</TABLE>
There were no aggregate foreign outstandings by country falling between 0.75%
and 1.00% of total assets at December 31, 1995. This compares with $154 million
to Germany in 1994 and $153 million to Canada in 1993.
NONPERFORMING ASSETS AND 90 DAY PAST DUE LOANS. Nonperforming assets consist of
nonaccrual loans, restructured 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
renewals.
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 the expense associated with collection efforts.
The table below presents the nonperforming assets and past due loans for the
current year and the prior years. Of the total loan portfolio of $9.9 billion
at December 31, 1995, $31.9 million or .32% was nonperforming, an increase of
$4.1 million from year-end 1994. Nonperforming loans at December 31, 1995
consisted principally of commercial loans, including $9.0 million of commercial
real estate loans and $1.3 million to middle market and small business
companies. The net increase of $3.7 million in nonperforming assets resulted
from additions during 1995 of $31.1 million in new nonaccrual loans partially
offset by total gross charge-offs of $10.2 million, payments and loan sales of
$19.5 million, property sales with a basis of $2.9 million and $.4 million in
write-downs and realized losses on OREO assets. While the estimated carrying
value of the OREO portfolio is believed to be realizable, it is not possible to
predict whether such properties could continue to experience further declines
in value.
SFAS Nos. 114 and 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 December 31, 1995, impaired
loans, which also have been classified as nonperforming, totaled $27.6 million,
with $1.0 million of the reserve for credit losses allocated to these loans.
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
NONPERFORMING ASSETS AND 90 DAY PAST DUE LOANS
<TABLE>
<CAPTION>
December 31
-----------------------------
(In Millions) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans
Domestic $29.0 $26.5 $26.0 $66.4 $53.8
International .2 1.3 1.3 1.9 --
- --------------------------------------------------------------------------
Total Nonaccrual Loans 29.2 27.8 27.3 68.3 53.8
- --------------------------------------------------------------------------
Restructured Loans 2.7 -- -- -- --
Other Real Estate Owned 1.8 2.2 9.7 22.9 40.4
- --------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS $33.7 $30.0 $37.0 $91.2 $94.2
- --------------------------------------------------------------------------
TOTAL DOMESTIC 90 DAY PAST DUE LOANS (Still
accruing) $22.0 $17.3 $22.8 $42.9 $23.6
</TABLE>
Northern Trust Corporation 23
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
volume; historical net loan loss experience; the level and composition of
nonaccrual, past due and restructured loans; other extensions of credit; the
condition of industries and geographic areas experiencing or expected to
experience particular economic adversities; international developments; current
and anticipated economic conditions; credit evaluations; and the liquidity and
volatility of the markets. From time to time specific amounts of the reserve
are designated for certain loans in connection with management's analysis of
the adequacy of the reserve for credit losses, as well as its evaluation of
impaired loans.
While the largest portion of this reserve is typically intended to cover loan
and lease losses, it is considered a general reserve that is available for all
credit-related purposes. The reserve balance is not a precise amount, but is
derived from judgments based on the above factors. It represents management's
best estimate of the reserve for credit losses necessary to adequately cover
probable losses from current credit exposures. The provision for credit losses
is the charge against current earnings that is determined by management as the
amount needed to maintain an adequate reserve.
ANALYSIS OF RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
($ In Millions) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $ 144.8 $ 145.5 $ 145.5 $ 145.7 $ 148.0
- -------------------------------------------------------------------------------
Charge-offs
Commercial 8.8 9.4 19.5 21.2 34.1
Consumer 1.3 1.1 2.1 3.7 2.8
Other 1.0 .2 1.2 1.5 1.6
International .6 -- .6 6.0 --
- -------------------------------------------------------------------------------
Total Charge-Offs 11.7 10.7 23.4 32.4 38.5
- -------------------------------------------------------------------------------
Recoveries
Commercial 4.3 2.6 2.3 1.4 4.2
Consumer .5 1.3 .9 .8 .8
Other .3 .1 .5 .1 .1
International .7 -- .2 .4 .1
- -------------------------------------------------------------------------------
Total Recoveries 5.8 4.0 3.9 2.7 5.2
- -------------------------------------------------------------------------------
Net Charge-Offs 5.9 6.7 19.5 29.7 33.3
Provision for Credit Losses 6.0 6.0 19.5 29.5 31.0
Reserve Related to
Acquisitions 2.2 -- -- -- --
- -------------------------------------------------------------------------------
Net Change in Reserve 2.3 (.7) -- (.2) (2.3)
- -------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 147.1 $ 144.8 $ 145.5 $ 145.5 $ 145.7
- -------------------------------------------------------------------------------
Total Loans and Leases at
Year-End $9,906.0 $8,590.6 $7,623.0 $6,935.9 $6,279.7
- -------------------------------------------------------------------------------
Average Total Loans and
Leases $9,136.0 $8,316.1 $7,297.1 $6,452.9 $6,199.4
- -------------------------------------------------------------------------------
As a Percent of Year-End
Loans and Leases
Net Loan Charge-Offs .06% .08% .26% .43% .53%
Provision for Credit Losses .06 .07 .26 .43 .49
Reserve Balance at Year-End 1.49 1.69 1.91 2.10 2.32
- -------------------------------------------------------------------------------
As a Percent of Average
Loans and Leases
Net Loan Charge-Offs .06% .08% .27% .46% .54%
Reserve Balance at Year-End 1.61 1.74 1.99 2.25 2.35
</TABLE>
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 still expanding, there continue to be
uncertainties in several industries. In addition, management's assessment of
the financial condition of specific clients facing financial difficulties, and
portfolio growth relating to low-risk residential lending and bank
acquisitions, were other factors impacting management's analysis of the
adequacy of the reserve. The combination of these factors resulted in a reserve
for credit losses of $147.1 million at December 31, 1995, compared with $144.8
million last year. The decline in the year-end reserve for credit losses as a
percentage of outstanding loans and leases from 1.69% to 1.49% at year-end 1995
is primarily attributable to loan growth in low-risk residential lending and
overnight trust advances. The table above summarizes the changes in the reserve
for credit losses for the current year and the prior years.
24 Northern Trust Corporation
<PAGE>
FINANCIAL CONDITION
Average earning assets in 1995 increased 9% to $17.2 billion. Approximately 15%
of the growth in earning assets resulted from the Beach Bank and Tanglewood
Bank acquisitions. The growth, including acquisitions, was concentrated
primarily in short-term U.S. federal agency securities, residential mortgages
and commercial and industrial loans. A high quality and liquid balance sheet is
maintained with securities and money market assets averaging $8.1 billion or
47% of total earning assets.
The management strategy for investment securities 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 securities held to maturity and available for sale, increased
24% from last year to $6.2 billion. U.S. Government securities averaged $1.2
billion in 1995, down 31% from 1994 levels. U.S. Government securities had an
average maturity of eleven months at December 31, 1995, compared with ten
months at the prior year-end. Average municipal securities declined $30 million
to $435 million and provided a fully taxable equivalent yield of 10.75%. The
average maturity of municipal securities was 78 months, up from 64 months a
year ago. Federal agency securities averaged $4.1 billion in 1995, up $1.8
billion from 1994 and had an average maturity at December 31, 1995 and 1994 of
nine months and six months, respectively. Other securities, consisting
primarily of preferred stock, privately issued collateralized mortgage
obligations and asset-backed securities, averaged $353 million, $15 million
lower than last year. Included in other securities were $62 million of triple-A
rated collateralized mortgage obligations, $16 million of which were
collateralized by federal agency securities. Other asset-backed securities were
$26 million versus $65 million last year; these securities had an average
maturity of three months, versus eleven months a year ago. Approximately $1.3
billion 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 1995, the fair value of the securities
portfolio of $5.8 billion exceeded the book value of these securities by $27.5
million.
Loans averaged $9.1 billion in 1995 and increased 10% from the prior year.
Average domestic loans increased 12% to $8.8 billion for the year while the
average international portfolio decreased to $344 million from $446 million in
1994. The increase in the average domestic loan portfolio reflects substantial
growth in residential mortgages which, net of $15.2 million in loan sales,
increased nearly $446 million on average to total $3.9 billion at year-end.
Commercial and industrial loans also contributed to the growth in the domestic
portfolio, increasing 14% on average to total $3.2 billion at year-end. During
the year commercial real estate loans increased slightly due primarily to
acquisitions, and at December 31, 1995, totaled $513 million or 5% of domestic
loans. The decrease in the international portfolio is partially attributable to
lower levels of trust client overnight advances.
Money market assets averaged $1.9 billion, down 23% or $555 million from last
year.
Total interest-related funds averaged $14.5 billion in 1995, up $1.2 billion or
9% from 1994. As a result of marketing campaigns, savings certificates of
deposit increased $771 million or 63% to $2.0 billion, partially offset by a
$73 million decline in average savings and money market deposits. Total federal
funds purchased increased $213 million or 16% to $1.6 billion. Securities sold
under agreements to repurchase increased $325 million on average to $1.8
billion. Foreign office time deposits increased $209 million or 6%, resulting
primarily from greater global custody activity. Deposits related to trust
activities in the domestic banking subsidiaries, coupled with growth of the
global custody business, had a significant impact on the balance sheet as these
deposits in 1995 averaged $4.6 billion or 37% of total deposits. Senior notes
averaged $394 million, down $388 million or 50% from last year.
During September 1995, The Northern Trust Company issued $100 million of 6.70%
Subordinated Notes due 2005. The notes were issued under the terms of a
September 6, 1995 Offering Circular allowing The Northern Trust Company to
offer from time to time up to $300 million aggregate principal amount of its
subordinated bank notes with maturities ranging from 5 years to 15 years and up
to $1.7 billion aggregate principal amount at any time outstanding of its
senior bank notes (less certain senior bank notes issued prior to April 1993
and still outstanding), with maturities ranging from 30 days to 15 years. The
senior notes are issued periodically and provide an additional funding source
for the Bank.
Northern Trust Corporation 25
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
AVERAGE EARNING ASSETS AND SOURCE OF FUNDS
<TABLE>
<CAPTION>
Percent Change
----------------
($ In Millions) 1995 1994 1993 1995/94 1994/93
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE EARNING ASSETS
Money Market Assets $ 1,864.7 $ 2,420.2 $ 2,201.6 (23.0)% 9.9%
Securities
U.S. Government 1,225.7 1,779.6 2,646.6 (31.1) (32.8)
Obligations of States and
Political Subdivisions 434.7 465.1 502.3 (6.5) (7.4)
Federal Agency 4,124.8 2,333.6 773.9 76.8 201.5
Other 353.4 368.8 279.7 (4.2) 31.9
Trading Account 54.4 53.8 29.5 1.3 82.2
- -------------------------------------------------------------------------------
Total Securities 6,193.0 5,000.9 4,232.0 23.8 18.2
- -------------------------------------------------------------------------------
Loans and Leases-Domestic 8,791.8 7,870.6 7,017.2 11.7 12.2
-International 344.2 445.5 279.9 (22.7) 59.2
- -------------------------------------------------------------------------------
Total Loans and Leases 9,136.0 8,316.1 7,297.1 9.9 14.0
- -------------------------------------------------------------------------------
Total Earning Assets $17,193.7 $15,737.2 $13,730.7 9.3% 14.6%
- -------------------------------------------------------------------------------
AVERAGE SOURCE OF FUNDS
Deposits-Savings and Money
Market Deposits $ 3,312.4 $ 3,385.7 $ 3,432.1 (2.2)% (1.3)%
-Savings Certificates 2,000.3 1,229.6 1,172.9 62.7 4.8
-Other Time 542.7 412.8 404.7 31.5 2.0
-Foreign Offices Time 3,493.4 3,284.8 2,436.4 6.4 34.8
- -------------------------------------------------------------------------------
Total Deposits 9,348.8 8,312.9 7,446.1 12.5 11.6
Federal Funds Purchased 1,564.0 1,350.7 1,692.5 15.8 (20.2)
Securities Sold under
Agreements to Repurchase 1,769.7 1,444.3 664.4 22.5 117.4
Commercial Paper 146.0 138.1 131.5 5.7 5.0
Other Borrowings 1,034.5 1,007.5 940.8 2.7 7.1
Senior Notes 394.0 781.8 554.1 (49.6) 41.1
Notes Payable 271.3 293.6 297.9 (7.6) (1.5)
- -------------------------------------------------------------------------------
Total Interest-Related Funds 14,528.3 13,328.9 11,727.3 9.0 13.7
Noninterest-Related Funds, net 2,665.4 2,408.3 2,003.4 10.7 20.2
- -------------------------------------------------------------------------------
Total Source of Funds $17,193.7 $15,737.2 $13,730.7 9.3% 14.6%
</TABLE>
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 17 on page 48. 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 change in
response to changes in the level of interest rates and are not accurately
reflected in the fair value disclosures.
Considerable judgment is required to interpret the market data when computing
estimates of fair value. Accordingly, the estimates presented in Note 17 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.
26 Northern Trust Corporation
<PAGE>
INTEREST RATE RISK MANAGEMENT. 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.
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-------------------------------------------------------------
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 $ 1,783.6 $ .6 $ -- $ -- $ -- $ 1,784.2
Securities-Held to
Maturity 117.8 72.3 46.6 124.2 174.2 535.1
-Available for Sale 3,077.3 821.9 943.2 202.5 91.4 5,136.3
-Trading Account 88.9 -- -- -- -- 88.9
Loans and Leases 4,530.6 1,288.1 715.8 1,630.8 1,740.7 9,906.0
- ---------------------------------------------------------------------------------------
Total Earning Assets $ 9,598.2 $2,182.9 $1,705.6 $1,957.5 $ 2,006.3 $17,450.5
- ---------------------------------------------------------------------------------------
SOURCE OF FUNDS
Savings and NOW Accounts $ 394.8 $ -- $ -- $ -- $ 1,056.2 $ 1,451.0
Money Market Deposit
Accounts and Savings
Certificates 2,629.0 1,095.8 348.8 380.1 23.7 4,477.4
Other Time 3,213.8 20.7 1.0 7.0 4.4 3,246.9
Senior Notes and Notes
Payable 12.6 2.0 4.1 93.7 239.2 351.6
Other Borrowings 5,045.0 48.9 21.5 2.2 63.8 5,181.4
Noninterest-Related
Funds, net 485.6 -- -- -- 2,256.6 2,742.2
- ---------------------------------------------------------------------------------------
Total Source of Funds $11,780.8 $1,167.4 $ 375.4 $ 483.0 $ 3,643.9 $17,450.5
- ---------------------------------------------------------------------------------------
Interest Sensitive Gap $(2,182.6) $1,015.5 $1,330.2 $1,474.5 $(1,637.6) $ --
Off-Balance Sheet Hedges 1,413.3 (166.5) (598.6) (390.0) (258.2) --
- ---------------------------------------------------------------------------------------
Adjusted Interest
Sensitive Gap $ (769.3) $ 849.0 $ 731.6 $1,084.5 $(1,895.8) $ --
- ---------------------------------------------------------------------------------------
Cumulative Interest
Sensitive Gap $ (769.3) $ 79.7 $ 811.3 $1,895.8 $ -- $ --
</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.
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, 1995, this
scenario assumed a gradual decrease in interest rates during 1996. The interest
sensitivity is then tested by running alternative scenarios above and below the
most likely interest rate outcome. In 1995, this sensitivity
Northern Trust Corporation 27
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
calculation was always less than 2.5% of the annual net interest income, using
alternative scenarios based on a one percentage point deviation from the rates
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
risk.
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 senior 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. Northern Trust utilizes various types of
derivative financial instruments, primarily interest rate swaps, as tools for
managing interest rate and option risk. The following table summarizes the
expected maturities and weighted average interest rates to be paid and received
on the asset/liability management swap portfolio at December 31, 1995. A key
assumption in the preparation of the table is that floating rates remain
constant at December 31, 1995 levels.
Some of the principal uses of derivative financial instruments, together with
the notional amounts outstanding, are described as follows:
CONVERT YIELDS ON GOVERNMENT AND AGENCY SECURITIES TO AN EFFECTIVE LIBOR RATE.
At December 31, 1995, interest rate swaps with a notional amount of $1.35
billion and purchased interest rate protection contracts with a notional amount
of $25 million were used to convert fixed and floating rate interest payments
on Government and agency securities (classified as Available for Sale) to
floating rate payments indexed to London Interbank Offered Rates (LIBOR). Swaps
with a notional amount of $930 million were combined with fixed rate
securities, $85 million were combined with floating rate securities indexed to
Treasury Bill rates, and $336 million were combined with structured notes,
whose non-standard features were hedged. The swaps were executed simultaneously
with the purchase of the notes. The securities were converted to an effective
LIBOR rate to match LIBOR-based funding costs.
REDUCE INTEREST RATE RISK FROM FIXED RATE ASSETS FUNDED WITH VARIABLE RATE
LIABILITIES. Northern Trust paid a fixed rate and received a floating rate on
interest rate swaps with a notional amount of $949 million at December 31, 1995
to hedge the interest rate risk from fixed rate assets. For accounting purposes
these swaps were 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.
SWAPS COMBINED WITH NOTE ISSUANCE TO OBTAIN FAVORABLE FUNDING COSTS. Interest
rate swaps with a notional amount of $300 million at December 31, 1995 were
used in
REMAINING MATURITY OF ASSET/LIABILITY MANAGEMENT INTEREST RATE SWAPS
<TABLE>
<CAPTION>
2001-
($ Amounts in Millions) 1996 1997 1998 1999 2000 2005 Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PAY FIXED
Notional Amount $531.3 $575.0 $346.2 $58.5 $125.0 $368.3 $2,004.3
Average Pay Rate 6.19% 5.86 6.33 6.73 6.22 6.96 6.28%
Average Receive Rate 5.78 5.83 5.83 5.87 5.83 5.82 5.82
- -----------------------------------------------------------------------------
RECEIVE FIXED
Notional Amount $ -- $ -- $100.0 $ -- $ -- $100.0 $ 200.0
Average Pay Rate -- -- 5.88 -- -- 5.91 5.89%
Average Receive Rate -- -- 5.98 -- -- 6.31 6.15
- -----------------------------------------------------------------------------
PAY AND RECEIVE VARIABLE
(BASIS SWAPS)
Notional Amount $ 13.2 $358.7 $ 24.5 $ -- $ -- $ -- $ 396.4
Average Pay Rate 4.61% 5.38 4.67 -- -- -- 5.31%
Average Receive Rate 5.95 5.37 5.89 -- -- -- 5.43
</TABLE>
28 Northern Trust Corporation
<PAGE>
conjunction with the issuance of senior notes and subordinated notes to obtain
desired funding characteristics. The use of swaps in combination with notes
permitted Northern Trust to issue notes with rate and maturity features that
were most desired by investors while using swaps to convert the rate
characteristics to meet its needs.
HEDGING FOREIGN CURRENCY RISK. Forward foreign exchange contracts and foreign
currency futures contracts were used to reduce exposure to fluctuations in the
dollar value of capital investments in foreign subsidiaries and from foreign
currency obligations. The notional amounts of these contracts at year-end 1995
were $30.4 million of forward foreign exchange contracts and $1.8 million of
short sales of foreign currency futures contracts.
HEDGING MORTGAGES HELD FOR SALE. Northern Trust hedged 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, 1995 the
portfolio was hedged with $11.1 million of forward sales of mortgage-backed
securities, $.7 million of short sales of Treasury Note futures, and $2.0
million of purchases of put options on Treasury Note futures.
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 in
general 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 $370.6
million and a fair value of $371.6 million as of December 31, 1995, compared
with an amortized cost of $439.2 million and a fair value of $436.4 million as
of December 31, 1994. The average life of these CMOs was 23 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 13%, with a
weighted average of approximately 10%. These caps will affect the interest
margin only if short-term LIBOR rates rise by more than 350 basis points above
the year-end 1995 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, 1995 would cause an
estimated increase in the average life of Northern Trust's floating rate CMOs
from 23 months to 41 months.
As of December 31, 1995 Northern Trust owned fixed rate CMOs with an amortized
cost of $60.9 million and a fair value of $60.1 million, compared with an
amortized cost of $68.7 million and a fair value of $65.6 million as of
December 31, 1994. The average life of the fixed rate CMOs was estimated to be
18 months as of December 31, 1995. A 300 basis point rise in rates is estimated
to cause the average life of the fixed rate CMOs to extend to approximately 22
months.
LIQUIDITY RISK MANAGEMENT. The objective of liquidity risk 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 Investors Service, and AA+ by Thomson
BankWatch. These ratings put The Northern Trust Company in the top tier of
United States banks.
Northern Trust maintains a liquid balance sheet with loans representing 50% of
total assets. Further, at December 31, 1995, 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 $8.2
billion or 41% of total assets.
The Corporation's uses of cash consist mainly of dividend payments to the
Corporation's common and preferred stockholders, the payment of principal and
interest to note holders, and purchases of its common stock. These requirements
are met largely by dividend payments from its subsidiaries, and by interest and
dividends earned on investment securities and money market assets. Bank
subsidiaries have the ability to pay dividends during 1996
Northern Trust Corporation 29
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
equal to their 1996 eligible net profits plus $181 million. Bank subsidiary
dividends are subject to certain restrictions that are explained in Note 12 on
page 46. In September 1995, the Bank used a portion of the proceeds of a $100
million subordinated debt issue to repay $25 million of debt to the Corporation
and intends to repay the remaining $50 million of debt to the Corporation in
1996. The Corporation's liquidity, defined as the amount of marketable assets
in excess of commercial paper, was strong at $117 million at year-end 1995. The
cash flows of the Corporation are shown in Note 24 on page 55. The Corporation
also has a $50 million back-up line of credit for its commercial paper
issuance. The Corporation's strong credit ratings allow it to access credit
markets on favorable terms.
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 1995, common equity increased 15% or $172
million reaching a record $1.3 billion at year end, while total risk-adjusted
assets rose 11%. Total equity as of December 31, 1995 was $1.5 billion
including $50 million of convertible preferred stock and $120 million of
auction rate preferred stock. In January 1996, the Corporation announced the
call for redemption of its $50 million Series E convertible preferred stock.
Virtually all of the holders elected to convert rather than redeem their
preferred stock, and in January the Corporation issued 1,198,372 shares of
common stock in connection with the conversion. The shares issued upon
conversion have been reflected in the Corporation's fully diluted shares, so
that conversion has no impact on fully diluted net income per common share.
In February 1994, the Board of Directors increased the Corporation's common
stock buyback 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 1995 the Corporation purchased 1,486,159 of
its own shares as part of the buyback program, some of which were reissued in
connection with the RCB acquisition and the exercise of stock options. At
December 31, 1995, 2,269,756 additional shares may be purchased pursuant to
this program.
The Board of Directors increased the quarterly dividend by 19.2% to $.31 per
common share in November 1995. Over the last five years the common dividend has
increased 121%.
At December 31, 1995, tier 1 capital was 8.8% and total capital was 12.5% of
risk-adjusted assets. These risk-based capital ratios are well above the
minimum requirements of 4.0% for tier 1 and 8.0% 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 5.6% for the leverage ratio.
The average rate declared on the $120 million of auction rate preferred stock
was 4.51% during 1995 versus 3.45% in 1994.
CAPITAL ADEQUACY
<TABLE>
<CAPTION>
December 31
----------------
($ In Millions) 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
TIER 1 CAPITAL
Common Stockholders' Equity $ 1,283 $ 1,111
Convertible Preferred Stock 50 50
Goodwill and Other Intangible Assets (79) (36)
Net Unrealized (Gain) Loss on Securities (3) 15
- ---------------------------------------------------------------------
Total Tier 1 Capital 1,251 1,140
- ---------------------------------------------------------------------
TIER 2 CAPITAL
Auction Rate Preferred Stock 120 120
Reserve for Credit Losses* 147 145
Notes Payable** 254 169
- ---------------------------------------------------------------------
Total Tier 2 Capital 521 434
- ---------------------------------------------------------------------
TOTAL RISK-BASED CAPITAL 1,772 1,574
- ---------------------------------------------------------------------
Risk-Weighted Assets*** 14,187 12,736
- ---------------------------------------------------------------------
Total Assets
-End of Period (EOP) 19,934 18,562
-Average Fourth Quarter 20,287 18,377
Total Loans-End of Period 9,906 8,591
- ---------------------------------------------------------------------
RATIOS
Risk-Based Capital to Risk-Weighted Assets
-Tier 1 8.8% 9.0%
-Total (Tier 1 and 2) 12.5 12.4
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 6.4 6.0
Stockholders' Equity to
-Total Loans EOP 14.7 14.9
-Total Assets EOP 7.3 6.9
</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 and other intangible
assets, net unrealized (gain) loss on securities and excess reserve for
credit losses that have been excluded from tier 1 and tier 2 capital.
30 Northern Trust Corporation
<PAGE>
LINES OF BUSINESS
The 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, investment management and securities lending
services, commercial banking activities of the Bank, treasury management
services, foreign exchange activities, the London Branch and Northern Futures
Corporation.
PERSONAL FINANCIAL SERVICES. Personal Financial Services encompasses personal
trust and investment management services, estate administration, personal
banking and mortgage and other personal lending. This business unit also
includes the commercial banking activities of the affiliate banks and the
activities of Northern Trust Securities, Inc.
CORPORATE AND OTHER. Corporate and Other includes the Bank's Treasury
Department and other corporate items, including the impact of long-term debt,
common and preferred equity, holding company investments, and corporate
operating expenses. Noninterest income for 1994 included the net gain of $28.5
million from the sale of the interest in BSS. Noninterest expenses in 1995
include a $4.1 million pension settlement charge. 1994 noninterest expenses
included non-recurring charges totaling $23.2 million. Of the $23.2 million,
$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 $9.6 million from a pension settlement charge.
The following table reflects the earnings contribution of Northern Trust's
lines of business for the years ended December 31, 1995 and 1994 on the basis
described above.
<TABLE>
<CAPTION>
Corporate and Personal
Institutional Financial Corporate
Services Services and Other Total
-------------- -------------- ------------ --------------
($ in Millions) 1995 1994 1995 1994 1995 1994 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income(1) $145.2 $131.0 $229.3 $209.8 $20.7 $27.2 $395.2 $368.0
Provision for Credit
Losses 4.3 6.7 1.6 .5 .1 (1.2) 6.0 6.0
Noninterest Income:
Trust Fees 257.5 230.1 247.5 223.3 -- -- 505.0 453.4
Other 142.1 118.8 30.6 29.4 .4 31.8 173.1 180.0
Noninterest Expenses 344.4 327.9 340.9 327.3 23.9 45.3 709.2 700.5
- --------------------------------------------------------------------------------------
Income before Taxes(1) 196.1 145.3 164.9 134.7 (2.9) 14.9 358.1 294.9
Provision for Income
Taxes(1) 76.9 55.4 65.7 53.4 (4.5) 3.9 138.1 112.7
- --------------------------------------------------------------------------------------
NET INCOME $119.2 $ 89.9 $ 99.2 $ 81.3 $ 1.6 $11.0 $220.0 $182.2
- --------------------------------------------------------------------------------------
Percentage Contribution 54% 49% 45% 45% 1% 6% 100% 100%
</TABLE>
(1) On a fully taxable equivalent basis (FTE). Total includes $37.6 million and
$33.4 million of FTE adjustment for 1995 and 1994, respectively.
NOTE: Certain reclassifications have been made to prior year information to
place it on a basis comparable to the current year.
Northern Trust Corporation 31
<PAGE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31
--------------------
($ In Millions) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 1,308.9 $ 1,192.5
Money Market Assets
Federal Funds Sold and Securities Purchased under
Agreements to Resell 162.1 777.0
Time Deposits with Banks 1,567.6 1,864.7
Other 54.5 9.5
- ----------------------------------------------------------------------------
Total 1,784.2 2,651.2
- ----------------------------------------------------------------------------
Securities (Note 3) (Fair value $5,787.8 in 1995 and
$5,069.7 in 1994) 5,760.3 5,053.1
Loans and Leases (Note 4) (Net of unearned income
$89.6 in 1995 and $70.4 in 1994) 9,906.0 8,590.6
Reserve for Credit Losses (Note 5) (147.1) (144.8)
Buildings and Equipment (Notes 6 and 7) 281.5 274.7
Customers' Acceptance Liability 35.8 56.3
Trust Security Settlement Receivables 327.1 305.7
Other Assets (Note 14) 676.8 582.3
- ----------------------------------------------------------------------------
Total Assets $19,933.5 $18,561.6
- ----------------------------------------------------------------------------
LIABILITIES
Deposits
Demand and Other Noninterest-Bearing $ 2,853.1 $ 2,604.7
Savings and Money Market Deposits 3,385.3 3,176.3
Savings Certificates 2,158.8 1,524.5
Other Time 384.3 342.2
Foreign Offices-Demand 459.8 225.4
-Time 3,246.9 3,861.3
- ----------------------------------------------------------------------------
Total Deposits 12,488.2 11,734.4
Federal Funds Purchased 2,300.1 972.0
Securities Sold under Agreements to Repurchase 1,858.7 2,216.9
Commercial Paper 146.7 123.8
Other Borrowings 875.9 1,077.9
Senior Notes (Note 8) 17.0 547.0
Notes Payable (Note 8) 334.6 244.8
Liability on Acceptances 35.8 56.3
Other Liabilities 423.9 307.8
- ----------------------------------------------------------------------------
Total Liabilities 18,480.9 17,280.9
- ----------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock (Note 9) 170.0 170.0
Common Stock (Notes 9 and 11)-$1.66 2/3 Par Value 93.6 90.6
</TABLE>
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------
<S> <C> <C>
Shares authorized 140,000,000 140,000,000
Shares issued 56,158,064 54,360,374
Shares outstanding 55,664,412 54,089,259
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Capital Surplus 306.1 302.2
Retained Earnings 928.8 762.7
Net Unrealized Gain (Loss) on Securities (Note 3) 2.6 (15.8)
Translation Adjustments -- --
Common Stock Issuable-Performance Plan (Note 21) 14.7 17.9
Deferred Compensation-ESOP and Other (39.4) (38.8)
Treasury Stock-(at cost, 493,652 shares in 1995 and
271,115 shares in 1994) (23.8) (8.1)
- --------------------------------------------------------------------------
Total Stockholders' Equity 1,452.6 1,280.7
- --------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $19,933.5 $18,561.6
</TABLE>
See accompanying notes to consolidated financial statements on pages 36-55.
32 Northern Trust Corporation
<PAGE>
Consolidated Statement of Income
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------
($ In Millions Except Per Share Information) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Money Market Assets
Federal Funds Sold and Securities Purchased
under Agreements to Resell $ 12.3 $ 10.9 $ 5.5
Time Deposits with Banks 92.1 97.8 86.5
Other 1.1 5.2 2.6
- --------------------------------------------------------------------------------
Total 105.5 113.9 94.6
- --------------------------------------------------------------------------------
Securities (Note 3) 367.6 235.2 176.3
Loans and Leases (Note 4) 630.9 499.6 435.5
- --------------------------------------------------------------------------------
Total Interest Income 1,104.0 848.7 706.4
- --------------------------------------------------------------------------------
Interest Expense
Deposits-Savings and Money Market Deposits 109.1 85.3 78.8
-Savings Certificates 120.6 56.9 50.5
-Other Time 31.5 18.6 15.7
-Foreign Offices 182.1 137.2 90.4
Federal Funds Purchased 91.2 55.5 51.1
Securities Sold under Agreements to Repur-
chase 102.6 61.9 20.0
Commercial Paper 8.6 5.9 4.3
Other Borrowings 55.6 36.0 26.0
Senior Notes (Note 8) 23.7 33.8 18.4
Notes Payable (Note 8) 21.4 23.0 23.3
- --------------------------------------------------------------------------------
Total Interest Expense 746.4 514.1 378.5
- --------------------------------------------------------------------------------
Net Interest Income 357.6 334.6 327.9
Provision for Credit Losses (Note 5) 6.0 6.0 19.5
- --------------------------------------------------------------------------------
Net Interest Income after Provision for
Credit Losses 351.6 328.6 308.4
- --------------------------------------------------------------------------------
Noninterest Income
Trust Fees 505.0 453.4 404.8
Security Commissions and Trading Income 21.7 22.0 21.3
Other Operating Income (Note 13) 150.4 158.1 125.9
Investment Security Gains (Losses) (Note 3) 1.0 (.1) 1.8
- --------------------------------------------------------------------------------
Total Noninterest Income 678.1 633.4 553.8
- --------------------------------------------------------------------------------
Income before Noninterest Expenses 1,029.7 962.0 862.2
- --------------------------------------------------------------------------------
Noninterest Expenses
Salaries 337.6 316.6 293.4
Pension and Other Employee Benefits (Notes
15 and 21) 81.5 74.8 68.1
Occupancy Expense (Notes 6 and 7) 60.2 57.4 55.3
Equipment Expense (Note 6) 48.6 56.4 41.1
Other Operating Expenses (Note 14) 181.3 195.3 170.3
- --------------------------------------------------------------------------------
Total Noninterest Expenses 709.2 700.5 628.2
- --------------------------------------------------------------------------------
Income before Income Taxes 320.5 261.5 234.0
Provision for Income Taxes (Note 10) (In-
cludes related investment security transac-
tions tax provision of $.4 in 1995, none in
1994 and $.7 in 1993) 100.5 79.3 66.1
- --------------------------------------------------------------------------------
NET INCOME $ 220.0 $182.2 $167.9
- --------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 211.5 $174.9 $161.6
- --------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE (Note 11)-PRIMARY $ 3.75 $ 3.17 $ 2.96
- -FULLY DILUTED 3.70 3.16 2.95
- --------------------------------------------------------------------------------
Average Number of Common Shares Outstanding-
Primary 56,337,917 55,144,214 54,589,933
- -Fully Diluted 58,068,783 56,352,375 55,848,809
</TABLE>
See accompanying notes to consolidated financial statements on pages 36-55.
Northern Trust Corporation 33
<PAGE>
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
For the Year Ended
December 31
----------------------------
(In Millions) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Balance at January 1 $ 170.0 $ 170.0 $ 170.0
- ------------------------------------------------------------------------
Balance at December 31 170.0 170.0 170.0
- ------------------------------------------------------------------------
COMMON STOCK
Balance at January 1 90.6 89.7 89.7
Stock Issued-Incentive Plan and Awards .3 -- --
Stock Issued in Acquisitions 2.7 .9 --
- ------------------------------------------------------------------------
Balance at December 31 93.6 90.6 89.7
- ------------------------------------------------------------------------
CAPITAL SURPLUS
Balance at January 1 302.2 303.0 300.0
Stock Issued-Incentive Plan and Awards (.2) (.4) 3.0
Stock Issued in Acquisitions 4.1 (.4) --
- ------------------------------------------------------------------------
Balance at December 31 306.1 302.2 303.0
- ------------------------------------------------------------------------
RETAINED EARNINGS
Balance at January 1 762.7 631.9 511.7
Net Income 220.0 182.2 167.9
Dividends Declared on Common Stock (60.4) (49.6) (41.1)
Dividends Declared on Preferred Stock (8.6) (7.2) (6.6)
Pooled Affiliates 15.1 5.4 --
- ------------------------------------------------------------------------
Balance at December 31 928.8 762.7 631.9
- ------------------------------------------------------------------------
NET UNREALIZED GAIN (LOSS) ON SECURITIES
Balance at January 1 (15.8) (.4) (1.3)
Unrealized Gain (Loss), net 18.4 (15.4) .9
- ------------------------------------------------------------------------
Balance at December 31 2.6 (15.8) (.4)
- ------------------------------------------------------------------------
TRANSLATION ADJUSTMENTS
Balance at January 1 -- .6 .6
Sale of Foreign Investment -- (.6) --
- ------------------------------------------------------------------------
Balance at December 31 -- -- .6
- ------------------------------------------------------------------------
COMMON STOCK ISSUABLE--PERFORMANCE PLAN
Balance at January 1 17.9 11.8 8.1
Stock Issuable, net of Stock Issued (3.2) 6.1 3.7
- ------------------------------------------------------------------------
Balance at December 31 14.7 17.9 11.8
- ------------------------------------------------------------------------
DEFERRED COMPENSATION--ESOP AND OTHER
Balance at January 1 (38.8) (43.5) (49.5)
Compensation Deferred (11.8) (4.5) (3.1)
Compensation Amortized 10.3 10.1 8.6
Unfunded Pension Liability, net .9 (.9) .5
- ------------------------------------------------------------------------
Balance at December 31 (39.4) (38.8) (43.5)
- ------------------------------------------------------------------------
TREASURY STOCK
Balance at January 1 (8.1) (11.4) (18.8)
Stock Options and Awards 28.8 12.0 10.6
Stock Purchased (65.5) (8.7) (3.2)
Stock Issued in Acquisitions 21.0 -- --
- ------------------------------------------------------------------------
Balance at December 31 (23.8) (8.1) (11.4)
- ------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY AT DECEMBER 31 $1,452.6 $1,280.7 $1,151.7
</TABLE>
See accompanying notes to consolidated financial statements on pages 36-55.
34 Northern Trust Corporation
<PAGE>
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended December 31
---------------------------------
(In Millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 220.0 $ 182.2 $ 167.9
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Credit Losses 6.0 6.0 19.5
Depreciation on Buildings and Equipment 42.2 41.4 39.3
(Increase) Decrease in Interest Receivable (32.8) 22.9 (3.3)
Increase (Decrease) in Interest Payable .3 5.2 (9.8)
Amortization and Accretion of Securities
and Unearned Income (153.5) (27.7) 79.8
Amortization of Software, Goodwill and
Other Intangibles 35.8 28.3 21.8
Deferred Income Tax 17.7 22.7 21.4
Gain on Sale of Foreign Investment -- (34.5) --
Net (Increase) Decrease in Trading Account
Securities (84.9) 32.3 (34.7)
Other Noncash, net 91.0 108.9 13.0
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 141.8 387.7 314.9
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Federal Funds
Sold and Securities Purchased under
Agreements to Resell 638.9 (199.2) (121.3)
Net (Increase) Decrease in Time Deposits
with Banks 297.3 225.7 (230.9)
Net (Increase) Decrease in Other Money
Market Assets (45.0) 66.5 10.0
Purchases of Securities-Held to Maturity (662.3) (544.1) (277.7)
Proceeds from Maturity and Redemption of
Securities-Held to Maturity 819.6 515.8 297.5
Purchase of Securities-Available for Sale (31,206.1) (12,838.3) (4,089.8)
Proceeds from Sale, Maturity and Redemption
of Securities-Available for Sale 30,828.7 11,823.2 3,171.9
Net Increase in Loans and Leases (1,155.3) (979.2) (711.7)
Purchases of Buildings and Equipment (41.8) (44.8) (48.9)
Proceeds from Sale of Buildings and
Equipment 4.5 10.8 .9
Sale of Foreign Investment -- 58.1 --
Net (Increase) Decrease in Trust Security
Settlement Receivables (21.4) (12.6) 269.0
Decrease in Cash Due to Acquisitions (43.5) -- --
Other, net 2.3 6.9 13.8
- --------------------------------------------------------------------------------
Net Cash Used in Investing Activities (584.1) (1,911.2) (1,717.2)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 378.7 1,401.0 462.6
Net Increase (Decrease) in Federal Funds
Purchased 1,328.1 (243.9) (818.4)
Net Increase (Decrease) in Securities Sold
under Agreement to Repurchase (374.0) 1,614.7 320.0
Net Increase (Decrease) in Commercial Paper 22.9 (.3) (2.9)
Net Increase (Decrease) in Short-Term Other
Borrowings (56.1) (1,401.7) 1,454.5
Proceeds from Term Federal Funds Purchased 4,132.7 3,918.4 1,663.8
Repayments of Term Federal Funds Purchased (4,280.1) (3,684.2) (1,789.8)
Proceeds from Senior Notes 1,160.0 430.0 805.0
Repayments on Senior Notes (1,690.0) (700.0) (100.0)
Proceeds from Notes Payable 100.0 -- --
Repayment of Notes Payable (10.2) (81.9) (106.4)
Treasury Stock Purchased (63.7) (6.9) (2.2)
Net Proceeds from Stock Options 9.0 4.5 4.0
Cash Dividends Paid on Common and Preferred
Stock (65.8) (54.1) (45.8)
Other, net (32.8) .7 5.8
- --------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 558.7 1,196.3 1,850.2
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash and Due from
Banks 116.4 (327.2) 447.9
Cash and Due from Banks at Beginning of
Year 1,192.5 1,519.7 1,071.8
- --------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 1,308.9 $ 1,192.5 $ 1,519.7
- --------------------------------------------------------------------------------
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of Affiliate for Stock, net $ 41.3 $ 6.4 $ --
Transfer of Securities from Held to Matu-
rity to Available for Sale 68.5 -- --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFOR-
MATION:
Interest Paid on Deposits and Short- and
Long-Term Borrowings $ 745.0 $ 505.3 $ 386.9
Income Taxes Paid 76.4 52.5 41.5
</TABLE>
See accompanying notes to consolidated financial statements on pages 36-55.
Northern Trust Corporation 35
<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 and pooled subsidiaries from
the dates of acquisition.
B. NATURE OF OPERATIONS. The Corporation is a bank holding company whose
principal subsidiary is the Bank. The Corporation also owns banks in each of
the states of Arizona, California, Florida and Texas, and various other nonbank
subsidiaries, including a brokerage firm and a futures commission merchant. The
other Chicago area banks were merged into the Bank on February 29, 1996.
Northern Trust generates the majority of its revenues from its two primary
business units, Corporate and Institutional Services (C&IS) and Personal
Financial Services (PFS).
The C&IS unit provides trust and custody-related services in the United States
and foreign markets to corporations and institutions; a full range of
commercial banking services offered to middle market companies in Chicago and
the Midwest area, large domestic corporations, and financial institutions;
treasury management services to meet the needs of major corporations and
financial institutions; and foreign exchange services for global custody
clients and Northern Trust's own account.
The PFS unit provides personal trust, investment management, estate
administration, personal banking and mortgage lending services. These services
are delivered through the Bank and the network of subsidiaries in Florida,
Arizona, California, Texas and suburban Chicago. Effective January 1, 1996,
trust and banking services to middle market companies were transferred to the
PFS unit.
C. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
D. 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 to hedge
foreign denominated investments are recognized currently in other operating
income. Unrealized gains on trading positions are reported as other assets and
unrealized losses are reported as other liabilities in the consolidated balance
sheet. Gains and losses on foreign currency positions that were entered into 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.
E. 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 reported 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.
F. 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. Unrealized gains and receivables on interest risk
management instruments are reported as other assets and unrealized losses and
payables are reported 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
36 Northern Trust Corporation
<PAGE>
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.
G. 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 nonaccrual status, interest
accrued but not collected is reversed against interest income of the current
period. Loans are returned to accrual status when factors indicating doubtful
collectibility no longer exist. Interest collected on nonaccrual loans is
applied to principal unless, in the opinion of management, collectibility of
principal is not in doubt.
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.
H. 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, the estimated value of impaired loans compared to
their recorded investment, and management's judgment 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.
I. 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.
J. 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 based on the following range of
lives: buildings--10 to 30 years; equipment--5 to 10 years; and leasehold
improvements--1 to 15 years. Leased properties meeting certain criteria are
capitalized and amortized using the straight-line method over the lease period.
K. 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.
L. 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 years.
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of,"
establishes accounting standards for the impairment of such assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for similar assets and certain identifiable intangibles to be disposed
of. This statement requires that those assets held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable; and that those to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell, with
certain exceptions.
This statement, which is effective in 1996, was adopted January 1, 1996. No
adjustments to the carrying value of
Northern Trust Corporation 37
<PAGE>
Notes to Consolidated Financial Statements (continued)
long-lived assets were required as a result of adopting this statement.
Other purchased intangible assets arising from acquisitions are amortized using
various methods over the estimated lives of the assets. Software is being
amortized using the straight-line method over the estimated useful life of the
asset, ranging from three to seven years.
M. 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.
N. TRUST SECURITY SETTLEMENT RECEIVABLES. These receivables represent other
items in the process of collection presented on behalf of trust clients.
O. 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 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.
P. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP). A leveraged ESOP in which
substantially all employees of Northern Trust are eligible to participate was
established in 1989. 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. Of the original 4.5 million
shares in the ESOP Trust, 3.15 million have been allocated as of December 31,
1995. The ESOP shares not yet allocated to individual accounts are treated as
deferred compensation and accounted for as a reduction of stockholders' equity.
Under the original terms of the ESOP, the shares were to be allocated over ten
years. In 1996, subject to Trustee approval and receipt of a ruling from the
Internal Revenue Service, the terms of the ESOP are expected to be amended.
Under the revised terms, the original maturity of the ESOP-related debt will be
effectively extended by an additional three years through a series of new loans
and the remaining unallocated shares originally scheduled to be allocated over
the next three years will be allocated over the six year period ending December
31, 2001. The Corporation also expects to make an additional contribution of
cash or shares of common stock to the ESOP in 2002.
Q. 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.
R. INCENTIVE PLANS.
AMENDED 1992 INCENTIVE STOCK PLAN. The 1992 Incentive Stock Plan (Plan),
adopted in 1992 and amended in 1995, 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 Northern Trust 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.
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.
38 Northern Trust Corporation
<PAGE>
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 Amended 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 stock and cash
incentives, and 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.
S. 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.
T. INCOME TAXES. In accordance with SFAS No. 109, "Accounting for Income
Taxes," 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.
U. CASH FLOW STATEMENTS. Cash and cash equivalents have 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, 1995
-----------------
Book Fair
(In Millions) Value Value
- -------------------------------------
<S> <C> <C>
Held to Maturity $ 535.1 $ 562.6
Available for Sale 5,136.3 5,136.3
Trading Account 88.9 88.9
- -------------------------------------
Total $5,760.3 $5,787.8
</TABLE>
<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
</TABLE>
On December 31, 1995 securities with an amortized cost of $68.5 million were
transferred from the held to maturity to the available for sale category. The
net unrealized gain on these securities was $1.7 million, which was included as
a credit of $1.1 million, net of taxes, in stockholders' equity as of December
31, 1995. The securities were transferred in conjunction with the transition
provisions of accounting guidance recently issued by the Financial Accounting
Standards Board that addresses implementation issues related to SFAS No. 115.
The reclassification will increase slightly Northern Trust's flexibility in
regard to selling securities, but will not have a material impact on
asset/liability management strategy.
Income on obligations of states and political subdivisions totaled $30.7
million, $34.6 million and $38.3 million in 1995, 1994 and 1993, respectively.
Dividends received on preferred stock totaled $8.0 million, $6.4 million and
$3.8 million for 1995, 1994 and 1993, respectively.
Northern Trust Corporation 39
<PAGE>
Notes to Consolidated Financial Statements (continued)
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, 1995
-----------------------------------
Gross Gross
Book Unrealized Unrealized Fair
(In Millions) Value Gains Losses Value
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $116.1 $ .2 $-- $116.3
Obligations of States and Political
Subdivisions 366.9 27.1 -- 394.0
Federal Agency 22.2 .3 .1 22.4
Other 29.9 -- -- 29.9
- ------------------------------------------------------------------------
Total $535.1 $27.6 $.1 $562.6
</TABLE>
<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
</TABLE>
REMAINING MATURITY OF SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
December 31,
1995
-------------
Book Fair
(In Millions) Value Value
- -----------------------------------------------------
<S> <C> <C>
Due in One Year or Less $165.0 $166.3
Due After One Year Through Five Years 182.4 194.7
Due After Five Years Through Ten Years 127.7 140.2
Due After Ten Years 60.0 61.4
- -----------------------------------------------------
Total $535.1 $562.6
</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, which
were included in the consolidated statement of income, totaled $1.0 million and
none, respectively, in 1995. Of the $1.0 million in gains, $.1 million was
related to the sale of securities classified as available for sale. The
remaining $.9 million resulted when held to maturity securities were called at
a premium. Realized gross security gains and losses in 1994 totaled $.2 million
and $.3 million, respectively, all of which were related to securities
available for sale. 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.
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, 1995
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Millions) Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $1,661.1 $ 7.3 $ .7 $1,667.7
Obligations of States and Political
Subdivisions 68.5 2.5 .8 70.2
Federal Agency 3,142.9 10.8 .9 3,152.8
Preferred Stock 148.1 -- .3 147.8
Other 99.3 .5 2.0 97.8
- -------------------------------------------------------------------------------
Total $5,119.9 $21.1 $ 4.7 $5,136.3
Unrealized losses on off-balance sheet financial instruments used to hedge
available for sale securities totaled $12.2 million as of December 31, 1995 and
are reported as other liabilities in the consolidated balance sheet. As of
December 31, 1995, stockholders' equity included a credit of $2.6 million, net
of tax, to recognize the appreciation on securities available for sale, net of
the related hedges.
<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, net of
the related hedges.
REMAINING MATURITY OF SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
December 31, 1995
------------------
Amortized Fair
(In Millions) Cost Value
- ----------------------------------------------------------
<S> <C> <C>
Due in One Year or Less $3,118.2 $3,119.7
Due After One Year Through Five Years 1,741.6 1,755.3
Due After Five Years Through Ten Years 32.4 32.9
Due After Ten Years 227.7 228.4
- ----------------------------------------------------------
Total $5,119.9 $5,136.3
</TABLE>
Asset-backed and mortgage-backed securities were included in the above table
taking into account anticipated future prepayments.
40 Northern Trust Corporation
<PAGE>
4. LOANS AND LEASES--Amounts outstanding in selected loan categories are shown
below.
<TABLE>
<CAPTION>
December 31
-----------------
(In Millions) 1995 1994
- ------------------------------------------
<S> <C> <C>
Domestic
Commercial $3,202.1 $2,672.0
Broker 304.0 274.6
Residential Real Estate 3,896.4 3,299.1
Commercial Real Estate 512.6 494.1
Consumer 758.9 662.1
Other 625.5 642.1
Lease Financing 202.3 159.9
- ------------------------------------------
Total Domestic 9,501.8 8,203.9
International 404.2 386.7
- ------------------------------------------
Total Loans and Leases $9,906.0 $8,590.6
</TABLE>
Other domestic and international loans include $810.4 million at December 31,
1995, and $716.6 million at December 31, 1994 of overnight trust-related
advances in connection with next day security settlements. Lease financing
includes leveraged leases of $85.5 million at December 31, 1995, and $59.8
million at December 31, 1994.
Residential real estate loans held for sale totaled $7.6 million and $4.4
million at December 31, 1995 and 1994, respectively.
In May 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights," was
issued. This statement applies to entities that either purchase mortgage
servicing rights or originate mortgage loans and subsequently sell the mortgage
loans with servicing rights retained. In either case, the servicing rights must
be capitalized as a separate asset and must be evaluated for impairment based
on their fair value. The disclosure requirements of the statement are effective
for financial statements for fiscal years beginning after December 15, 1995.
Since Northern Trust's held for sale mortgage portfolio totaled $7.6 million as
of January 1, 1996, the impact of adopting this statement was immaterial.
NONPERFORMING ASSETS. Presented below are outstanding amounts of nonaccrual
loans, restructured loans and OREO.
<TABLE>
<CAPTION>
December 31
-----------
(In Millions) 1995 1994
- --------------------------------------------
<S> <C> <C>
Nonaccrual Loans
Domestic-Commercial Real Estate $ 9.0 $ 9.1
- -Other 20.0 17.4
International .2 1.3
- --------------------------------------------
Total Nonaccrual Loans 29.2 27.8
Restructured Loans 2.7 --
Other Real Estate Owned 1.8 2.2
- --------------------------------------------
Total Nonperforming Assets $33.7 $30.0
</TABLE>
There were no unfunded loan commitments and standby letters of credit issued to
borrowers whose loans were classified as nonaccrual at December 31, 1995,
versus $.1 million at December 31, 1994.
Interest income that would have been recorded on domestic nonaccrual loans in
accordance with their original terms amounted to $2.9 million in 1995, $3.1
million in 1994 and $3.5 million in 1993, compared with amounts that were
actually recorded of $.7 million, $.2 million and $1.6 million, respectively.
Interest income that would have been recorded on international nonaccrual loans
in accordance with their original terms amounted to $.1 million in 1995, 1994
and 1993, compared with amounts that were actually recorded at zero in all
three years.
Writedowns and realized losses on OREO of $.4 million in 1995, $.3 million in
1994 and $2.1 million in 1993 were charged to other operating expenses.
Northern Trust adopted SFAS Nos. 114 and 118, "Accounting by Creditors for
Impairment of a Loan," effective January 1, 1995. These statements provide
guidance as to when loans should be classified and reported as impaired and
address how the reserve for credit losses related to these loans should be
determined. Any shortfall in the estimated value of an impaired loan compared
with the recorded investment of the loan is identified as an allocated portion
of the reserve for credit losses and is one of the factors considered by
management in their overall assessment of reserve adequacy. No changes were
required to Northern Trust's accounting policies for loans, charge-offs and
interest income as a result of adopting these statements.
At December 31, 1995, nonperforming assets totaled $33.7 million. Included in
this amount were loans with a recorded investment of $27.6 million which were
also classified as impaired. Impaired loans totaling $9.2 million had no
portion of the reserve for credit losses allocated to them, while $18.4 million
had an allocated reserve of $1.0 million. For the year 1995, the total recorded
investment in impaired loans averaged $26.4 million. Total interest income
recognized on impaired loans for the year ended December 31, 1995 was $.7
million, most of which was recognized using the cash-basis method of
accounting.
Northern Trust Corporation 41
<PAGE>
Notes to Consolidated Financial Statements (continued)
5. RESERVE FOR CREDIT LOSSES--Changes in the reserve for credit losses were as
follows.
<TABLE>
<CAPTION>
(In Millions) 1995 1994 1993
- --------------------------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year $144.8 $145.5 $145.5
- --------------------------------------------------------
Charge-Offs
Domestic
Commercial Real Estate (3.4) (4.0) (7.8)
Other (7.7) (6.7) (15.0)
International (.6) -- (.6)
- --------------------------------------------------------
Total Charge-Offs (11.7) (10.7) (23.4)
Recoveries 5.8 4.0 3.9
- --------------------------------------------------------
Net Charge-Offs (5.9) (6.7) (19.5)
Provision for Credit Losses 6.0 6.0 19.5
Reserve Related to Acquisitions 2.2 -- --
- --------------------------------------------------------
Balance at End of Year $147.1 $144.8 $145.5
</TABLE>
6. BUILDINGS AND EQUIPMENT--Summary of buildings and equipment is presented
below.
<TABLE>
<CAPTION>
December 31, 1995
------------------------------
Original Accumulated Net Book
(In Millions) Cost Depreciation Value
- -------------------------------------------------------
<S> <C> <C> <C>
Land $ 28.4 $ -- $ 28.4
Buildings 76.3 29.8 46.5
Equipment 211.4 102.1 109.3
Leasehold Improvements 60.6 26.0 34.6
Building Leased Under
Capital Lease (Note 7) 72.6 9.9 62.7
- -------------------------------------------------------
Total Buildings and
Equipment $449.3 $167.8 $281.5
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
------------------------------
Original Accumulated Net Book
(In Millions) Cost Depreciation 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
</TABLE>
The charge for depreciation amounted to $42.2 million in 1995, $41.4 million in
1994 and $39.3 million in 1993. Occupancy expense has been reduced by $2.1
million in 1995, $2.0 million in 1994 and $1.7 million in 1993 from rental
income on leased premises.
7. LEASE COMMITMENTS--At December 31, 1995, Northern Trust was obligated under
a number of noncancellable operating leases for premises and equipment. Certain
leases contain rent escalation clauses, based on market indices or increases in
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, 1995, for all noncancellable operating leases are as follows.
<TABLE>
<CAPTION>
Future Minimum
(In Millions) Lease Payments
- -------------------------------------------------------------------------------
<S> <C>
1996 $ 29.9
1997 29.3
1998 26.3
1999 21.2
2000 19.9
Later Years 111.2
- -------------------------------------------------------------------------------
Total Minimum Lease Payments $237.8
Rental expense for all operating leases is included in occupancy expense and
amounted to $25.0 million in 1995, $24.5 million in 1994 and $23.5 million in
1993.
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, 1995
(refer to Note 8).
<CAPTION>
Future Minimum
(In Millions) Lease Payments, net
- -------------------------------------------------------------------------------
<S> <C>
1996 $ 1.1
1997 1.1
1998 1.1
1999 1.3
2000 1.3
Later Years 14.4
- -------------------------------------------------------------------------------
Total Minimum Lease Payments, net 20.3
Less: Amount Representing Interest 10.0
- -------------------------------------------------------------------------------
Net Present Value under Capital Lease Obligation $ 10.3
</TABLE>
42 Northern Trust Corporation
<PAGE>
8. SENIOR NOTES, NOTES PAYABLE AND LINES OF CREDIT--SENIOR NOTES. Summary of
senior notes outstanding at December 31 is presented below.
<TABLE>
<CAPTION>
($ In Millions) Rate 1995 1994
- -------------------------------------------
<S> <C> <C> <C>
Corporation
Due 1996 (a) 8.65% $ 2.0 $ 2.0
Bank
Due 1995 (a) (b)
Fixed 4.95-6.60 -- 375.0
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 Notes $17.0 $547.0
- -------------------------------------------
</TABLE>
Refer to bottom of next table for applicable notes.
NOTES PAYABLE. Summary of notes payable outstanding at December 31 is presented
below.
<TABLE>
<CAPTION>
($ In Millions) 1995 1994
- ---------------------------------------------------------------------------
<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) 100.0 100.0
6.70% Notes due Sept. 2005 (a) (b) 100.0 --
- ---------------------------------------------------------------------------
Subordinated Notes Payable $298.0 $198.0
- ---------------------------------------------------------------------------
Corporation-Notes Payable
8.25% ESOP Notes due December 1995 (a) (c) $ -- $ 2.7
8.23% ESOP Installment Notes with Final Payment due December
1998 (d) 26.3 33.7
Bank-Capital Lease Obligation (e) 10.3 10.4
- ---------------------------------------------------------------------------
Notes Payable $ 36.6 $ 46.8
- ---------------------------------------------------------------------------
Total Notes Payable $334.6 $244.8
- ---------------------------------------------------------------------------
Notes Payable Qualifying as Risk-Based Capital $254.2 $168.8
</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 bank notes in an aggregate principal
amount of up to $1.7 billion at any one time outstanding and up to an
additional $200 million of subordinated notes. Each senior note will mature
from 30 days to fifteen years and each subordinated note will mature from
five years to fifteen years, following its date of original issuance. Each
note will mature on such date 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 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. Refer to Note 1P.
(e) Refer to Note 7.
LINES OF CREDIT. The Corporation currently maintains commercial paper back-up
facility lines of credit with four banks totaling $50 million. The facility was
amended in 1995 which extended the termination date to November 1999, with two
optional one-year extensions beyond that. The commitment fee is determined by a
pricing matrix that is based on the long-term senior debt ratings of the
Corporation. Currently, the annual fee is 1/10 of 1% of the commitment. There
were no borrowings under commercial paper back-up facilities during 1995 or
1994.
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) 1995 1994
- ----------------------------------------------------
<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. 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 APS have been paid. The average rate for this issue
as declared during 1995 was 4.52%. 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.
Northern Trust Corporation 43
<PAGE>
Notes to Consolidated Financial Statements (continued)
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 1995 was 4.49%. 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--On January 5, 1996, the Corporation called for redemption its
outstanding 6.25% Cumulative Convertible Preferred Stock Series E. The Series E
was sold to the public in the 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). Subsequently, 994,737 of the total 1,000,000
Depositary Shares were converted at the option of the holder at a conversion
price of $41.50 into 1,198,372 shares of the Corporation's common stock. The
conversion resulted in fractions of shares for which the Corporation paid cash.
The remaining 5,263 Depositary Shares were redeemed on January 26, 1996, for
cash at a redemption price of $52.8038 per Depositary Share.
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 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 February 1994, the Corporation's common stock buyback
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>
1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 54,089,259 53,292,967 52,831,844
Employee Benefit Plans:
Incentive Plan and Awards 406,084 44,525 149,300
Stock Options Exercised 640,229 461,739 388,298
Issued for Acquisitions 2,014,999 534,113 --
Treasury Stock Purchases (1,486,159) (244,085) (76,475)
- --------------------------------------------------------------
Balance at December 31 55,664,412 54,089,259 53,292,967
</TABLE>
44 Northern Trust Corporation
<PAGE>
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 rate of 35%.
<TABLE>
<CAPTION>
Income Tax Provision
----------------------
(In Millions) 1995 1994 1993
- ---------------------------------------------------
<S> <C> <C> <C>
Tax at Statutory Rate $112.2 $ 91.5 $ 81.9
Tax-Exempt Income (13.9) (15.2) (15.8)
State Taxes, net 2.4 4.2 1.1
Other (.2) (1.2) (1.1)
- ---------------------------------------------------
Provision for Income Taxes $100.5 $ 79.3 $ 66.1
</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) 1995 1994 1993
- ------------------------------------------------------
<S> <C> <C> <C>
Current Tax Provision (Benefit)
Federal $ 75.7 $ 47.4 $ 42.4
State 2.9 3.6 (.6)
Foreign 4.2 5.6 2.9
- ------------------------------------------------------
Total 82.8 56.6 44.7
- ------------------------------------------------------
Deferred Tax Provision
Federal 16.9 19.8 19.2
State .8 2.9 2.2
- ------------------------------------------------------
Total 17.7 22.7 21.4
- ------------------------------------------------------
Provision for Income Taxes $100.5 $ 79.3 $ 66.1
</TABLE>
In addition to the amounts shown in the above tables, tax liabilities or
(benefits) have been recorded for the following items:
<TABLE>
<CAPTION>
(In Millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Charged (Credited) to Stockholders' Equity:
Current Tax Benefit for Employee Stock Options and Other Employee
Benefit Plans $(5.1) $(3.7)
Deferred Tax Effect of Unrealized Security Gains (Losses) 11.3 (9.5)
Deferred Tax Effect of Unfunded Pension Liabilities 0.5 (0.5)
Deferred Tax Liabilities Assumed in Connection with Business
Combinations 4.0 0.4
</TABLE>
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 rate of 35%, as follows.
<TABLE>
<CAPTION>
December 31
------------
(In Millions) 1995 1994
- -----------------------------------------------------------
<S> <C> <C>
deferred Tax Liabilities
Lease Financing $ 58.0 $48.8
Software Development 39.1 37.8
Accumulated Depreciation 8.0 1.0
Acquired Intangible Assets 7.0 2.3
Other Liabilities 15.6 6.1
- -----------------------------------------------------------
Gross Deferred Tax Liabilities 127.7 96.0
- -----------------------------------------------------------
Deferred Tax Assets
Reserve for Credit Losses 51.0 50.7
Loan Fees 1.6 3.2
Leased Facilities 7.5 6.7
Other Assets 5.2 6.4
- -----------------------------------------------------------
Gross Deferred Tax Assets 65.3 67.0
Valuation Reserve -- --
- -----------------------------------------------------------
Deferred Tax Assets, net of Valuation Reserve 65.3 67.0
- -----------------------------------------------------------
Net Deferred Tax Liabilities $ 62.4 $29.0
</TABLE>
Northern Trust has state carryforwards which are available to offset future
state tax return liabilities. As of December 31, 1995, there were state net
operating loss and tax credit carryforwards of $15.4 million and $1.7 million,
respectively. The carryforwards are subject to various limitations imposed by
tax law.
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 Amended 1992 and the Amended
Incentive Stock Plans and other stock-based plans associated with acquisitions.
Fully diluted net income per common share assumes, in addition to the above,
the conversion of the Cumulative Convertible Preferred Stock Series E.
Northern Trust Corporation 45
<PAGE>
Notes to Consolidated Financial Statements (continued)
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
net profits for the preceding two years.
Based on these regulations, the Corporation's banking subsidiaries, without
regulatory approval, could declare dividends during 1996 equal to their 1996
eligible net profits (as defined) plus $181.1 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--The fee portion of treasury management revenues
totaled $49.6 million in 1995, $46.3 million in 1994 and $49.0 million in 1993.
Net foreign exchange revenues including trading, hedge and translation gains or
losses were $55.3 million in 1995, $36.0 million in 1994 and $32.1 million in
1993, and included foreign exchange trading profits of $55.4 million, $35.9
million and $32.4 million in 1995, 1994 and 1993, respectively.
Included in the 1994 results 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.
14. OTHER OPERATING EXPENSES--The components of other operating expenses were
as follows:
<TABLE>
<CAPTION>
(In Millions) 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Business Development $ 23.0 $ 22.8 $ 22.7
Purchased Professional Services 57.3 54.1 49.7
Telecommunications 10.8 10.4 8.9
Postage and Supplies 20.7 19.1 17.8
FDIC Premium 8.5 16.2 15.6
Software Amortization 28.3 21.4 14.6
Goodwill and Other Intangibles Amortization 7.5 6.9 7.2
Pension Settlement Charge 4.1 9.6 1.7
Other Expense 21.1 34.8 32.1
- -----------------------------------------------------------------
Total Other Operating Expenses $181.3 $195.3 $170.3
</TABLE>
Software, goodwill and other intangible assets are included in other assets in
the consolidated balance sheet. Software totaled $129.8 million at December 31,
1995 and $111.5 million at December 31, 1994. Goodwill totaled $65.5 million at
December 31, 1995 and $36.2 million at December 31, 1994. Other intangibles
totaled $41.3 million at December 31, 1995 and $31.2 million at December 31,
1994.
46 Northern Trust Corporation
<PAGE>
15. PENSION AND OTHER EMPLOYEE BENEFITS--
PENSION. The following tables set forth the status and the net periodic pension
cost of the domestic qualified and nonqualified pension benefit plans for 1995
and 1994. Prior service costs and unrecognized net assets established at
January 1, 1986 are being amortized on a straight-line basis over 13.2 years.
PLAN STATUS
<TABLE>
<CAPTION>
Qualified Nonqualified
Plan Plan
-------------- --------------
September 30
------------------------------
($ In Millions) 1995 1994 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial Present Value
of Benefit Obligation:
Vested Benefit Obligation $125.7 $104.2 $ 9.9 $ 14.5
- ----------------------------------------------------------------------------
Accumulated Benefit
Obligation 136.4 124.7 10.7 15.7
- ----------------------------------------------------------------------------
Projected Benefit
Obligation for Service Rendered to Date 185.1 175.7 19.4 23.5
Plan Assets at Fair Value 200.1 178.4 -- --
- ----------------------------------------------------------------------------
Plan Assets In Excess of
(Less Than) Projected Benefit Obligation 15.0 2.7 (19.4) (23.5)
Unrecognized Net Asset (Effective
January 1, 1986) (4.9) (7.6) (.1) (.3)
Unrecognized Net Loss 41.4 46.2 9.6 10.3
Unrecognized Prior Service Cost 1.0 1.2 3.9 4.5
Valuation Adjustment (.4) (.4) -- --
- ----------------------------------------------------------------------------
Prepaid (Accrued)
Pension Cost at September 30 52.1 42.1 (6.0) (9.0)
- ----------------------------------------------------------------------------
Net (Expense) Funding
October to December (2.1) (7.8) (.7) 2.5
Additional Minimum Liability at December 31 -- -- (3.8) (5.9)
- ----------------------------------------------------------------------------
Prepaid (Accrued)
Pension Cost at December 31 $ 50.0 $ 34.3 $(10.5) $(12.4)
- ----------------------------------------------------------------------------
Assumptions:
Discount Rates 7.50% 7.50% 7.00% 7.25%
Rate of Increase in Compensation Level 5.00 5.00 5.00 5.00
Expected Long-Term Rate of Return on Assets 9.00 9.00 N/A N/A
</TABLE>
NET PERIODIC PENSION COST
<TABLE>
<CAPTION>
Qualified Nonqualified
Plan Plan
-------------- -------------
(In Millions) 1995 1994 1995 1994
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Service Cost $ 11.3 $ 11.1 $ 1.1 $ .9
Interest Cost 12.3 11.5 1.6 1.3
Actual Return on Plan Assets (26.6) (15.7) -- --
Net Amortization 11.3 .8 1.1 .9
- -----------------------------------------------------------
Net Periodic Pension Cost $ 8.3 $ 7.7 $ 3.8 $ 3.1
</TABLE>
Pension expense for 1993 was $7.2 million and $2.7 million for the qualified
and nonqualified plans, respectively.
Due to retirements in 1994 and 1995 a substantial number of lump-sum payments
were made from both the qualified and nonqualified plans which resulted in
settlement charges of $4.1 million in 1995 and $9.6 million in 1994. During
1993 a settlement charge of $1.7 million was recognized due to payments from
the nonqualified plan. Settlement charges 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, 1995, 1994 and 1993, amounted to $8.7 million, $9.3
million and $9.4 million, respectively.
A pension plan is also maintained for the London Branch employees. At December
31, 1995, the fair value of assets and the projected benefit obligation totaled
approximately $7.1 million and $8.1 million, respectively. At December 31,
1994, the fair value of assets and the projected benefit obligation were $6.0
million and $6.0 million, respectively. Pension expense for 1995 and 1994 was
$.6 million and $.7 million, respectively.
THRIFT INCENTIVE PLAN. Total expenses associated with the Thrift Incentive Plan
amounted to $11.3 million in 1995, $10.6 million in 1994 and $9.9 million in
1993.
ESOP. The following table presents information related to the ESOP.
<TABLE>
<CAPTION>
(In Millions) 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Total ESOP Compensation Expense $5.8 $5.1
Interest Incurred on ESOP-Related Debt 2.8 3.4
Amount Contributed to ESOP-Related Debt 8.2 8.2
Dividends and Interest on Unallocated ESOP Shares Used for Debt
Service 2.0 2.1
</TABLE>
Northern Trust Corporation 47
<PAGE>
Notes to Consolidated Financial Statements (continued)
OTHER POSTRETIREMENT BENEFITS. The following tables set forth the funded status
at December 31 and the net periodic postretirement benefit cost of the domestic
postretirement health care plan for 1995 and 1994. The transition obligation at
January 1, 1993 is being amortized to expense over a twenty year period.
PLAN STATUS
<TABLE>
<CAPTION>
(In Millions) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation (APBO) Measured
at September 30
Retirees and Dependents $ 16.9 $ 16.7
Actives Eligible for Benefits 5.6 5.0
Actives Not Yet Eligible 18.1 17.1
- ------------------------------------------------------------------------------
Total APBO 40.6 38.8
Unamortized Transition Obligation (23.8) (25.2)
Unrecognized Net Loss (8.5) (10.1)
Unrecognized Prior Service Costs 2.6 2.8
- ------------------------------------------------------------------------------
Net Postretirement Benefit Liability $ 10.9 $ 6.3
NET PERIODIC POSTRETIREMENT BENEFIT COST
<CAPTION>
(In Millions) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Service Cost $ 1.7 $ 1.4
Interest Cost 2.9 2.3
Net Amortization 1.6 1.4
- ------------------------------------------------------------------------------
Net Periodic Postretirement Benefit Cost $ 6.2 $ 5.1
</TABLE>
Postretirement health care expense for 1993 was $4.8 million.
For measurement purposes, a 10.8 percent annual increase in the cost of covered
health care benefits was assumed for 1996. 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,
1995 by approximately $7.3 million, and the aggregate of the service and
interest cost components of the 1995 net periodic postretirement benefit cost
by $.8 million. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.50 percent at December 31,
1995 and 7.75 percent at December 31, 1994.
As permitted by the provisions of SFAS No. 106, the London Branch began
accruing for postretirement health care benefits effective January 1, 1995. The
transition obligation of $.4 million established at January 1, 1995 is being
amortized over a twenty year period. Postretirement benefit expense for 1995
was $.1 million and the total Accumulated Postretirement Benefit Obligation at
December 31, 1995 was $.4 million.
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.
16. 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.
17. 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.
48 Northern Trust Corporation
<PAGE>
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
NOTES. The fair values of these instruments were estimated using a discounted
cash flow method that incorporated market interest rates.
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
-----------------------------------
1995 1994
----------------- -----------------
Book Fair Book Fair
(In Millions) Value Value Value Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and Due From Banks $1,308.9 $1,308.9 $1,192.5 $1,192.5
Money Market Assets 1,784.2 1,784.2 2,651.2 2,651.2
Securities:
Held to Maturity 535.1 562.6 641.3 657.9
Available for Sale 5,136.3 5,136.3 4,407.8 4,407.8
Trading Account 88.9 88.9 4.0 4.0
Loans (excluding leases), net of credit
loss reserve:
Held to Maturity 9,549.0 9,595.8 8,281.5 7,993.2
Held for Sale 7.6 7.6 4.4 4.4
Acceptance Liability 35.8 35.8 56.3 56.3
Trust Security Settlement Receivables 327.1 327.1 305.7 305.7
LIABILITIES
Deposits:
Demand, Savings and Money Market 6,698.2 6,698.2 6,006.4 6,006.4
Savings Certificates, Other Time and
Foreign Offices Time 5,790.0 5,821.8 5,728.0 5,716.0
Federal Funds Purchased 2,300.1 2,300.1 972.0 972.0
Repurchase Agreements 1,858.7 1,858.7 2,216.9 2,216.9
Commercial Paper 146.7 146.7 123.8 123.8
Other Borrowings 875.9 875.9 1,077.9 1,077.9
Senior Notes 17.0 17.1 547.0 544.2
Notes Payable 334.6 351.9 244.8 236.1
Liability on Acceptances 35.8 35.8 56.3 56.3
</TABLE>
Northern Trust Corporation 49
<PAGE>
Notes to Consolidated Financial Statements (continued)
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>
1995 1994
----------- -----------
Book Fair Book Fair
(In Millions) Value Value Value Value
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Commitments and Letters of Credit
Loan Commitments $ 1.9 $ 1.9 $ 2.2 $ 2.2
Letters of Credit .8 .8 .7 .7
Asset/Liability Management
Foreign Exchange Contracts
Assets -- .4 4.3 4.8
Liabilities .1 .1 -- .4
Interest Rate Swap Contracts
Assets 4.9 7.5 11.7 58.8
Liabilities 22.2 45.2 6.6 16.3
Interest Rate Protection
Contracts--Assets .2 .3 -- --
</TABLE>
<TABLE>
<CAPTION>
Fair Value
-------------
(In Millions) 1995 1994
- ---------------------------------------------------
<S> <C> <C>
Client-Related and Trading*
Foreign Exchange Contracts
Assets $118.0 $78.1
Liabilities 107.5 78.7
Interest Rate Swap Contracts
Assets 4.2 3.0
Liabilities 4.2 3.8
Interest Rate Protection Contracts
Assets .1 .5
Liabilities .1 .6
Option Contract with Benchmark Funds -- 3.5
</TABLE>
*Assets and liabilities associated with foreign exchange contracts averaged
$183.0 million and $180.5 million, respectively, during 1995. Assets and
liabilities associated with other client-related and trading account
instruments averaged $2.2 million and $4.3 million, respectively, during 1995.
18. 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
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. To control the credit risk associated
with entering into commitments and issuing letters of credit, Northern Trust
subjects such activities 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.
The following table shows the contractual amounts of commitments and letters of
credit.
COMMITMENTS AND LETTERS OF CREDIT
<TABLE>
<CAPTION>
December 31
-----------------
(In Millions) 1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Legally Binding Commitments to Extend Credit $8,906.0 $7,397.7
Participations in Bankers Acceptances 1.5 6.3
Commercial Letters of Credit 167.7 227.2
Standby Letters of Credit:
Corporate $ 448.4 $ 372.6
Industrial Revenue 379.9 318.7
Other 194.5 128.6
- ---------------------------------------------------------------
Total Standby Letters of Credit* $1,022.8 $ 819.9
</TABLE>
*These amounts include $96.2 million and $75.8 million of standby letters of
credit secured by cash deposits or participated to others as of December 31,
1995 and 1994, respectively. The weighted average maturity of standby letters
of credit was 19 months at December 31, 1995 and 1994.
B. RISK MANAGEMENT INSTRUMENTS. These instruments include foreign exchange
contracts, foreign currency futures 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
50 Northern Trust Corporation
<PAGE>
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 lives 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.
FOREIGN CURRENCY AND INTEREST RATE FUTURES CONTRACTS are agreements for delayed
delivery of foreign currency, securities or money market instruments in which
the buyer agrees to take delivery at a specified future date of a specified
currency, security, or instrument, at a specified price or yield. All of
Northern Trust's futures contracts are traded on organized exchanges that
require the daily settlement of changes in the value of the contracts. Futures
contracts are utilized in trading activities and asset/liability management to
protect Northern Trust's exposure to unfavorable fluctuations in foreign
exchange rates or 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. Northern
Trust also purchases interest rate protection contracts for asset and liability
management.
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 $336 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.
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.
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.
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) 1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Asset/Liability Management:
Foreign Exchange Contracts $ 30.4 $ 131.4
Foreign Currency Futures Contracts 1.8 --
Interest Rate Futures Contracts Sold .7 1.2
Interest Rate Protection Contracts Purchased 25.0 --
Interest Rate Swap Contracts 2,600.7 1,381.2
Forward Sale Contracts 11.1 4.9
Exchange-Traded Option Contracts Purchased 2.0 .5
Client-Related and Trading:
Foreign Exchange Contracts 11,838.8 9,396.7
Interest Rate Futures Contracts
Purchased 106.0 --
Sold 289.0 16.0
Interest Rate Protection Contracts
Purchased 77.0 87.5
Sold 78.9 85.9
Interest Rate Swap Contracts 181.5 308.8
</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 28 and 29 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 1995 or
1994.
Net revenue associated with client-related and trading interest risk management
activities totaled $2.8 million, $2.4 million, and $1.0 million during 1995,
1994, and 1993, respectively. The majority of these revenues are related to
Northern Trust Corporation 51
<PAGE>
Notes to Consolidated Financial Statements (continued)
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, 1995 and 1994
subject to indemnification was $8.2 billion and $5.0 billion, respectively. All
securities borrowed were collateralized in excess of 100 percent of their
current fair value as of December 31, 1995 and 1994. 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, 1995 and 1994 was $71 million and $65 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 was essentially a written option contract, The Benchmark Funds
had the option of selling 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 lagged the sharp increase in short-term
interest rates that occurred at the time the agreement was reached. The
agreement also gave the Corporation the option of purchasing the securities
from The Benchmark Funds at the higher of cost or market value. The agreement
increased net asset values and so preserved 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 Corporation exercised its option to purchase
the securities in June 1995 at an aggregate price of $110.6 million, equal to
the Funds' amortized cost basis in the securities. The securities, which mature
in February 1997, were recorded by the Corporation at their fair value of
$107.7 million. The fair value of the agreement recorded in other liabilities
when the Corporation entered into the 1994 agreement, was $3.5 million. This
reserve exceeded the loss realized in 1995 by $.6 million.
19. CONCENTRATIONS OF CREDIT RISK--The information in the section titled Loans
and Other Extensions of Credit found on pages 20 through 22 is incorporated by
reference.
20. 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, 1995,
securities and loans totaling $3.9 billion ($3.1 billion of U.S. Government and
agency securities, $216.8 million of obligations of states and political
subdivisions and $622.6 million of loans and other securities), were pledged.
Collateral required for these purposes totaled $2.6 billion. Deposits
maintained at the Federal Reserve Bank to meet reserve requirements averaged
$278.1 million in 1995 and $307.7 million in 1994.
21. INCENTIVE PLANS AND AWARDS--AMENDED 1992 INCENTIVE STOCK PLAN AND AMENDED
INCENTIVE STOCK PLAN (PLANS). In October 1995, SFAS No. 123, "Accounting for
Stock-Based Compensation," was issued. The accounting method for stock-based
compensation provided in the statement, in particular for stock options,
differs from APB Opinion No. 25, in which most of the accounting requirements
for stock-based compensation were previously contained. The measurement and
recognition provisions of the statement are
52 Northern Trust Corporation
<PAGE>
elective and disclosure requirements of the statement are effective in 1996. An
entity that continues to apply Opinion No. 25 will be required to provide pro
forma net income and earnings per share as if the method in SFAS No. 123 had
been used to account for stock-based compensation costs. Northern Trust is
currently in the process of developing a stock option model to be used in
calculating the pro forma information required by SFAS No. 123. In 1996,
Northern Trust will continue to account for stock-based compensation in
accordance with Opinion No. 25 and will provide the pro forma information
required by Statement No. 123.
As of December 31, 1995, shares available for future grants under the Plans
totaled 847,047. Stock options granted under the Plans during 1995 and 1994 are
summarized below.
<TABLE>
<CAPTION>
Outstanding Options
---------------------------
SHARES Option Price
- -------------------------------------------------------------
<S> <C> <C>
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
- -------------------------------------------------------------
Cancelled during 1995 (42,500) $ 37.69 to 47.00
Exercised during 1995 (640,229) 7.64 to 39.75
Granted during 1995 629,800 38.13 to 47.00
- -------------------------------------------------------------
OUTSTANDING AT
DECEMBER 31, 1995 3,734,473 $ 13.00 TO 47.00
- -------------------------------------------------------------
Exercisable at December 31, 1994 3,155,902 $ 7.64 to 41.63
- -------------------------------------------------------------
EXERCISABLE AT
DECEMBER 31, 1995 2,560,173 $ 13.00 TO 42.00
</TABLE>
As of December 31, 1995, 311,000 shares of stock have been credited to
performance share accounts associated with the stock awards under the Plans. At
December 31, 1995, 422,778 shares had been awarded, subject to meeting
established performance goals and vesting conditions, for three-year
performance periods ending in 1995 through 1997. Total salary expense
applicable to the stock awards was $4.4 million in 1995, $5.2 million in 1994
and $6.3 million in 1993. As of December 31, 1995 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 1995.
OTHER INCENTIVE PLANS. At December 31, 1995, in conjunction with various
acquisitions, shares of the Corporation's common stock have been awarded to
certain subsidiary participants contingent upon continued employment, non-
competition agreements and, in some cases, meeting predetermined performance
goals. Total salary expense related to these awards was $2.0 million in 1995
and $.3 million in 1994.
Expense related to other cash incentive plans is included in salary expense and
totaled $35.7 million in 1995, $28.4 million in 1994, and $29.3 million in
1993.
22. 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 Bank, two overseas branches, one
Edge Act subsidiary, the Hong Kong subsidiary, RCB, and Northern Trust of
Florida. Total assets employed in international operations were $2.3 billion on
December 31, 1995, $2.8 billion on December 31, 1994 and $2.7 billion on
December 31, 1993. Of these assets, $1.1 billion on December 31, 1995 and $1.5
billion on December 31, 1994 and 1993 were employed in Europe.
Net income from international operations includes the direct net income
contributions of foreign branches, foreign subsidiaries and the Edge Act
subsidiary. The Bank 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
GEOGRAPHIC DISTRIBUTION OF SELECTED ASSETS
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994 December 31, 1993
--------------------------------------------------------------------------------------------------------
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 $ 849.6 $-- $ 70.0 $ -- $1,257.8 $-- $ 93.4 $ .9 $1,129.2 $-- $184.7 $ .1
North America 323.6 -- 123.4 -- 651.7 -- 141.9 -- 557.5 -- 44.7 --
Latin America 236.1 .1 170.7* 1.8 64.1 -- 135.0* .6 177.3 .7 116.1* 3.9
Asia-Pacific 158.1 -- 40.1 .6 194.4 -- 16.4 -- 226.2 -- 7.8 .3
- -----------------------------------------------------------------------------------------------------------------------
Total $1,567.4 $.1 $404.2 $2.4 $2,168.0 $-- $386.7 $1.5 $2,090.2 $.7 $353.3 $4.3
</TABLE>
*Includes loans guaranteed by the Export Import Bank of $116.5 million in 1995,
$95.2 million in 1994 and $85.8 million in 1993.
The majority of the remaining loans are trade-related.
Northern Trust Corporation 53
<PAGE>
Notes to Consolidated Financial Statements (continued)
GEOGRAPHIC DISTRIBUTION OF OPERATING PERFORMANCE
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
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 $ 67.0 $14.9 $ 9.2 $137.9 $19.1 $11.8 $105.7 $11.2 $ 7.1
North America 113.8 15.4 9.5 133.9 9.1 5.6 68.2 4.7 2.9
Latin America 39.9 5.1 3.2 68.4 12.0 7.4 46.8 4.8 3.0
Asia-Pacific 105.8 20.3 12.6 42.4 7.7 4.8 20.9 3.1 1.9
- --------------------------------------------------------------------------------------
Total $326.5 $55.7 $34.5 $382.6 $47.9 $29.6 $241.6 $23.8 $14.9
</TABLE>
The table summarizes international performance based on the domicile
of the primary obligor without regard to guarantors or the location of
collateral. The 1994 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.
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.
23. ACQUISITIONS--On April 15, 1994, the Corporation 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 pooling-of-interests. Prior
period consolidated financial statements were not restated due to the
immateriality of the transaction.
On March 31, 1995, the Corporation completed the acquisition of Beach One
Financial Services, Inc., parent company of The Beach Bank of Vero Beach,
Florida. The acquisition was effected through a merger in which the Corporation
issued 1,622,568 shares of its common stock totaling $56.2 million. The
Corporation has accounted for the transaction as pooling-of-interests. Prior
period consolidated financial statements were not restated due to the
immateriality of the transaction.
On July 31, 1995, the Corporation completed the
acquisition of Tanglewood Bancshares, Inc., parent company of Tanglewood Bank
N.A. of Houston, Texas for $32.5 million in cash. The transaction was recorded
under the purchase method of accounting. Included in the acquisition cost were
$14.4 million of goodwill and $5.8 million of other intangibles, which are
being amortized over fifteen and ten years, respectively.
On October 31, 1995, the Corporation completed the acquisition of RCB
International, Inc. (RCB), an international provider of institutional
investment management services. RCB shareholders received at closing $11.0
million in cash, $.6 million in notes and 392,431 shares of Corporation common
stock. The transaction was recorded under the purchase method of accounting. In
addition, 216,140 shares of Corporation common stock and $2.6 million in cash
were allocated for various deferred compensation plans and other deferred
payment arrangements. Shares and cash available under these deferred payment
arrangements are payable over one to seven years and are contingent upon
continued employment, non-competition agreements and, in some cases, meeting
predetermined performance goals. Included in the acquisition cost of RCB were
$18.8 million of goodwill and $8.0 million of other intangibles, both of which
are being amortized over a fifteen year period.
54 Northern Trust Corporation
<PAGE>
24. 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) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash on Deposit with Subsidiary Bank $ .2 $ 2.3
Time Deposits with Banks-International 95.6 42.0
Securities 168.3 207.2
Investments in Wholly Owned Subsidiaries
-Bank Subsidiaries 1,261.6 1,109.3
-Nonbank Subsidiaries 36.2 27.1
Loans-Bank Subsidiaries 50.0 75.0
-Nonbank Subsidiaries 13.4 13.4
-Other 27.8 28.1
Buildings and Equipment 7.3 7.5
Other Assets 94.6 57.3
- -----------------------------------------------------------------------------
Total Assets 1,755.0 1,569.2
- -----------------------------------------------------------------------------
LIABILITIES
Commercial Paper 146.7 123.8
Notes Payable 126.8 136.4
Other Liabilities 28.9 28.3
- -----------------------------------------------------------------------------
Total Liabilities 302.4 288.5
Stockholders' Equity 1,452.6 1,280.7
- -----------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,755.0 $1,569.2
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the Year Ended
December 31
----------------------
(In Millions) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME
Dividends-Bank Subsidiaries $134.3 $ 82.1 $ 86.7
-Nonbank Subsidiaries 1.6 6.6 .6
Intercompany Interest and Other Charges 11.4 12.1 15.2
Interest and Other Income 11.3 9.6 6.9
- ---------------------------------------------------------------------------
Total Operating Income 158.6 110.4 109.4
- ---------------------------------------------------------------------------
Operating Expenses
Interest Expense 20.6 21.5 22.1
Other Operating Expenses 7.2 17.1 12.2
- ---------------------------------------------------------------------------
Total Operating Expenses 27.8 38.6 34.3
- ---------------------------------------------------------------------------
Income before Income Taxes and
Equity in Undistributed Net Income of Subsidiaries 130.8 71.8 75.1
Benefit for Income Taxes (6.1) (9.6) (6.8)
- ---------------------------------------------------------------------------
Income before Equity in
Undistributed Net Income of Subsidiaries 136.9 81.4 81.9
Equity in Undistributed Net Income (Loss) of
Subsidiaries:
Bank Subsidiaries 76.1 101.7 83.0
Nonbank Subsidiaries 7.0 (.9) 3.0
- ---------------------------------------------------------------------------
NET INCOME $220.0 $182.2 $167.9
- ---------------------------------------------------------------------------
Net Income Applicable to Common Stock $211.5 $174.9 $161.6
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
December 31
----------------------
(In Millions) 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $220.0 $182.2 $167.9
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Equity in Undistributed Net
Income of Subsidiaries (83.1) (100.8) (86.0)
(Increase) Decrease in Accrued Income .6 (.9) .3
(Increase) Decrease in Prepaid Expenses (.1) .6 .2
Other Noncash, net (6.8) 4.3 (1.6)
- -----------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 130.6 85.4 80.8
- -----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net (Increase) Decrease in Time Deposits with Banks (53.6) 116.7 (129.7)
Purchases of Securities (279.4) (227.1) (106.1)
Sales of Securities 173.7 157.1 62.3
Proceeds from Maturity and Redemption of Securities 142.0 8.6 18.4
Capital Investments in Subsidiaries (43.5) (3.0) (4.0)
Net (Increase) Decrease in Loans to Subsidiaries 25.0 (2.5) 122.1
Net (Increase) Decrease in Other Loans .3 (1.2) .2
Other, net (2.6) (1.9) (2.0)
- -----------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities (38.1) 46.7 (38.8)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net Increase (Decrease) in Commercial Paper 22.9 (.3) (2.9)
Repayment of Notes Payable (10.2) (81.9) (6.3)
Treasury Stock Purchased (63.7) (6.9) (2.2)
Cash Dividends Paid on Common and Preferred Stock (65.8) (54.1) (45.8)
Net Proceeds from Stock Options 9.0 4.5 4.0
Other, net 13.2 8.8 11.0
- -----------------------------------------------------------------------------
Net Cash Used in Financing Activities (94.6) (129.9) (42.2)
- -----------------------------------------------------------------------------
Net Change in Cash on Deposit
with Subsidiary Bank (2.1) 2.2 (.2)
Cash on Deposit with Subsidiary Bank at Beginning of
Year 2.3 .1 .3
- -----------------------------------------------------------------------------
CASH ON DEPOSIT WITH SUBSIDIARY BANK AT END OF YEAR $ .2 $ 2.3 $ .1
</TABLE>
Northern Trust Corporation 55
<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, 1995
and 1994, 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, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois,
January 16, 1996
56 Northern Trust Corporation
<PAGE>
Consolidated Financial Statistics
AVERAGE BALANCE SHEET
<TABLE>
<CAPTION>
($ In Millions) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 1,178.7 $ 1,206.6 $ 1,025.3 $ 937.8 $ 839.9
Money Market Assets
Federal Funds Sold and Repurchase Agreements 204.2 237.0 171.3 237.8 304.8
Time Deposits with Banks 1,643.9 2,063.3 1,956.8 1,620.5 1,331.3
Other 16.6 119.9 73.5 104.4 274.4
- ------------------------------------------------------------------------------------------------------
Total Money Market Assets 1,864.7 2,420.2 2,201.6 1,962.7 1,910.5
- ------------------------------------------------------------------------------------------------------
Securities
U.S. Government and Other 5,703.9 4,482.0 3,700.2 2,658.1 1,933.9
Obligations of States and Political
Subdivisions 434.7 465.1 502.3 516.0 533.8
Trading Account 54.4 53.8 29.5 16.2 32.1
- ------------------------------------------------------------------------------------------------------
Total Securities 6,193.0 5,000.9 4,232.0 3,190.3 2,499.8
- ------------------------------------------------------------------------------------------------------
Loans and Leases 9,136.0 8,316.1 7,297.1 6,452.9 6,199.4
Reserve for Credit Losses (146.2) (145.2) (145.5) (145.6) (146.6)
Other Assets 1,183.3 1,087.2 1,089.7 1,019.9 879.5
- ------------------------------------------------------------------------------------------------------
Total Assets $19,409.5 $17,885.8 $15,700.2 $13,418.0 $12,182.5
- ------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Demand and Other Noninterest-Bearing $ 2,747.3 $ 2,592.5 $ 2,554.9 $ 1,876.0 $ 1,635.8
Savings and Money Market Deposits 3,312.4 3,385.7 3,432.1 3,372.2 3,208.1
Savings Certificates 2,000.3 1,229.6 1,172.9 1,370.8 1,569.7
Other Time 542.7 412.8 404.7 493.9 533.1
Foreign Offices-Demand 299.1 361.7 65.3 56.2 41.8
-Time 3,493.4 3,284.8 2,436.4 1,815.6 1,100.6
- ------------------------------------------------------------------------------------------------------
Total Deposits 12,395.2 11,267.1 10,066.3 8,984.7 8,089.1
Federal Funds Purchased 1,564.0 1,350.7 1,692.5 1,540.2 1,412.8
Securities Sold under Agreements to Repurchase 1,769.7 1,444.3 664.4 542.9 463.8
Commercial Paper 146.0 138.1 131.5 132.9 129.3
Other Borrowings 1,034.5 1,007.5 940.8 561.0 724.5
Senior Notes 394.0 781.8 554.1 85.2 1.6
Notes Payable 271.3 293.6 297.9 258.8 245.2
Other Liabilities 462.1 377.2 279.6 385.2 357.7
- ------------------------------------------------------------------------------------------------------
Total Liabilities 18,036.8 16,660.3 14,627.1 12,490.9 11,424.0
- ------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 1,372.7 1,225.5 1,073.1 927.1 758.5
- ------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $19,409.5 $17,885.8 $15,700.2 $13,418.0 $12,182.5
- ------------------------------------------------------------------------------------------------------
RATIOS
Dividend Payout Ratio 28.6% 28.4% 25.6% 24.4% 24.6%
Return on Average Assets 1.13 1.02 1.07 1.11 1.05
Return on Average Common Equity 17.58 16.57 17.89 18.71 19.01
Tier 1 Capital to Risk-Adjusted Assets-End of
Period 8.82 8.95 9.31 8.08 6.74
Total Capital to Risk-Adjusted Assets-End of
Period 12.49 12.36 13.41 11.56 10.68
Leverage 6.19 6.22 6.24 6.06 5.38
Average Stockholders' Equity to Average Assets 7.07 6.85 6.83 6.91 6.23
Average Loans and Leases Times Average
Stockholders' Equity 6.7X 6.8x 6.8x 7.0x 8.2x
- ------------------------------------------------------------------------------------------------------
Stockholders-End of Period 3,331 2,962 2,922 2,893 2,840
Staff-End of Period (Full-time equivalent) 6,531 6,608 6,259 6,249 5,798
</TABLE>
58 Northern Trust Corporation
<PAGE>
Consolidated Financial Statistics
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
(Interest and rate on a
taxable equivalent basis) 1995 1994
- -------------------------------------------------------------------------------
($ In Millions) Interest Volume Rate Interest Volume Rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE EARNING ASSETS
Money Market Assets
Federal Funds Sold and
Repurchase Agreements $ 12.3 $ 204.2 6.02% $ 10.9 $ 237.0 4.59%
Time Deposits with Banks 92.1 1,643.9 5.60 97.8 2,063.3 4.74
Other 1.1 16.6 6.88 5.2 119.9 4.31
- -------------------------------------------------------------------------------
Total Money Market Assets 105.5 1,864.7 5.66 113.9 2,420.2 4.71
- -------------------------------------------------------------------------------
Securities
U.S. Government 70.4 1,225.7 5.74 73.8 1,779.6 4.15
Obligations of States and
Political Subdivisions 46.8 434.7 10.75 52.8 465.1 11.35
Federal Agency 258.8 4,124.8 6.28 114.2 2,333.6 4.90
Other 22.0 353.4 6.21 19.6 368.8 5.31
Trading Account 3.8 54.4 7.04 4.3 53.8 7.91
- -------------------------------------------------------------------------------
Total Securities 401.8 6,193.0 6.49 264.7 5,000.9 5.29
- -------------------------------------------------------------------------------
Loans and Leases 634.3 9,136.0 6.94 503.5 8,316.1 6.05
- -------------------------------------------------------------------------------
Total Earning Assets $1,141.6 $17,193.7 6.64% $882.1 $15,737.2 5.61%
- -------------------------------------------------------------------------------
AVERAGE SOURCE OF FUNDS
Deposits
Savings and Money Market
Deposits $ 109.1 $ 3,312.4 3.29% $ 85.3 $ 3,385.7 2.52%
Savings Certificates 120.6 2,000.3 6.03 56.9 1,229.6 4.63
Other Time 31.5 542.7 5.81 18.6 412.8 4.50
Foreign Offices Time 182.1 3,493.4 5.21 137.2 3,284.8 4.18
- -------------------------------------------------------------------------------
Total Deposits 443.3 9,348.8 4.74 298.0 8,312.9 3.58
Federal Funds Purchased 91.2 1,564.0 5.83 55.5 1,350.7 4.11
Repurchase Agreements 102.6 1,769.7 5.80 61.9 1,444.3 4.28
Commercial Paper 8.6 146.0 5.87 5.9 138.1 4.31
Other Borrowings 55.6 1,034.5 5.38 36.0 1,007.5 3.57
Senior Notes 23.7 394.0 6.00 33.8 781.8 4.32
Notes Payable 21.4 271.3 7.88 23.0 293.6 7.84
- -------------------------------------------------------------------------------
Total Interest-Related
Funds 746.4 14,528.3 5.14 514.1 13,328.9 3.86
- -------------------------------------------------------------------------------
Interest Rate Spread -- -- 1.50% -- -- 1.75%
- -------------------------------------------------------------------------------
Noninterest-Related Funds -- 2,665.4 -- -- 2,408.3 --
- -------------------------------------------------------------------------------
Total Source of Funds $ 746.4 $17,193.7 4.34% $514.1 $15,737.2 3.27%
- -------------------------------------------------------------------------------
Net Interest Income/Margin $ 395.2 -- 2.30% $368.0 -- 2.34%
- -------------------------------------------------------------------------------
NET INTEREST INCOME/MARGIN
COMPONENTS
Domestic $ 392.6 $15,193.7 2.58% $357.3 $12,890.4 2.77%
International 2.6 2,000.0 .13 10.7 2,846.8 .38
- -------------------------------------------------------------------------------
Consolidated $ 395.2 $17,193.7 2.30% $368.0 $15,737.2 2.34%
</TABLE>
Notes:-Average volume includes nonaccrual loans.
-Interest on loans and money market assets includes fees of
$5.1 million in 1995, $6.8 million in 1994, $13.9 million in
1993, $11.7 million in 1992 and $5.1 million in 1991.
-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 1995-1993 and 34% for 1992-1991) 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 $37.6 million in 1995, $33.4 million
in 1994, $34.1 million in 1993, $32.5 million in 1992 and
$36.0 million in 1991.
-Yields on the portion of the securities portfolio
classified as available for sale are based on amortized
cost.
60 Northern Trust Corporation
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
- ------------------------------------------------------------------------------
Interest Volume Rate Interest Volume Rate Interest Volume Rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 5.5 $ 171.3 3.24% $ 8.8 $ 237.8 3.70% $ 17.8 $ 304.8 5.83%
86.5 1,956.8 4.42 95.6 1,620.5 5.90 108.1 1,331.3 8.12
2.6 73.5 3.53 4.6 104.4 4.46 20.7 274.4 7.54
- ------------------------------------------------------------------------------
94.6 2,201.6 4.30 109.0 1,962.7 5.55 146.6 1,910.5 7.68
- ------------------------------------------------------------------------------
102.5 2,646.6 3.87 90.3 1,759.7 5.13 65.0 943.4 6.89
58.6 502.3 11.66 59.2 516.0 11.46 61.4 533.8 11.51
29.7 773.9 3.84 23.9 521.6 4.59 25.3 346.5 7.29
13.6 279.7 4.88 22.9 376.8 6.07 52.3 644.0 8.12
2.2 29.5 7.52 1.0 16.2 6.01 2.5 32.1 7.92
- ------------------------------------------------------------------------------
206.6 4,232.0 4.88 197.3 3,190.3 6.18 206.5 2,499.8 8.26
- ------------------------------------------------------------------------------
439.3 7,297.1 6.02 448.1 6,452.9 6.94 530.3 6,199.4 8.55
- ------------------------------------------------------------------------------
$740.5 $13,730.7 5.39% $754.4 $11,605.9 6.50% $883.4 $10,609.7 8.33%
- ------------------------------------------------------------------------------
$ 78.8 $ 3,432.1 2.30% $ 99.1 $ 3,372.2 2.94% $159.2 $ 3,208.1 4.96%
50.5 1,172.9 4.31 69.9 1,370.8 5.10 104.3 1,569.7 6.64
15.7 404.7 3.88 25.4 493.9 5.15 38.3 533.1 7.19
90.4 2,436.4 3.71 95.7 1,815.6 5.27 88.6 1,100.6 8.05
- ------------------------------------------------------------------------------
235.4 7,446.1 3.16 290.1 7,052.5 4.11 390.4 6,411.5 6.09
51.1 1,692.5 3.02 53.5 1,540.2 3.47 78.7 1,412.8 5.57
20.0 664.4 3.00 19.8 542.9 3.65 26.2 463.8 5.65
4.3 131.5 3.23 5.2 132.9 3.88 8.0 129.3 6.19
26.0 940.8 2.76 19.0 561.0 3.39 41.5 724.5 5.73
18.4 554.1 3.33 3.0 85.2 3.49 .1 1.6 8.68
23.3 297.9 7.84 21.0 258.8 8.11 21.4 245.2 8.71
- ------------------------------------------------------------------------------
378.5 11,727.3 3.22 411.6 10,173.5 4.04 566.3 9,388.7 6.03
- ------------------------------------------------------------------------------
-- -- 2.17% -- -- 2.46% -- -- 2.30%
- ------------------------------------------------------------------------------
-- 2,003.4 -- -- 1,432.4 -- -- 1,221.0 --
- ------------------------------------------------------------------------------
$378.5 $13,730.7 2.75% $411.6 $11,605.9 3.55% $566.3 $10,609.7 5.34%
- ------------------------------------------------------------------------------
$362.0 -- 2.64% $342.8 -- 2.95% $317.1 -- 2.99%
- ------------------------------------------------------------------------------
$344.2 $11,491.0 3.00% $324.8 $ 9,659.9 3.36% $300.0 $ 8,981.9 3.34%
17.8 2,239.7 .79 18.0 1,946.0 .93 17.1 1,627.8 1.05
- ------------------------------------------------------------------------------
$362.0 $13,730.7 2.64% $342.8 $11,605.9 2.95% $317.1 $10,609.7 2.99%
</TABLE>
Northern Trust Corporation 61
<PAGE>
Consolidated Financial Statistics
QUARTERLY FINANCIAL DATA
STATEMENT OF INCOME
<TABLE>
<CAPTION>
1995
-------------------------------------------------
Entire Fourth Third Second First
($ In Millions Except Per
Share Information) Year Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 1,104.0 285.9 285.8 271.1 261.2
Interest Expense 746.4 194.2 196.4 183.1 172.7
- --------------------------------------------------------------------------------
Net Interest Income 357.6 91.7 89.4 88.0 88.5
Provision for Credit Losses 6.0 1.0 2.0 1.5 1.5
Noninterest Income 677.1 174.1 173.1 168.4 161.5
Investment Security Gains
(Losses) 1.0 .5 .3 .1 .1
Noninterest Expenses 709.2 178.5 175.5 177.9 177.3
Provision for Income Taxes 100.5 27.3 27.2 24.0 22.0
- --------------------------------------------------------------------------------
NET INCOME 220.0 59.5 58.1 53.1 49.3
- --------------------------------------------------------------------------------
Net Income Applicable to
Common Stock 211.5 57.4 56.0 50.9 47.2
- --------------------------------------------------------------------------------
PER COMMON SHARE
Net Income-Primary $ 3.75 1.01 .99 .90 .86
-Fully Diluted 3.70 1.00 .98 .89 .85
- --------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
<CAPTION>
(In Millions)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 1,178.7 1,248.1 1,253.3 1,124.5 1,086.3
Money Market Assets 1,864.7 1,863.0 1,739.8 1,755.9 2,104.1
Securities 6,193.0 6,443.5 6,677.3 5,905.7 5,732.3
Loans and Leases 9,136.0 9,662.9 9,356.9 8,973.7 8,535.9
Reserve for Credit Losses (146.2) (147.2) (146.6) (145.9) (145.3)
Other Assets 1,183.3 1,216.9 1,250.4 1,208.2 1,055.2
- --------------------------------------------------------------------------------
Total Assets $19,409.5 20,287.2 20,131.1 18,822.1 18,368.5
- --------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits
Demand and Other
Noninterest-Bearing $ 2,747.3 2,942.5 2,790.8 2,635.2 2,616.3
Savings and Other Interest-
Bearing 5,312.7 5,521.3 5,451.7 5,289.9 4,980.6
Other Time 542.7 587.8 584.8 539.5 456.6
Foreign Offices 3,792.5 3,531.0 3,642.0 3,855.2 4,150.5
- --------------------------------------------------------------------------------
Total Deposits 12,395.2 12,582.6 12,469.3 12,319.8 12,204.0
Purchased Funds 4,514.2 4,903.5 5,317.2 4,043.5 3,771.2
Senior Notes 394.0 553.5 174.6 379.7 469.6
Notes Payable 271.3 340.9 254.1 244.7 244.8
Other Liabilities 462.1 484.6 520.5 468.6 372.9
Stockholders' Equity 1,372.7 1,422.1 1,395.4 1,365.8 1,306.0
- --------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $19,409.5 20,287.2 20,131.1 18,822.1 18,368.5
- --------------------------------------------------------------------------------
ANALYSIS OF NET INTEREST INCOME
<CAPTION>
($ In Millions)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning Assets $17,193.7 17,969.4 17,774.0 16,635.3 16,372.3
Interest-Related Funds 14,528.3 15,061.5 15,120.8 14,076.3 13,834.7
Noninterest-Related Funds 2,665.4 2,907.9 2,653.2 2,559.0 2,537.6
Net Interest Income (Taxable
equivalent) 395.2 100.7 98.9 97.5 98.1
Net Interest Margin (Taxable
equivalent) 2.30% 2.22 2.21 2.35 2.43
- --------------------------------------------------------------------------------
COMMON STOCK DIVIDEND AND MARKET PRICE
- --------------------------------------------------------------------------------
Dividends $ 1.09 .31 .26 .26 .26
Market Price Range-High 56.00 56.00 47.625 41.25 37.50
-Low 31.75 43.75 39.00 35.00 31.75
</TABLE>
The common stock of Northern Trust Corporation is traded on the Nasdaq National
Market under the symbol NTRS. The number of stockholders of record at December
31, 1995 was 3,331.
62 Northern Trust Corporation
<PAGE>
<TABLE>
<CAPTION>
1994
- -------------------------------------------------------------------------------------------
Entire Fourth Third Second First
Year Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 848.7 243.0 221.5 200.0 184.2
514.1 156.2 136.5 118.7 102.7
- -------------------------------------------------------------------------------------------
334.6 86.8 85.0 81.3 81.5
6.0 1.0 1.0 1.0 3.0
633.5 152.4 152.8 178.9 149.4
(.1) -- (.2) (.1) .2
700.5 184.9 166.2 187.5 161.9
79.3 13.2 22.4 22.9 20.8
- -------------------------------------------------------------------------------------------
182.2 40.1 48.0 48.7 45.4
- -------------------------------------------------------------------------------------------
174.9 38.0 46.2 46.9 43.8
- -------------------------------------------------------------------------------------------
$ 3.17 .69 .83 .85 .80
3.16 .69 .83 .85 .80
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
$ 1,206.6 1,176.3 1,151.3 1,244.0 1,256.3
2,420.2 2,206.2 2,425.0 2,610.1 2,441.8
5,000.9 5,500.4 5,140.7 4,591.4 4,761.3
8,316.1 8,618.7 8,434.9 8,271.6 7,930.4
(145.2) (144.9) (144.9) (145.3) (145.6)
1,087.2 1,020.1 1,059.9 1,191.2 1,078.7
- -------------------------------------------------------------------------------------------
$17,885.8 18,376.8 18,066.9 17,763.0 17,322.9
- -------------------------------------------------------------------------------------------
$ 2,592.5 2,625.0 2,522.3 2,595.7 2,627.7
4,615.3 4,664.9 4,623.6 4,608.1 4,563.6
412.8 451.4 469.5 416.8 311.2
3,646.5 4,147.6 3,936.8 3,491.4 2,994.3
- -------------------------------------------------------------------------------------------
11,267.1 11,888.9 11,552.2 11,112.0 10,496.8
3,940.6 3,777.9 3,765.5 3,920.3 4,306.4
781.8 770.5 801.6 803.4 751.5
293.6 248.3 273.6 326.7 326.8
377.2 413.0 428.6 387.5 277.8
1,225.5 1,278.2 1,245.4 1,213.1 1,163.6
- -------------------------------------------------------------------------------------------
$17,885.8 18,376.8 18,066.9 17,763.0 17,322.9
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
$15,737.2 16,325.3 16,000.6 15,473.1 15,133.5
13,328.9 13,730.5 13,510.7 13,140.5 12,923.3
2,408.3 2,594.8 2,489.9 2,332.6 2,210.2
368.0 95.9 93.2 89.5 89.4
2.34% 2.33 2.31 2.32 2.40
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
$ .92 .26 .22 .22 .22
43.25 38.25 41.75 43.25 43.00
32.25 32.25 35.75 40.25 39.50
</TABLE>
Northern Trust Corporation 63
<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
120 East Oak Street, Chicago, Illinois 60611
125 South Wacker Drive, Chicago, Illinois 60675
7801 South State Street, Chicago, Illinois 60619
8501 West Higgins Road, Chicago, Illinois 60631
6401 North Harlem Avenue, Chicago, Illinois 60631
579 Central Avenue, Highland Park, Illinois 60035
120 East Scranton Avenue, Lake Bluff, Illinois 60044
265 Deerpath Road, Lake Forest, Illinois 60045
959 South Waukegan Road, Lake Forest, Illinois 60045
701 South McKinley Road, Lake Forest, Illinois 60045
400 East Diehl Road, Naperville, Illinois 60563
One Oakbrook Terrace,Oakbrook Terrace, Illinois 60181
1501 Woodfield Road, Schaumburg, Illinois 60173
62 Green Bay Road, Winnetka, Illinois 60093
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
Northern Trust Trade Services Limited
Asia Pacific Tower, 17th Floor,
3 Garden Road, Central, 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
66 Northern Trust Corporation
<PAGE>
OTHER SUBSIDIARIES OF THE CORPORATION
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
770 East Atlantic Avenue, Delray Beach, Florida 33483
440 Royal Palm Way, Palm Beach, Florida 33480
11780 U.S. Highway 1, Building 3, Suite 100,North Palm Beach, Florida 33408
2201 S.E. Kingswood Terrace, Monterey Commons,Stuart, Florida 34994 (opening
Spring 1996)
755 Beachland Boulevard, Vero Beach, Florida 32963
1440 South A1A, Vero Beach, Florida 32963
4001 Tamiami Trail North, Naples, Florida 33940
530 Fifth Avenue South, Naples, Florida 33940
26790 South Tamiami Trail, Bonita Springs, Florida 33923
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
233 15th Street West, Bradenton, Florida 34205
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 La Jolla 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
600 Bering Drive, Houston, Texas 77057
10000 Memorial Drive, Houston, Texas 77024
700 Rusk Street, Houston, Texas 77002
RCB INTERNATIONAL INC.
29 Federal Street, Stamford, Connecticut 06901
RCB TRUST COMPANY
29 Federal Street, Stamford, Connecticut 06901
DIVERSIFIED FUND MANAGEMENT INC.
20 Toronto Street, Suite 440, Toronto, Canada M5C 2B8
RCB INTERNATIONAL LIMITED
One Gloster Court, Segensworth West, Fareham, Hampshire PO15 5SH, England
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, Suite 1900,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 Corporation 67
<PAGE>
EXHIBIT NUMBER (21)
TO 1995 FORM 10-K
NORTHERN TRUST CORPORATION SUBSIDIARIES
AS OF MARCH 1, 1996
<TABLE>
<CAPTION>
Percent Jurisdiction 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
Nortrust International Finance (Hong Kong) Ltd. 100% Hong Kong
Northern Global Financial Services Ltd. 100% Hong Kong
Northern Trust Trade Services Limited 100% Hong Kong
Northern Trust Fund Managers (Ireland) Limited 100% Ireland
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 Trust Bank of Vero Beach 100% Florida
Nortrust 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
Tanglewood Bancshares, Inc. 100% Texas
Northern Futures Corporation 100% Delaware
</TABLE>
<PAGE>
NORTHERN TRUST CORPORATION SUBSIDIARIES
AS OF MARCH 1, 1996
(continued)
<TABLE>
<CAPTION>
Percent State of
Owned Incorporation
------- -------------
<S> <C> <C>
Norsub Corporation 100% Delaware
First Lake Forest Corporation 100% Delaware
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
RCB International, Inc. 100% Delaware
Diversified Fund Management, Inc. 100% Ontario, Canada
RCB International Limited 100% England
RCB Trust Company 100% Connecticut
</TABLE>
<PAGE>
EXHIBIT NUMBER (23)
TO 1995 FORM 10-K
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated January 16, 1996, incorporated by reference in Northern
Trust Corporation's Annual Report on Form 10-K for the year ended December 31,
1995, into the Corporation's previously filed Form S-8 Registration Statements
File Nos. 33-22546, 33-47597, 33-51971, 33-63843 and 333-00809.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 11, 1996
<PAGE>
EXHIBIT NUMBER (24)
TO 1995 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 William A. Osborn, 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, 1995, 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 20th day of February, 1996.
William A. Osborn Barry G. Hastings
- ----------------- -----------------
William A. Osborn Barry G. Hastings
Chairman of the Board, Chief President, Chief Operating
Executive Officer and Director Officer and Director
Perry R. Pero Harry W. Short
- -------------- --------------
Perry R. Pero Harry W. Short
Senior Executive Vice President Senior Vice President and Controller
and Chief Financial Officer (Chief Accounting Officer)
Dolores E. Cross Robert S. Hamada
- ---------------- ----------------
Dolores E. Cross Robert S. Hamada
Director Director
Robert A. Helman Arthur L. Kelly
- ---------------- ---------------
Robert A. Helman Arthur L. Kelly
Director Director
<PAGE>
Ardis Krainik Frederick A. Krehbiel
- ------------- ---------------------
Ardis Krainik Frederick A. Krehbiel
Director Director
William G. Mitchell Harold B. Smith
- ------------------- ---------------
William G. Mitchell Harold B. Smith
Director Director
William D. Smithburg Bide L. Thomas
- -------------------- --------------
William D. Smithburg 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 20th day of February, 1996.
Victoria Antoni
----------------------
Notary Public
My Commission Expires:
7/25/99
-------------
<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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,308,931
<INT-BEARING-DEPOSITS> 1,567,632
<FED-FUNDS-SOLD> 162,063
<TRADING-ASSETS> 88,891
<INVESTMENTS-HELD-FOR-SALE> 5,136,281
<INVESTMENTS-CARRYING> 535,083
<INVESTMENTS-MARKET> 562,611
<LOANS> 9,905,988
<ALLOWANCE> 147,131
<TOTAL-ASSETS> 19,933,518
<DEPOSITS> 12,488,205
<SHORT-TERM> 5,181,395
<LIABILITIES-OTHER> 459,715
<LONG-TERM> 351,577
<COMMON> 93,597
0
170,000
<OTHER-SE> 1,189,029
<TOTAL-LIABILITIES-AND-EQUITY> 19,933,518
<INTEREST-LOAN> 630,854
<INTEREST-INVEST> 364,055
<INTEREST-OTHER> 109,119
<INTEREST-TOTAL> 1,104,028
<INTEREST-DEPOSIT> 443,348
<INTEREST-EXPENSE> 746,437
<INTEREST-INCOME-NET> 357,591
<LOAN-LOSSES> 6,000
<SECURITIES-GAINS> 1,039
<EXPENSE-OTHER> 709,208
<INCOME-PRETAX> 320,502
<INCOME-PRE-EXTRAORDINARY> 320,502
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219,995
<EPS-PRIMARY> 3.75
<EPS-DILUTED> 3.70
<YIELD-ACTUAL> 2.30
<LOANS-NON> 29,188
<LOANS-PAST> 21,978
<LOANS-TROUBLED> 2,749
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 144,838
<CHARGE-OFFS> 11,757
<RECOVERIES> 5,832
<ALLOWANCE-CLOSE> 147,131
<ALLOWANCE-DOMESTIC> 106,183
<ALLOWANCE-FOREIGN> 2,746
<ALLOWANCE-UNALLOCATED> 38,202
</TABLE>
