<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[_] THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_______
Commission File Number 0-5965
NORTHERN TRUST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2723087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 SOUTH LA SALLE STREET
CHICAGO, ILLINOIS 60675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312)630-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [_]
111,550,097 Shares - $1.66 2/3 Par Value
(Shares of Common Stock Outstanding on September 30, 1997)
================================================================================
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION
September 30 December 31 September 30
------------ ----------- ------------
($ In Millions) 1997 1996 1996
- ------------------------------------------------------------------------ ------------ ----------- ------------
<S> <C> <C> <C>
Assets
Cash and Due from Banks $ 2,293.6 $ 1,292.5 $ 1,068.6
Federal Funds Sold and Securities Purchased under Agreements to Resell 2,762.4 1,022.6 1,026.8
Time Deposits with Banks 2,256.8 2,060.0 1,312.3
Other Interest-Bearing 45.5 114.3 39.3
Securities
Available for Sale 5,438.0 4,311.7 5,318.2
Held to Maturity (Fair value - $493.1 at September 1997,
$518.9 at December 1996, $520.0 at September 1996) 475.8 498.4 500.6
Trading Account 10.9 4.8 9.0
- ------------------------------------------------------------------------ ------------ ----------- ------------
Total Securities 5,924.7 4,814.9 5,827.8
- ------------------------------------------------------------------------ ------------ ----------- ------------
Loans and Leases
Commercial and Other 7,235.9 6,379.9 6,454.9
Residential Mortgages 4,987.8 4,557.5 4,454.3
- ------------------------------------------------------------------------ ------------ ----------- ------------
Total Loans and Leases (Net of unearned income - $146.0 at
September 1997, $109.1 at December 1996, $111.6 at September 1996) 12,223.7 10,937.4 10,909.2
- ------------------------------------------------------------------------ ------------ ----------- ------------
Reserve for Credit Losses (148.0) (148.3) (147.4)
Buildings and Equipment 312.4 291.5 288.8
Customers' Acceptance Liability 47.0 44.7 38.5
Trust Security Settlement Receivables 302.4 362.3 236.4
Other Assets 898.7 816.4 759.8
- ------------------------------------------------------------------------ ------------ ----------- ------------
Total Assets $26,919.2 $21,608.3 $21,360.1
- ------------------------------------------------------------------------ ------------ ----------- ------------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 3,189.7 $ 3,476.7 $ 3,266.6
Savings and Money Market Deposits 3,712.3 3,880.1 3,711.0
Savings Certificates 2,039.7 2,056.3 2,035.7
Other Time 743.9 462.7 511.6
Foreign Offices - Demand 526.2 410.7 276.9
- Time 5,631.6 3,509.7 3,636.8
- ------------------------------------------------------------------------ ------------ ----------- ------------
Total Deposits 15,843.4 13,796.2 13,438.6
Federal Funds Purchased 817.9 653.0 430.1
Securities Sold Under Agreements to Repurchase 834.6 966.1 738.2
Commercial Paper 137.9 149.0 153.0
Other Borrowings 5,299.4 3,142.1 3,976.6
Senior Notes 885.0 305.0 205.0
Long-Term Debt (Qualifying as risk-based capital - $315.0 at
September 1997, $334.6 at December and September 1996) 443.7 427.8 432.0
Floating Rate Capital Securities (Qualifies as risk-based capital) 267.4 - -
Liability on Acceptances 47.0 44.7 38.5
Other Liabilities 645.4 580.3 431.3
- ------------------------------------------------------------------------ ------------ ----------- ------------
Total Liabilities 25,221.7 20,064.2 19,843.3
- ------------------------------------------------------------------------ ------------ ----------- ------------
Stockholders' Equity
Preferred Stock 120.0 120.0 120.0
Common Stock, $1.66 2/3 Par Value; Authorized 280,000,000 shares at
September 1997, and 140,000,000 shares at December 1996 and
September 1996; Outstanding 111,550,097 at September 1997,
111,247,732 at December 1996 and 55,905,987 at September 1996 189.9 189.9 95.0
Capital Surplus 225.3 231.7 327.8
Retained Earnings 1,274.3 1,110.2 1,064.1
Net Unrealized Gain (Loss) on Securities Available for Sale 2.1 1.6 (.2)
Common Stock Issuable - Performance Plan 11.7 10.4 10.4
Deferred Compensation - ESOP and Other (37.5) (35.5) (37.1)
Treasury Stock - (at cost, 2,410,665 shares at September 1997,
2,712,780 shares at December 1996, and 1,073,701 shares at
September 1996) (88.3) (84.2) (63.2)
- ------------------------------------------------------------------------ ------------ ----------- ------------
Total Stockholders' Equity 1,697.5 1,544.1 1,516.8
- ------------------------------------------------------------------------ ------------ ----------- ------------
Total Liabilities and Stockholders' Equity $26,919.2 $21,608.3 $21,360.1
- ------------------------------------------------------------------------ ------------ ----------- ------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION
Third Quarter Nine Months
Ended September 30 Ended September 30
------------------------- -------------------------
($ In Millions Except Per Share Information) 1997 1996 1997 1996
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income
Loans and Leases $203.3 $176.9 $582.8 $510.1
Securities
Available For Sale 80.4 79.2 236.1 247.7
Held to Maturity 7.6 8.0 23.3 24.5
Trading Account .1 .1 .4 .4
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Securities 88.1 87.3 259.8 272.6
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Time Deposits with Banks 34.0 20.0 92.7 63.7
Federal Funds Sold and Securities Purchased under Agreements to
Resell and Other Interest-Bearing 13.8 5.7 35.7 14.5
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Interest Income 339.2 289.9 971.0 860.9
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Interest Expense
Deposits 136.4 112.7 375.0 333.8
Federal Funds Purchased 19.5 22.5 58.1 73.7
Securities Sold under Agreements to Repurchase 21.5 25.8 60.8 79.9
Commercial Paper 2.0 1.9 5.8 5.8
Other Borrowings 25.4 18.9 92.6 50.4
Senior Notes 12.2 2.8 19.4 10.3
Long-Term Debt 8.2 6.5 24.2 19.3
Floating Rate Capital Securities 4.4 - 10.2 -
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Interest Expense 229.6 191.1 646.1 573.2
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Interest Income 109.6 98.8 324.9 287.7
Provision for Credit Losses 5.0 2.5 6.0 11.5
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Interest Income after Provision for Credit Losses 104.6 96.3 318.9 276.2
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Noninterest Income
Trust Fees 177.4 148.2 504.0 441.8
Treasury Management Fees 14.8 13.9 44.4 41.4
Foreign Exchange Trading Profits 33.5 15.1 77.8 42.7
Security Commissions and Trading Income 6.9 5.0 19.4 17.7
Other Operating Income 22.0 12.7 40.9 34.8
Investment Security Gains (Losses) .1 (.1) .7 .3
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Noninterest Income 254.7 194.8 687.2 578.7
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Income before Noninterest Expenses 359.3 291.1 1,006.1 854.9
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Noninterest Expenses
Salaries 116.4 92.4 325.4 270.1
Pension and Other Employee Benefits 20.1 18.5 61.7 57.3
Occupancy Expense 17.7 15.5 50.2 45.5
Equipment Expense 17.6 14.2 47.4 42.3
Other Operating Expenses 62.9 51.2 173.5 153.2
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total Noninterest Expenses 234.7 191.8 658.2 568.4
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Income before Income Taxes 124.6 99.3 347.9 286.5
Provision for Income Taxes 43.6 32.8 119.8 95.1
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Income $ 81.0 $ 66.5 $228.1 $191.4
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Income Applicable to Common Stock $ 79.7 $ 65.3 $224.4 $187.7
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Income Per Common Share - Primary $ .70 $ .57 $ 1.96 $ 1.63
- Fully Diluted .69 .57 1.95 1.62
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
Average Number of Common Shares Outstanding - Primary 114,719,797 114,537,180 114,618,221 114,801,078
- Fully Diluted 115,132,817 114,842,294 115,196,488 115,594,068
- -------------------------------------------------------------------------- ----------- ----------- ----------- -----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NORTHERN TRUST CORPORATION
Nine Months
Ended September 30
----------------------------
(In Millions) 1997 1996
- ------------------------------------------------------------------------------------ -------------- -----------
<S> <C> <C>
Preferred Stock
Balance at January 1 $ 120.0 $ 170.0
Conversion of Preferred Stock, Series E - (50.0)
- ------------------------------------------------------------------------------------ -------------- -----------
Balance at September 30 120.0 120.0
- ------------------------------------------------------------------------------------ -------------- -----------
Common Stock
Balance at January 1 189.9 93.6
Conversion of Preferred Stock, Series E - 1.4
- ------------------------------------------------------------------------------------ -------------- -----------
Balance at September 30 189.9 95.0
- ------------------------------------------------------------------------------------ -------------- -----------
Capital Surplus
Balance at January 1 231.7 306.1
Stock Issued - Incentive Plan and Awards (6.4) (7.5)
Conversion of Preferred Stock, Series E - 29.2
- ------------------------------------------------------------------------------------ -------------- -----------
Balance at September 30 225.3 327.8
- ------------------------------------------------------------------------------------ -------------- -----------
Retained Earnings
Balance at January 1 1,110.2 928.8
Net Income 228.1 191.4
Dividends Declared on Common Stock (60.3) (52.5)
Dividends Declared on Preferred Stock (3.7) (3.6)
- ------------------------------------------------------------------------------------ ------------- -----------
Balance at September 30 1,274.3 1,064.1
- ------------------------------------------------------------------------------------ -------------- -----------
Net Unrealized Gain (Loss) on Securities Available for Sale
Balance at January 1 1.6 2.6
Unrealized Gain (Loss), net .5 (2.8)
- ------------------------------------------------------------------------------------ -------------- -----------
Balance at September 30 2.1 (.2)
- ------------------------------------------------------------------------------------ -------------- -----------
Common Stock Issuable - Performance Plan
Balance at January 1 10.4 14.7
Stock Issuable, net of Stock Issued 1.3 (4.3)
- ------------------------------------------------------------------------------------ -------------- -----------
Balance at September 30 11.7 10.4
- ------------------------------------------------------------------------------------ -------------- -----------
Deferred Compensation - ESOP and Other
Balance at January 1 (35.5) (39.4)
Compensation Deferred (7.8) (2.3)
Compensation Amortized 5.8 4.6
- ------------------------------------------------------------------------------------ -------------- -----------
Balance at September 30 (37.5) (37.1)
- ------------------------------------------------------------------------------------ -------------- -----------
Treasury Stock
Balance at January 1 (84.2) (23.8)
Stock Options and Awards 44.5 36.3
Stock Purchased (48.6) (94.9)
Conversion of Preferred Stock, Series E - 19.2
- ------------------------------------------------------------------------------------ -------------- -----------
Balance at September 30 (88.3) (63.2)
- ------------------------------------------------------------------------------------ -------------- -----------
Total Stockholders' Equity at September 30 $1,697.5 $1,516.8
- ------------------------------------------------------------------------------------ -------------- -----------
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION
<TABLE>
<CAPTION>
Nine Months
Ended September 30
----------------------------
(In Millions) 1997 1996
- ------------------------------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 228.1 $ 191.4
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses 6.0 11.5
Depreciation on Buildings and Equipment 37.5 35.7
(Increase) Decrease in Interest Receivable (13.0) 12.7
Increase in Interest Payable 25.0 8.1
Amortization and Accretion of Securities and Unearned Income (129.7) (76.0)
Amortization of Software, Goodwill and Other Intangibles 39.3 32.8
Net (Increase) Decrease in Trading Account Securities (6.1) 79.9
Other Noncash, net (46.6) (89.0)
- ------------------------------------------------------------------------------------------- -------------- ------------
Net Cash Provided by Operating Activities 140.5 207.1
- ------------------------------------------------------------------------------------------- -------------- ------------
Cash Flows From Investing Activities:
Net Increase in Federal Funds Sold and Securities Purchased under Agreements to Resell (1,739.8) (864.7)
Net (Increase) Decrease in Time Deposits with Banks (196.8) 255.3
Net Decrease in Other Interest-Bearing Assets 68.8 15.2
Purchases of Securities-Held to Maturity (120.2) (742.0)
Proceeds from Maturity and Redemption of Securities-Held to Maturity 145.3 782.5
Purchases of Securities-Available for Sale (52,648.3) (27,751.7)
Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale 51,688.5 27,645.3
Net Increase in Loans and Leases (1,332.2) (1,037.8)
Purchases of Buildings and Equipment (38.4) (43.0)
Net Decrease in Trust Security Settlement Receivables 59.9 90.7
Other, net (1.2) (15.8)
- ------------------------------------------------------------------------------------------- -------------- ------------
Net Cash Used in Investing Activities (4,114.4) (1,666.0)
- ------------------------------------------------------------------------------------------- -------------- ------------
Cash Flows From Financing Activities:
Net Increase in Deposits 2,047.2 950.4
Net Increase (Decrease) in Federal Funds Purchased 164.9 (1,870.0)
Net Decrease in Securities Sold under Agreements to Repurchase (131.5) (1,120.5)
Net Increase (Decrease) in Commercial Paper (11.1) 6.3
Net Increase in Short-Term Other Borrowings 2,259.6 3,163.1
Proceeds from Term Federal Funds Purchased 1,156.8 1,611.6
Repayments of Term Federal Funds Purchased (1,259.1) (1,674.0)
Proceeds from Senior Notes & Long-Term Debt 803.1 801.5
Repayments of Senior Notes & Long-Term Debt (227.2) (516.1)
Proceeds from Floating Rate Capital Securities 267.3 -
Treasury Stock Purchased (44.8) (90.5)
Net Proceeds from Stock Options 10.5 8.4
Cash Dividends Paid on Common and Preferred Stock (63.9) (56.0)
Other, net 3.2 4.4
- ------------------------------------------------------------------------------------------- -------------- ------------
Net Cash Provided by Financing Activities 4,975.0 1,218.6
- ------------------------------------------------------------------------------------------- -------------- ------------
Increase (Decrease) in Cash and Due from Banks 1,001.1 (240.3)
Cash and Due from Banks at Beginning of Year 1,292.5 1,308.9
- ------------------------------------------------------------------------------------------- -------------- ------------
Cash and Due from Banks at September 30 $ 2,293.6 $ 1,068.6
- ------------------------------------------------------------------------------------------- -------------- ------------
Schedule of Noncash Investing and Financing Activities:
Conversion of Preferred Stock, Series E to Common Stock - $ 49.7
Building and Capital lease Obligation $ 20.0 -
Supplemental Disclosures of Cash Flow Information:
Interest Paid on Deposits and Short- and Long-Term Borrowings $ 621.2 $ 565.1
Income Taxes Paid 65.4 58.4
- ------------------------------------------------------------------------------------------- -------------- ------------
</TABLE>
5
<PAGE>
Notes to Consolidated Financial Statements
1. Basis of Presentation - The consolidated financial statements include the
accounts of Northern Trust Corporation and its subsidiaries ("Northern
Trust"), all of which are wholly owned. Significant intercompany balances
and transactions have been eliminated. The consolidated financial
statements as of September 30, 1997 and 1996 have not been audited by
independent public accountants. In the opinion of management, all
adjustments necessary for a fair presentation of the financial position and
the results of operations for the interim periods have been made. All such
adjustments are of a normal recurring nature. Certain reclassifications
have been made to prior periods' consolidated financial statements to place
them on a basis comparable with the current period's consolidated financial
statements. For a description of Northern Trust's significant accounting
policies, refer to the Notes to Consolidated Financial Statements in the
1996 Annual Report to Stockholders.
Per share data and average shares outstanding for 1996 have been restated
to give effect to the two-for-one stock split effected by means of a 100%
stock distribution on December 9, 1996.
2. Securities - The following table summarizes the book and fair values of
securities:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996 September 30, 1996
-----------------------------------------------------------------------------------
Book Fair Book Fair Book Fair
(In Millions) Value Value Value Value Value Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Held to Maturity
U.S. Government $ 81.0 $ 81.0 $ 73.4 $ 73.5 $ 121.9 $ 121.9
Obligations of States
Political Subdivisions 285.7 304.0 315.9 336.3 330.1 349.5
Federal Agency 14.2 14.3 18.2 18.2 18.2 18.2
Other 94.9 93.8 90.9 90.9 30.4 30.4
- ---------------------------------------------------------------------------------------------------------------
Subtotal 475.8 493.1 498.4 518.9 500.6 520.0
- ---------------------------------------------------------------------------------------------------------------
Available for Sale
U.S. Government 698.7 698.7 906.7 906.7 1,146.7 1,146.7
Obligations of States and
Political Subdivisions 119.7 119.7 117.0 117.0 80.2 80.2
Federal Agency 4,496.3 4,496.3 3,096.9 3,096.9 3,945.5 3,945.5
Preferred Stock 91.5 91.5 139.4 139.4 89.7 89.7
Other 31.8 31.8 51.7 51.7 56.1 56.1
- ---------------------------------------------------------------------------------------------------------------
Subtotal 5,438.0 5,438.0 4,311.7 4,311.7 5,318.2 5,318.2
- ---------------------------------------------------------------------------------------------------------------
Trading Account 10.9 10.9 4.8 4.8 9.0 9.0
- ---------------------------------------------------------------------------------------------------------------
Total Securities $5,924.7 $5,942.0 $4,814.9 $4,835.4 $5,827.8 $5,847.2
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Reconciliation of Book Values to Fair Values of
Securities Held to Maturity September 30, 1997
- ----------------------------------------------------------------------------------------------------------------
Gross Unrealized
Book ----------------------- Fair
(In Millions) Value Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 81.0 $ - $ - $ 81.0
Obligations of States and Political Subdivisions 285.7 18.4 .1 304.0
Federal Agency 14.2 .1 - 14.3
Other 94.9 - 1.1 93.8
- ----------------------------------------------------------------------------------------------------------------
Total $ 475.8 $ 18.5 $ 1.2 $ 493.1
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Amortized Cost to Fair Values of
Securities Available for Sale September 30, 1997
- ----------------------------------------------------------------------------------------------------------------
Gross Unrealized
Amortized ------------------------ Fair
(In Millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 697.6 $ 1.3 $ .2 $ 698.7
Obligations of States and Political Subdivisions 114.5 5.2 - 119.7
Federal Agency 4,496.2 2.0 1.9 4,496.3
Preferred Stock 91.6 - .1 91.5
Other 32.4 - .6 31.8
- ----------------------------------------------------------------------------------------------------------------
Total $5,432.3 $ 8.5 $ 2.8 $5,438.0
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Unrealized gains and losses on off-balance sheet financial instruments used to
hedge available for sale securities totaled $1.0 million and $3.3 million,
respectively, as of September 30, 1997. At September 30, 1997, stockholders'
equity included a credit of $2.1 million, net of tax, to recognize the
appreciation on securities available for sale and the related hedges.
3. Pledged Assets - Securities and loans pledged to secure public and trust
deposits, repurchase agreements and for other purposes as required or permitted
by law were $8.5 billion on September 30, 1997, $5.5 billion on December 31,
1996 and $6.4 billion on September 30, 1996.
4. Contingent Liabilities - Standby letters of credit outstanding were $1.5
billion on September 30, 1997, $1.3 billion on December 31, 1996 and $1.4
billion on September 30, 1996.
7
<PAGE>
5. Loans and Leases - The following table summarizes amounts outstanding in
selected loan categories:
<TABLE>
<CAPTION>
(In Millions) September 30, 1997 December 31, 1996 September 30, 1996
- ----------------------------------------------------------------------------------------------------------------
Domestic
<S> <C> <C> <C>
Residential Real Estate $ 4,987.8 $ 4,557.5 $ 4,454.3
Commercial and Industrial 3,848.2 3,161.4 3,391.0
Broker 171.5 389.1 276.9
Commercial Real Estate 617.1 557.7 597.7
Consumer 1,141.9 989.8 859.6
Other 615.5 632.1 539.6
Lease Financing 311.8 267.8 243.3
- ----------------------------------------------------------------------------------------------------------------
Total Domestic 11,693.8 10,555.4 10,362.4
International 529.9 382.0 546.8
- ----------------------------------------------------------------------------------------------------------------
Total Loans and Leases $12,223.7 $10,937.4 $10,909.2
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1997, other domestic and international loans included $752.5
million of overnight trust-related advances primarily in connection with next
day security settlements, compared with $765.3 million at December 31, 1996 and
$688.3 million at September 30, 1996.
At September 30, 1997, nonperforming loans totaled $46.3 million. Included in
this amount were loans with a recorded investment of $43.3 million which were
also classified as impaired. 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.
Impaired loans totaling $10.0 million had no portion of the reserve for credit
losses allocated to them, while $33.3 million had an allocated reserve of $5.8
million. For the third quarter of 1997, the total recorded investment in
impaired loans averaged $49.3 million. Total interest income recorded on
impaired loans for the quarter ended September 30, 1997 was $43 thousand.
At September 30, 1996, nonperforming loans totaled $33.3 million and included
$29.7 million of impaired loans. Of these impaired loans, $22.5 million had no
reserve allocation while $7.2 million had an allocated reserve of $.6 million.
Impaired loans for the third quarter of 1996 averaged $32.6 million with $28
thousand of interest income recognized.
8
<PAGE>
6. Reserve for Credit Losses - Changes in the reserve for credit losses were
as follows:
<TABLE>
<CAPTION>
Nine Months
Ended September 30
------------------
(In Millions) 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at Beginning of Period $148.3 $147.1
Charge-Offs
Commercial Real Estate (.6) (6.2)
Other (8.4) (6.2)
International -- (.2)
- --------------------------------------------------------------------------------------------
Total Charge-Offs (9.0) (12.6)
- --------------------------------------------------------------------------------------------
Recoveries 2.7 1.4
- --------------------------------------------------------------------------------------------
Net Charge-Offs (6.3) (11.2)
Provision for Credit Losses 6.0 11.5
- --------------------------------------------------------------------------------------------
Balance at End of Period $148.0 $147.4
- --------------------------------------------------------------------------------------------
</TABLE>
7. Floating Rate Capital Securities - The following table summarizes Floating
Rate Capital Securities outstanding:
<TABLE>
<CAPTION>
(In Millions) Book Value
- ----------------------------------------------------------------------------------------------------------------
September 30 December 31 September 30
1997 1996 1996
------------ ----------- ------------
<S> <C> <C> <C>
$150 Million Series A Floating Rate Capital Securities due
January 15, 2027 $148.6 -- --
$120 Million Series B Floating Rate Capital Securities due
April 15, 2027 118.8 -- --
------------ ----------- ------------
$267.4 -- --
============ =========== ============
</TABLE>
The Floating Rate Capital Securities were issued through wholly-owned statutory
business trusts. The sole asset of the trusts are Subordinated Debentures of
Northern Trust Corporation which have the same interest rates and maturity dates
as the corresponding distribution rates and redemption dates of the Floating
Rate Capital Securities. The Series A Securities were issued at a discount to
yield 60.5 basis points above the three-month London Interbank Offered Rate
(LIBOR), while the Series B Securities were issued at a discount to yield 67.9
basis points above the three-month LIBOR. Both Series A and B Securities qualify
as Tier 1 capital for regulatory purposes.
8. Earnings Per Share - In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard (SFAS) No. 128,
"Earnings Per Share". This new statement establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. SFAS No. 128 replaces the presentation
of primary EPS with a presentation of basic EPS. Basic EPS is
9
<PAGE>
computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. This approach
differs from the current methodology for calculating primary net income per
share which also considers common stock equivalents, such as stock options and
stock awards. SFAS No. 128 also requires the presentation of diluted EPS, which
is computed similarly to fully diluted EPS pursuant to Accounting Principles
Board Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. It requires the restatement
of all prior period EPS data presented.
The following data, which is presented for comparative purposes only, shows the
pro forma effect on EPS of adopting SFAS No. 128:
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30 September 30
-----------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings Per Share (as reported)
Primary $.70 $.57 $1.96 $1.63
Fully Diluted .69 .57 1.95 1.62
- ---------------------------------------------------------------------------------------------
Pro Forma Earnings Per Share
(computed according to SFAS No. 128)
Basic $.72 $.58 $2.02 $1.67
Diluted .70 .57 1.96 1.63
- ---------------------------------------------------------------------------------------------
</TABLE>
9. Other Operating Income - Other operating income in the third quarter of
1997 included $10.0 million resulting from a settlement reached with Illinois
banking regulators concerning the disposition of certain unclaimed balances
accumulated over a number of years.
10. Acquisition - In October 1997, Northern Trust entered into an agreement to
acquire ANB Investment Management and Trust Company (ANBIMC) from First Chicago
NBD Corporation for approximately $50 million. ANBIMC is a leading manager of
index funds with approximately $28 billion of assets under management at June
30, 1997. The transaction will be accounted for under the purchase method of
accounting and is expected to close in the fourth quarter of 1997.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER EARNINGS HIGHLIGHTS
Net income per common share on a fully diluted basis increased 21% to a record
$.69 for the third quarter, up from $.57 earned a year ago. Net income
increased 22% to a record $81.0 million from the $66.5 million earned in the
third quarter of last year. This earnings performance produced an annualized
return on average common equity (ROE) of 20.68% versus 18.93% reported last
year, and an annualized return on average assets (ROA) of 1.33% versus 1.26% in
1996. Total recurring revenues stated on a fully taxable equivalent basis
increased 20% in the quarter driven by record trust fees and foreign exchange
trading profits while noninterest expenses, excluding certain special charges,
increased 18%.
The 21% earnings per share growth and 20.68% ROE exceeded Northern Trust's
strategic financial targets. The productivity ratio, which is derived by
dividing total taxable equivalent revenue by noninterest expenses, was 159%
compared to Northern Trust's recently increased target of 160%.
Noninterest Income
Noninterest income increased 31% and totaled $254.7 million for the quarter,
accounting for 68% of total taxable equivalent revenue. Trust fees of $177.4
million increased 20% or $29.2 million over the like period of 1996, and
represented 70% of noninterest income and 48% of total taxable equivalent
revenue. This fee growth was driven by new business, increased transaction
volumes and higher market values of trust assets administered. Trust assets
under administration exceeded $1 trillion for the first time at September 30,
1997 increasing 40% or $289.4 billion from $722.7 billion a year ago. At June
30, 1997 trust assets under administration totaled $898.4 billion.
Trust fees are based on the market value of assets managed and administered, the
volume of transactions, securities lending volume and spreads, and fees for
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 changes in a portfolio's size do not typically have a
proportionate impact on the level of trust fees. In addition, Corporate and
Institutional Services (C&IS) trust relationships are increasingly priced to
reflect earnings from activities such as custody-related deposits and foreign
exchange trading which are not included in trust fees.
11
<PAGE>
Noninterest Income (continued)
Trust fees from Personal Financial Services (PFS) increased 19% from the prior
year level of $73.6 million and totaled $87.5 million for the third quarter,
reflecting strong growth in new business throughout Northern Trust's five-state
network of PFS offices and favorable equity markets. The PFS Wealth Management
Group, which administers significant family-asset pools nationwide, continued to
achieve excellent performance, with trust fees increasing 32% to $7.9 million,
and now administers $27.8 billion of trust assets. Total personal trust assets
under administration increased $20.2 billion from the prior year and $5.3
billion since June 30, 1997, and totaled $101.0 billion at September 30, 1997,
exceeding $100 billion for the first time. Of this amount, $59.0 billion was
under management compared to $47.2 billion one year ago and $56.4 billion at
June 30, 1997.
During the third quarter, Northern Trust expanded its Arizona presence by
opening a northwest Tucson office, the seventh location in that state. With the
addition of this new office, Northern Trust's national network of Personal
Financial Services offices includes 62 locations in Illinois, Florida,
California, Arizona and Texas.
Trust fees from C&IS increased 21% to $89.9 million from $74.6 million in the
year-ago quarter. These fees are derived from a full range of custody,
investment and advisory services rendered to retirement and other asset pools of
corporate and institutional clients worldwide, and all of these services
contributed to the third quarter fee growth. Securities lending continued to
achieve outstanding results, with fees increasing 47% from the prior year
quarter to $18.0 million. Fees from investment management services, including
the activities of Northern Trust Global Advisors, Inc., were also strong,
increasing 22% from last year's third quarter. C&IS trust assets under
administration grew $269.2 billion or 42% over last year and $108.4 billion
since June 30, 1997, and now total $911.1 billion. Of this amount, $105.5
billion is managed by Northern Trust, compared to $77.1 billion one year ago and
$102.0 billion at June 30, 1997. Trust assets under administration included
approximately $126 billion of global custody assets.
In early October, Northern Trust announced an agreement to acquire ANB
Investment Management and Trust Company, a leading manager of index funds, from
First Chicago NBD Corporation for approximately $50 million. This firm had
assets under management of approximately $28 billion at June 30, 1997 and will
complement Northern Trust's well-established and growing investment management
business.
Foreign exchange trading profits set another record, increasing 122% to $33.5
million from $15.1 million in the same quarter last year. The record profits
reflect both increased cross-border trading volumes as Northern Trust's global
custody assets continue to grow and volatility in the currency markets,
particularly in the southeastern Asia region.
12
<PAGE>
Noninterest Income (continued)
Fees generated from treasury management services were $14.8 million, up from
$13.9 million in the comparable quarter last year. Total treasury management
revenues from both fees and the computed value of compensating deposit balances
increased 4% from the third quarter of 1996 to $22.7 million, reflecting the
continued growth in new business from both new and existing clients.
Security commissions and trading income totaled $6.9 million compared with $5.0
million reported in the third quarter of 1996. The increase primarily reflects
strong growth in security brokerage activities.
Other operating income totaled $22.0 million for the quarter compared with $12.7
million reported in the third quarter of 1996. Included in this total was $10.0
million resulting from a settlement reached with Illinois banking regulators
concerning the disposition of certain unclaimed balances accumulated over a
number of years. Other operating income, excluding this nonrecurring item,
consisted primarily of loan, letter of credit and deposit-related service fees,
and totaled $12.0 million for the quarter, 6% lower than the prior year. This
decline was due primarily to nonrecurring items recorded in last year's third
quarter which included fees from the renegotiation of a treasury management
services contract and gains recorded from the disposition of securities received
in a prior year loan restructuring.
Net Interest Income
Net interest income for the quarter totaled $109.6 million, 11% higher than the
$98.8 million reported in the third quarter of 1996. Net interest income is
defined as the total of interest income and amortized fees on earning assets,
less interest expense on deposits and borrowed funds, adjusted for the impact of
off-balance sheet hedging activity. When net interest income is adjusted to a
fully taxable equivalent (FTE) basis, yields on taxable, nontaxable and
partially taxable assets are comparable, although the adjustment to a FTE basis
has no impact on net income. Net interest income on a FTE basis for the third
quarter was $117.6 million, up 10% from the $107.2 million reported in 1996.
The increase in net interest income reflects growth in earning assets and higher
levels of noninterest-related funds, driven by increases in both demand deposits
and common equity. The net interest margin declined to 2.14% from 2.26%
reported in the year-ago quarter. The decrease in the net interest margin is
attributable to a higher proportion of low-spread money market assets and
narrowing spreads earned on federal agency securities due to the flattening of
the yield curve.
Earning assets for the third quarter averaged $21.8 billion, up 15% from the
$18.9 billion average for the same quarter of 1996. The $2.9 billion growth in
average earning assets was concentrated in the loan portfolio, which increased
14% to average $12.0 billion, and in money market assets, which increased $1.5
billion on average from the prior year level.
13
<PAGE>
Net Interest Income (continued)
The loan growth was concentrated predominantly in the domestic portfolio.
Residential mortgage loans continued to account for the largest portion of the
domestic growth, increasing 12% to average $4.9 billion, comprising 41% of the
total loan portfolio. Commercial and industrial loans averaged $3.6 billion
during the third quarter compared to $3.4 billion in the prior year quarter.
Money market assets increased from $2.1 billion in last year's third quarter to
average $3.6 billion in the current quarter, principally driven by a higher
level of foreign office time deposits resulting from growth in global custody
activities, and the more active short-term investment of noninterest-bearing
balances previously held with global subcustodians. The securities portfolio
remained virtually unchanged at $6.2 billion on average for the quarter.
Funding for the growth in earning assets came from several sources. Total
interest-bearing deposits averaged $11.9 billion, up 17% or $1.7 billion from
the third quarter of 1996. This growth came principally from foreign office
time deposits (up $1.2 billion), savings and money market deposits (up $262
million), and other time deposits (up $248 million). The increase in foreign
office time deposits resulted primarily from growth in global custody activity.
Other interest-related funds grew 11% resulting from the issuance of senior
medium-term notes and $270 million of Floating Rate Capital Securities.
Noninterest-related funds increased 19% to average $3.4 billion, due to strong
demand deposit growth and a $160 million increase in common stockholders' equity
resulting from retained earnings.
Provision for Credit Losses
The provision for credit losses of $5.0 million increased from $2.5 million
reported in the third quarter of 1996. For a discussion of the provision and
reserve for credit losses, refer to the Asset Quality section.
Noninterest Expenses
Noninterest expenses totaled $234.7 million for the quarter and included $8.9
million of technology-related special charges. Of these charges, $5.4 million
were for Year 2000-related costs, including the purchase of software programming
tools and the effect of replacing certain software that is not Year 2000
compliant. Another $3.5 million in charges were incurred for the planned
relocation of the computer data facility to Northern Trust's new technology
center located near its Chicago operations building. These costs are primarily
reflected in other operating and equipment expenses.
Excluding these charges, expenses increased $34.0 million or 18% from the year-
ago quarter. The expense growth resulted primarily from higher costs for
performance-based compensation and staff growth. In addition, the noninterest
expense increase in the third quarter reflected a number of new initiatives over
the past twelve months, including seven additional private banking and trust
offices, the opening of the Singapore office, the expansion of the global
custody network and operating costs associated with the growth in trust assets
under administration.
14
<PAGE>
Noninterest Expenses (continued)
Salaries and benefits, which represent 58% of total noninterest expenses,
increased to $136.5 million from $110.9 million in the year-ago quarter. The
increase was primarily attributable to higher performance-based compensation and
staff growth. Excellent new business results, record foreign exchange profits,
strong corporate earnings and the price increase in Northern Trust Corporation
stock increased performance-based compensation expenses by $12.0 million. The
increase in compensation expense also resulted from merit increases and a 9%
increase in staff levels from one year ago required to support growth
initiatives and strong new business generated by both PFS and C&IS. Staff on a
full-time equivalent basis at September 30, 1997 totaled 7,337, up 6% from 6,933
at the end of 1996 and 9% higher than the 6,754 at September 30, 1996.
Net occupancy expense totaled $17.7 million, up 14% from $15.5 million in the
third quarter of 1996, due in large part to the opening of seven additional
private banking and trust offices over the past twelve months, as well as the
opening of the Singapore office in the second half of 1996. The principal
components of the increase were higher net rental costs, real estate taxes and
utilities expense.
Equipment expense, comprised of depreciation, rental and maintenance costs,
totaled $17.6 million, up $3.4 million or 24% from the third quarter of 1996.
Included in equipment expense for the quarter were $2.6 million of technology-
related special charges. The remainder of the increase resulted from higher
levels of depreciation and maintenance for computer hardware, personal computers
and equipment.
Other operating expenses in the quarter totaled $62.9 million compared to $51.2
million last year. Technology-related special charges accounted for $4.8
million of the increase, while the remainder resulted primarily from continued
investment in technology, expansion of the personal trust and banking office
network, and the higher operating expenses necessary to support business growth.
The expense categories affected were computer software amortization, technical
and consulting services, employee hiring and relocation costs, business
promotional expenses, and costs associated with processing errors, partially
offset by lower costs associated with legal claims.
The components of other operating expenses were as follows:
<TABLE>
<CAPTION>
Third Quarter
Ended September 30
--------------------------
(In Millions) 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Business Development $ 6.6 $ 5.7
Purchased Professional Services 20.9 20.4
Telecommunications 3.6 2.8
Postage and Supplies 5.5 5.0
Software Amortization 13.4 8.5
Goodwill and Other Intangibles Amortization 2.5 2.4
Other Expense 10.4 6.4
- ------------------------------------------------------------------------------------------
Total Other Operating Expenses $62.9 $51.2
- ------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Noninterest Expenses (continued)
Utilizing a dedicated project team for mainframe systems and individual
specialty teams for desktop and other noncentrally controlled systems, Northern
Trust continued its Year 2000 renovation process. During the quarter Northern
Trust updated its analysis of the costs to be incurred beginning in 1997 to
successfully complete this project. Revised expense estimates, which now include
the costs associated with desktop and other noncentrally controlled systems and
the effect of replacing certain software that is not Year 2000 compliant, range
from $20-$25 million. This estimate does not include the time that internal
staff in user departments will devote to testing programming changes. This
testing is not expected to add significant incremental costs to Northern
Trust. For the nine months ending September 30, 1997, $8.2 million of the
project costs have been incurred. The majority of the remaining costs are
expected to be incurred over the next eighteen months.
Northern Trust is also conducting a systematic program to review and monitor
various vendor and credit client Year 2000 compliance efforts. This program will
involve some additional expense that is not expected to be material.
Provision for Income taxes
The provision for income taxes was $43.6 million for the third quarter compared
with $32.8 million in the year-ago quarter. The higher tax provision in 1997
resulted primarily from the growth in taxable earnings for both federal and
state income tax purposes. The effective tax rate was 35% for 1997 versus 33% in
1996.
NINE MONTH EARNINGS HIGHLIGHTS
Net income per common share on a fully diluted basis was $1.95 compared to $1.62
last year, an increase of 20%. Net income increased 19% to $228.1 million, up
from $191.4 million in the same period of 1996. The ROE for the nine month
period was 20.21% versus 18.59% one year ago, while the ROA improved to 1.30%
from 1.22% in the same period last year.
Total revenues stated on a FTE basis increased 16% from 1996 levels. Trust fees
totaled $504.0 million, up 14% from $441.8 million last year. Foreign exchange
trading profits totaled $77.8 million, up 82% from the prior year's performance.
The fee portion of treasury management revenues totaled $44.4 million, up 7%
from the $41.4 million reported in 1996. Total treasury management revenues,
which in addition to fees, include the computed value of compensating deposit
balances, increased 6% to $68.1 million. These compensating deposit balances
contributed to the improvement in net interest income. Security commissions and
trading income totaled $19.4 million, up 9% from the prior year. Other operating
income totaled $40.9 million for the period compared with $34.8 million in 1996.
Excluding the $10.0 million nonrecurring item, the decline from the prior year
was due primarily to lower balances held at banks serving as global
subcustodians resulting in a reduction in compensation received and nonrecurring
items recorded in the prior year's third quarter. The lower balances held
16
<PAGE>
NINE MONTH EARNINGS HIGHLIGHTS (continued)
at banks reflect a more aggressive approach to investing these otherwise idle
funds in money market assets with the related benefit recognized in net interest
income. In addition, the elimination of float-related compensation resulting
from the Depository Trust Company's first quarter 1996 conversion to a same-day
settlement basis for security transactions also reduced other operating income.
Net interest income stated on a FTE basis totaled $349.4 million, up 11% from
the $313.5 million in the same period of 1996. The provision for credit losses
decreased $5.5 million to $6.0 million in 1997. Net loan charge-offs decreased
to $6.3 million from $11.2 million in the prior year. Noninterest expenses were
up 16% and totaled $658.2 million compared to $568.4 million a year ago.
BALANCE SHEET
Total assets at September 30, 1997 were $26.9 billion and averaged $24.2 billion
for the third quarter, up 15% from last year's average of $21.0 billion. Due to
continued strong demand for credit, loans and leases grew to $12.2 billion at
September 30, 1997, and averaged $12.0 billion for the quarter. This compares
with $10.9 billion in total loans and leases at September 30, 1996 and $10.5
billion on average for the third quarter of last year.
Driven by continued strong earnings growth, offset in part by Northern Trust's
stock buyback program, common stockholders' equity increased to $1.6 billion at
September 30, 1997 and averaged $1.5 billion for the quarter, up 12% from the
$1.4 billion average in last year's third quarter. Total stockholders' equity
averaged $1.6 billion for the third quarter compared with $1.5 billion in 1996.
During the quarter, Northern Trust Corporation acquired a total of 307,681 of
its own common shares at a cost of $16.6 million pursuant to the stock buyback
program authorized by the Board of Directors. An additional 3.6 million shares
may be purchased after September 30, 1997 under the buyback program.
Northern trust's risk-based capital ratios remained strong at 9.9% for tier 1
capital and 13.2% for total capital at September 30, 1997. These capital ratios
are well above the minimum regulatory requirements of 4% for tier 1 and 8% for
total risk-based capital ratios. The leverage ratio (tier 1 capital to third
quarter average assets) of 7.3% at September 30, 1997, also exceeded the minimum
regulatory requirement of 3%. In addition, each of Northern Trust's subsidiary
banks had a ratio above 8.2% for tier 1 capital, 11.0% for total risk-based
capital, and 6.1% for the leverage ratio.
ASSET QUALITY
Nonperforming assets consist of nonaccrual loans, restructured loans and other
real estate owned (OREO). Nonperforming assets of $50.4 million at quarter-end
17
<PAGE>
ASSET QUALITY (continued)
decreased from $58.5 million at June 30, 1997 and was up from $37.7 million at
September 30, 1996. Domestic nonaccrual loans and leases, consisting primarily
of commercial loans, totaled $43.8 million, or .37% of total domestic loans and
leases at September 30, 1997. At December 31, 1996 and September 30, 1996,
domestic nonaccrual loans and leases totaled $16.9 million and $30.7 million,
respectively.
The following Nonperforming Asset table presents the outstanding amounts of
nonaccrual loans and leases, restructured loans and OREO. Also shown are loans
that have interest or principal payments that are delinquent 90 days or more and
are still accruing interest. The balance in this category at any quarter end
can fluctuate widely based on the timing of cash collections, renegotiations and
renewals.
<TABLE>
<CAPTION>
September 30 June 30 December 31 September 30
----------------------------------------------------------------
(In Millions) 1997 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual Loans and Leases
Domestic
Residential Real Estate $ 4.1 $ 5.1 $ 3.2 $ 1.7
Commercial and Industrial 32.9 40.5 2.2 3.1
Commercial Real Estate 6.2 6.6 11.3 25.8
Consumer .6 .5 .2 .1
- -------------------------------------------------------------------------------------------------------
Total Domestic 43.8 52.7 16.9 30.7
International - - - -
- -------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans and Leases 43.8 52.7 16.9 30.7
Restructured Loans 2.5 2.6 2.6 2.6
Other Real Estate Owned 4.1 3.2 1.9 4.4
- -------------------------------------------------------------------------------------------------------
Total Nonperforming Assets $50.4 $58.5 $21.4 $37.7
- -------------------------------------------------------------------------------------------------------
Total 90 Day Past Due Loans (still accruing) $20.7 $28.8 $15.2 $21.1
- -------------------------------------------------------------------------------------------------------
</TABLE>
Provision and Reserve for Credit Losses
The provision for credit losses is the charge against current earnings that is
determined by management through a disciplined credit review process, as the
amount needed to maintain a reserve that is sufficient to absorb credit losses
inherent in Northern Trust's loan and lease portfolios and other credit
undertakings. While the largest portion of this reserve is intended to cover
loan and lease losses, it is considered a general reserve that is available to
cover all credit-related exposures.
The 1997 third quarter provision for credit losses was $5.0 million, compared
with $2.5 million in the third quarter of 1996. Net charge-offs totaled $5.4
million in the third quarter of 1997, versus $2.5 million last year. The
increase in the provision for credit losses essentially maintained the reserve
for credit losses at the prior quarter level. It is not expected that the
provision for credit losses in the fourth quarter will return to the unusually
low levels of the first half of 1997.
18
<PAGE>
Provision and Reserve for Credit Losses (continued)
The reserve for credit losses was $148.0 million or 1.21% of outstanding loans
at September 30, 1997. This compares with $148.3 million or 1.36% of
outstanding loans at December 31, 1996 and $147.4 million or 1.35% of
outstanding loans at September 30, 1996. The lower reserve to outstanding loans
ratio at September 30, 1997 is attributable to loan growth, a significant
portion of which is in low-risk residential mortgage lending.
The overall quality of the loan portfolio remains strong. Management continues
to monitor closely the financial condition of borrowers currently experiencing
financial difficulty. Worsening operating results of these borrowers and other
economic conditions could unfavorably impact the level of future charge-offs and
the related provision for credit losses.
FORWARD-LOOKING INFORMATION
This report contains statements that may be considered forward-looking, such as
the discussion of Northern Trust's financial goals, business prospects, pricing
trends, credit quality and outlook, and anticipated expenses for Year 2000
systems renovation. These statements speak of Northern Trust's plans, goals or
expectations, refer to estimates, or use similar terms. Actual results could
differ materially from the results indicated by these statements because the
realization of those results is subject to many uncertainties including:
. The future health of the U.S. and international economies and other
economic factors that affect wealth creation, investment and savings
patterns, and Northern Trust's interest rate risk exposure and credit risk.
. Changes in U.S. and worldwide securities markets, with respect to the
market values of financial assets and the level of volatility in certain
markets such as foreign exchange.
. Regulatory developments in the U.S. and other countries where Northern
Trust has significant business.
. Changes in the nature of Northern Trust's competition resulting from
industry consolidation, regulatory change and other factors, as well as
actions taken by particular competitors.
. Northern Trust's success in identifying and penetrating targeted markets
and generating a profit in those markets in a reasonable time.
. Northern Trust's ability to continue to fund and accomplish technological
innovation, improve processes and controls and attract and retain capable
staff in order to deal with increasing volume and complexity in many of its
businesses and technology challenges, such as Year 2000 renovation.
19
<PAGE>
FORWARD-LOOKING INFORMATION (continued)
. The ability of various vendors and clients to complete Year 2000 systems
renovation efforts on a timely basis and in a manner that allows them to
continue normal business operations and furnish products, services or data
to Northern Trust without disruption.
. The ability of each of Northern Trust's principal businesses to maintain a
product mix that achieves satisfactory margins.
. Changes in tax laws or other legislation that could affect Northern Trust's
personal and institutional asset administration businesses.
Some of these uncertainties that may affect future results are discussed in more
detail in the section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" captioned "Risk Management" in the 1996
Annual Report to Stockholders (pp. 27-34) and in the sections of "Item 1 -
Business" of the 1996 Annual Report on Form 10-K captioned "Government
Policies", "Competition" and "Regulation and Supervision" (pp. 6-9). All
forward-looking statements included in this document are based upon information
presently available, and Northern Trust assumes no obligation to update any
forward-looking statement.
20
<PAGE>
The following schedule should be read in conjunction with the Net Interest
Income section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
CONSOLIDATED ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Third Quarter
-----------------------------------------------------------
1997 1996
(Interest and rate on a taxable equivalent basis) ---------------------------- ----------------------------
($ 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 Resell Agreements $ 12.8 $ 887.4 5.68% $ 5.0 $ 356.6 5.49%
Time Deposits with Banks 34.0 2,593.3 5.20 20.0 1,676.6 4.75
Other Interest-Bearing 1.0 72.4 5.71 .7 49.4 6.07
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Money Market Assets 47.8 3,553.1 5.33 25.7 2,082.6 4.91
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Securities
U.S. Government 11.8 787.4 5.96 22.3 1,525.0 5.83
Obligations of States and Political Subdivisions 9.1 401.3 9.05 10.1 409.8 9.84
Federal Agency 69.8 4,797.0 5.77 58.9 4,118.4 5.69
Other 3.6 238.0 6.01 3.0 198.6 6.00
Trading Account .2 8.4 7.19 .1 5.3 7.14
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Securities 94.5 6,232.1 6.02 94.4 6,257.1 6.00
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Loans and Leases 204.9 12,001.2 6.77 178.2 10,533.9 6.73
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Earning Assets $347.2 $21,786.4 6.32% $298.3 $18,873.6 6.29%
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Average Source of Funds
Deposits
Savings and Money Market Deposits $ 31.6 $ 3,810.5 3.29% $ 28.1 $ 3,548.8 3.15%
Savings Certificates 29.5 2,030.1 5.77 29.5 2,047.6 5.73
Other Time 10.8 771.0 5.54 7.2 523.0 5.43
Foreign Offices Time 64.5 5,261.0 4.86 47.9 4,040.6 4.71
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Deposits 136.4 11,872.6 4.56 112.7 10,160.0 4.41
Federal Funds Purchased 19.5 1,391.9 5.56 22.5 1,695.9 5.28
Repurchase Agreements 21.5 1,559.8 5.45 25.8 1,972.7 5.20
Commercial Paper 2.0 143.3 5.59 1.9 145.0 5.38
Other Borrowings 25.4 1,866.0 5.41 18.9 1,503.4 5.01
Senior Notes 12.2 844.0 5.77 2.8 205.0 5.48
Long-Term Debt 8.2 443.6 7.46 6.5 339.7 7.58
Floating Rate Capital Securities 4.4 267.3 6.41 - - -
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Interest-Related Funds 229.6 18,388.5 4.96 191.1 16,021.7 4.75
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Interest Rate Spread - - 1.36% - - 1.54%
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Noninterest-Related Funds - 3,397.9 - - 2,851.9 -
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Total Source of Funds $229.6 $21,786.4 4.18% $191.1 $18,873.6 4.03%
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
Net Interest Income/Margin $117.6 - 2.14% $107.2 - 2.26%
- -------------------------------------------------------------------- ------ --------- ---- ------ --------- ----
</TABLE>
ANALYSIS OF NET INTEREST INCOME CHANGES
DUE TO VOLUME AND RATE
<TABLE>
<CAPTION>
Third Quarter 1997/96 Nine Months 1997/96
------------------------- --------------------------
Change Due To Change Due To
--------------- ---------------
(In Millions) Volume Rate Total Volume Rate Total
- -------------------------------------------------------------------- ------ ----- ----- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets $43.2 $ 5.7 $48.9 $101.4 $7.4 $108.8
Interest-Related Funds 30.9 7.6 38.5 68.1 4.8 72.9
- -------------------------------------------------------------------- ----- ----- ----- ------ ---- ------
Net Interest Income $12.3 $(1.9) $10.4 $ 33.3 $2.6 $ 35.9
- -------------------------------------------------------------------- ----- ----- ----- ------ ---- ------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NORTHERN TRUST CORPORATION
Nine Months
- ---------------------------------------------------------------------
1997 1996
- -------------------------------- --------------------------------
Interest Volume Rate Interest Volume Rate
- -------- --------- ---- -------- --------- ----
<S> <C> <C> <C> <C> <C>
$ 33.3 $ 794.4 5.60% $ 12.2 $ 293.0 5.55%
92.7 2,424.5 5.11 63.7 1,699.9 5.01
2.4 56.5 5.75 2.3 52.5 5.97
------ --------- ---- ------ --------- ----
128.4 3,275.4 5.24 78.2 2,045.4 5.11
------ --------- ---- ------ --------- ----
38.4 870.2 5.91 81.7 1,909.7 5.71
29.0 412.5 9.37 31.0 417.1 9.90
200.9 4,670.3 5.75 171.6 4,017.1 5.71
11.1 242.7 6.14 10.3 229.4 5.99
.5 8.3 7.47 .4 8.0 7.36
------ --------- ---- ------ --------- ----
279.9 6,204.0 6.03 295.0 6,581.3 5.99
------ --------- ---- ------ --------- ----
587.2 11,580.6 6.78 513.5 10,164.0 6.75
------ --------- ---- ------ --------- ----
$995.5 $21,060.0 6.32% $886.7 $18,790.7 6.30%
------ --------- ---- ------ --------- ----
$ 93.7 $ 3,887.4 3.22% $ 84.8 $ 3,595.2 3.15%
86.8 2,022.9 5.74 89.7 2,070.4 5.79
29.6 720.0 5.49 21.8 532.3 5.46
164.9 4,619.7 4.77 137.5 3,809.2 4.82
------ --------- ---- ------ --------- ----
375.0 11,250.0 4.46 333.8 10,007.1 4.46
58.1 1,431.5 5.43 73.7 1,851.8 5.32
60.8 1,521.1 5.34 79.9 2,034.1 5.24
5.8 142.1 5.51 5.8 143.9 5.40
92.6 2,320.0 5.34 50.4 1,333.2 5.05
19.4 453.5 5.72 10.3 257.8 5.31
24.2 433.1 7.49 19.3 336.8 7.63
10.2 209.6 6.38 - - -
------ --------- ---- ------ --------- ----
646.1 17,760.9 4.86 573.2 15,964.7 4.80
------ --------- ---- ------ --------- ----
- - 1.46% - - 1.50%
------ --------- ---- ------ --------- ----
- 3,299.1 - - 2,826.0 -
------ --------- ---- ------ --------- ----
$646.1 $21,060.0 4.10% $573.2 $18,790.7 4.07%
------ --------- ---- ------ --------- ----
$349.4 - 2.22% $313.5 - 2.23%
------ --------- ---- ------ --------- ----
</TABLE>
22
<PAGE>
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
--------
<S> <C> <C>
Exhibit (4) Instruments Defining the Rights of Security Holders,
Including Indentures:
(i) Form of The Northern Trust Company's Global Senior
Bank Note (Floating Rate) (supersedes Exhibit (4)(ii)
filed with the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
(ii) Form of The Northern Trust Company's Global
Subordinated Medium-Term Bank Note (Floating Rate)
(supersedes Exhibit (4)(iv) filed with the Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995).
Exhibit (10) Material Contracts:
(i) First Amendment, dated as of September 17, 1997, to
Rights Agreement, dated as of October 17, 1989, between
Northern Trust Corporation and Harris Trust and Savings
Bank.
Exhibit (11) Computation of Per Share Earnings.
Exhibit (27) Financial Data Schedule.
(b.) Reports on Form 8-K
-------------------
In a report on Form 8-K the Corporation incorporated in Item 5 its
July 15, 1997 press release, reporting its earnings for the second
quarter and six months of 1997. The press release, with summary
financial information, was filed pursuant to Item 7.
</TABLE>
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHERN TRUST CORPORATION
--------------------------
(Registrant)
Date: November 13, 1997 By: Perry R. Pero
-------------
Perry R. Pero
Senior Executive Vice President
and Chief Financial Officer
Date: November 13, 1997 By: Harry W. Short
--------------
Harry W. Short
Senior Vice President and
Controller
(Chief Accounting Officer)
24
<PAGE>
EXHIBIT INDEX
The following exhibits have been filed herewith:
Exhibit
Number Description
- ------ -----------
(4) Instruments Defining the Rights of Security Holders, Including
Indentures:
(i) Form of The Northern Trust Company's Global Senior Bank Note
(Floating Rate) (supersedes Exhibit (4)(ii) filed with the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995).
(ii) Form of The Northern Trust Company's Global Subordinated Medium-
Term Bank Note (Floating Rate) (supersedes Exhibit (4)(iv) filed with
the Quarterly Report on Form 10-Q for the quarter ended September 30,
1995).
(10) Material Contracts:
(i) First Amendment, dated as of September 17, 1997, to Rights
Agreement, dated as of October 17, 1989, between Northern Trust
Corporation and Harris Trust and Savings Bank.
(11) Computation of Per Share Earnings.
(27) Financial Data Schedule.
25
<PAGE>
EXHIBIT (4)(i)
to 9/30/97 FORM 10-Q
Rev. 9/97
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE BANK
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SENIOR
NOTE ISSUED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR, OR IN LIEU OF,
THIS SENIOR NOTE IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
IF THIS SENIOR NOTE IS ISSUED WITH "ORIGINAL ISSUE DISCOUNT" FOR
PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE
FOLLOWING SHALL BE COMPLETED: THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR
PURPOSES OF APPLYING SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1986, AS AMENDED, TO THIS SENIOR NOTE. THE ISSUE DATE OF THIS
SENIOR NOTE IS _____________. THE ISSUE PRICE OF THIS SENIOR NOTE IS _____% OF
ITS PRINCIPAL AMOUNT. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THIS SENIOR NOTE
IS $_________ PER $1,000 OF THE INITIAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY
IS ____%, AND THE AMOUNT OF THE ORIGINAL ISSUE DISCOUNT ALLOCABLE TO THE INITIAL
SHORT ACCRUAL PERIOD, IF ANY, IS $_____ PER $1,000 OF THE INITIAL PRINCIPAL
AMOUNT, DETERMINED ON THE BASIS OF THE EXACT METHOD.
No. SEN FLR-______________ REGISTERED
CUSIP NO.: ________________________
THE NORTHERN TRUST COMPANY
GLOBAL SENIOR BANK NOTE
(FLOATING RATE)
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INITIAL INTEREST RATE: ______% MATURITY DATE:
INTEREST RATE BASIS: INDEX MATURITY:
SPREAD AND/OR SPREAD MULTIPLIER: REGULAR RECORD DATES (If other than
the 15th day prior to each Interest
Payment Date):
MAXIMUM INTEREST RATE: MINIMUM INTEREST RATE:
INTEREST PAYMENT DATES: INTEREST PAYMENT PERIOD:
INTEREST RESET DATES: INTEREST RESET PERIOD:
INITIAL REDEMPTION DATE: ANNUAL REDEMPTION PERCENTAGE REDUCTION:
INITIAL REDEMPTION PERCENTAGE: HOLDER'S OPTIONAL REPAYMENT DATE:
ORIGINAL ISSUE DISCOUNT NOTE: OID AMOUNT:
Yes: ______ No: _____
<PAGE>
OTHER PROVISIONS: CALCULATION AGENT:
DEFAULT RATE: ____ %
ALTERNATE RATE EVENT SPREAD:
The Northern Trust Company, an Illinois banking corporation (the
"Bank"), for value received, hereby promises to pay to
________________________________________________, or registered assigns, the
principal sum of ___________________________________
________________________________________ United States Dollars on the Maturity
Date specified above and to pay interest thereon from the Original Issue Date
specified above or from the most recent interest payment date (or, if the
Interest Reset Period specified above is daily or weekly, from, and including,
the day following the most recent Regular Record Date) to which interest on this
Senior Note (or any predecessor Senior Note) has been paid or duly provided for
(each, an "Interest Payment Date"), on the Interest Payment Dates specified
above and at maturity or upon earlier redemption or repayment, if applicable,
commencing on the first Interest Payment Date next succeeding the Original Issue
Date (or, if the Original Issue Date is between a Regular Record Date and the
Interest Payment Date immediately following such Regular Record Date, on the
second Interest Payment Date following the Original Issue Date), at a rate per
annum equal to the Initial Interest Rate specified above until the first
Interest Reset Date following the Original Issue Date and, on and after such
Interest Reset Date, at the rate determined in accordance with the provisions
set forth herein, until the principal hereof is paid or made available for
payment, and (to the extent that the payment of such interest shall be legally
enforceable) at the last rate in effect prior to any payment default (or the
Default Rate per annum specified above, if such Default Rate is specified above)
on any overdue principal and premium, if any, and on any overdue installment of
interest. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will be paid to the person in whose name this Senior
Note (or any predecessor Senior Note) is registered at the close of business on
the Regular Record Date for such interest, which shall be the 15th calendar day
(whether or not a Business Day (as defined below)) before such Interest Payment
Date (unless otherwise specified on the face hereof); provided, however, that
interest payable at maturity or upon earlier redemption or repayment, if
applicable, will be payable to the person to whom principal shall be payable.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the holder on such Regular Record Date and may either be
paid to the person in whose name this Senior Note (or any predecessor Senior
Note) is registered at the close of business on a special record date for the
payment of such defaulted interest (the "Special Record Date") to befixed by the
Bank, notice of which shall be given to the holders of Senior Notes not less
than 10 calendar days prior to such Special Record Date, or be paid at any time
in any other lawful manner.
Payment of principal of, and premium, if any, and interest on, this
Senior Note will be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. The Bank will at all times appoint and maintain a paying agent
(the "Paying Agent") authorized by the Bank to pay the principal of, and
premium, if any, and interest on, this Senior Note on behalf of the Bank and
having an office or agency (the "Paying Agent Office") in The City of New York
or the City of Chicago, Illinois (the "Place of Payment"), where this Senior
Note may be presented or surrendered for payment and where notices, designations
or requests in respect of payments with respect to this Senior Note may be
served. The Bank has initially appointed itself as such Paying Agent, with the
Paying Agent Office currently located at 50 South LaSalle Street (Level BB-A),
Chicago, Illinois 60675, Attention: Securities Services.
-2-
<PAGE>
THIS SENIOR NOTE IS A DIRECT, UNCONDITIONAL, UNSECURED AND
UNSUBORDINATED GENERAL OBLIGATION OF THE BANK AND DOES NOT EVIDENCE A DEPOSIT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. THIS SENIOR NOTE RANKS PARI PASSU WITH ALL OTHER UNSECURED AND
UNSUBORDINATED OBLIGATIONS OF THE BANK, EXCEPT DEPOSITS AND OTHER OBLIGATIONS
THAT ARE SUBJECT TO A PRIORITY OR PREFERENCE. UNDER APPLICABLE LAW, CLAIMS OF
CERTAIN CREDITORS, INCLUDING HOLDERS OF DEPOSITS IN THE BANK, WOULD BE ENTITLED
TO PRIORITY OVER CLAIMS OF UNSECURED GENERAL CREDITORS OF THE BANK, INCLUDING
THE HOLDER OF THIS SENIOR NOTE, IN THE EVENT OF A LIQUIDATION OR OTHER
RESOLUTION OF THE BANK.
Payment of the principal of, and premium, if any, and interest on, this
Senior Note due at maturity or upon earlier redemption or repayment, if
applicable, will be made in immediately available funds upon presentation and
surrender of this Senior Note to the Paying Agent at the Paying Agent Office in
the Place of Payment; provided that this Senior Note is presented to the Paying
Agent in time for the Paying Agent to make such payment in accordance with its
normal procedures. Payments of interest on this Senior Note (other than at
maturity or upon earlier redemption or repayment) will be made by wire transfer
to such account as has been appropriately designated to the Paying Agent by the
person entitled to such payments.
This Senior Note is one of a duly authorized issue of Senior Bank Notes
due from 30 days to fifteen years from date of issue of the Bank (herein called
the "Senior Notes").
Unless otherwise indicated on the face hereof, if the rate of interest
on this Senior Note resets daily, weekly or monthly the Interest Payment Date
for this Senior Note will be the third Wednesday of each month; if the rate of
interest on this Senior Note resets quarterly, the Interest Payment Date for
this Senior Note will be the third Wednesday of March, June, September and
December of each year; if the rate of interest on this Senior Note resets
semi-annually, the Interest Payment Date for this Senior Note will be the third
Wednesday of each of two months of each year specified on the face hereof that
are six months apart; and if the rate of interest on this Senior Note resets
annually, the Interest Payment Date for this Senior Note will be the third
Wednesday of the month specified on the face hereof. If any Interest Payment
Date, Maturity Date or date of earlier redemption or repayment of this Senior
Note falls on a day that is not a Business Day, such Interest Payment Date,
Maturity Date or date of earlier redemption or repayment will be the next
succeeding Business Day; provided, however, that if the Interest Rate Basis
specified on the face hereof is LIBOR and such next succeeding Business Day is
in the next succeeding calendar month, such Interest Payment Date, Maturity Date
or date of earlier redemption or repayment will be the immediately preceding
Business Day. "Business Day" means any day that is not a Saturday or Sunday and
that is not a day on which banking institutions in The City of New York or the
City of Chicago, Illinois generally are authorized or obligated by law or
executive order to close, and with respect to Senior Notes with respect to which
the Interest Rate Basis specified on the face hereof is LIBOR, any day on which
dealings in deposits in U.S. dollars are transacted in the London interbank
market (a "London Business Day").
-3-
<PAGE>
This Senior Note will not be subject to any sinking fund. If so
provided on the face of this Senior Note, this Senior Note may be redeemed by
the Bank on and after the Initial Redemption Date, if any, specified on the face
hereof. If no Initial Redemption Date is specified on the face hereof, this
Senior Note may not be redeemed prior to the Maturity Date. On and after the
Initial Redemption Date, if any, this Senior Note may be redeemed at any time
either in whole or in part from time to time in increments of $1,000 (provided
that any remaining principal amount hereof shall be at least $250,000) at the
option of the Bank at the applicable Redemption Price (as defined below),
together with accrued and unpaid interest hereon at the applicable rate borne by
this Senior Note to the date of redemption (each such date, a "Redemption
Date"), on written notice given not more than 60 nor less than 30 calendar days
prior to the Redemption Date by the Bank to the registered holder hereof.
Whenever less than all the Senior Notes at any time outstanding are to be
redeemed, the terms of the Senior Notes to be so redeemed shall be selected by
the Bank. If less than all the Senior Notes with identical terms at any time
outstanding are to be redeemed, the Senior Notes to be so redeemed shall be
selected by the Paying Agent by lot or in any usual manner approved by it. In
the event of redemption of this Senior Note in part only, a new Senior Note for
the unredeemed portion hereof shall be issued in the name of the holder hereof
upon the surrender hereof.
The "Redemption Price" shall initially be the Initial Redemption
Percentage specified on the face hereof of the principal amount of this Senior
Note to be redeemed and shall decline at each anniversary of the Initial
Redemption Date specified on the face hereof by the Annual Redemption Percentage
Reduction, if any, specified on the face hereof, of the principal amount to be
redeemed until the Redemption Price is 100% of such principal amount.
This Senior Note may be subject to repayment at the option of the
holder hereof in accordance with the terms hereof on the Holder's Optional
Repayment Date(s), if any, specified on the face hereof. If no Holder's Optional
Repayment Date is specified on the face hereof, this Senior Note will not be so
repayable at the option of the holder hereof prior to maturity. On any Holder's
Optional Repayment Date, this Senior Note will be repayable in whole or in part
in increments of $1,000 (provided that any remaining principal amount hereof
will be at least $250,000) at the option of the holder hereof at a repayment
price equal to 100% of the principal amount to be repaid, together with accrued
and unpaid interest hereon payable to the date of repayment. For this Senior
Note to be repaid in whole or in part at the option of the holder hereof on a
Holder's Optional Repayment Date, this Senior Note must be given, with the form
entitled "Option to Elect Repayment" below duly completed, to the Paying Agent
at its offices located at 50 South LaSalle Street (Level BB-A), Chicago,
Illinois 60675, Attention: Securities Services, or at such address which the
Bank shall from time to time notify the holders of the Senior Notes, not more
than 60 nor less than 30 days prior to such Holder's Optional Repayment Date.
Exercise of such repayment option by the holder hereof shall be irrevocable.
The rate of interest on this Senior Note will be reset daily, weekly,
monthly, quarterly, semi-annually or annually (each such period, an "Interest
Reset Period" for this Senior Note, and the first calendar day of an Interest
Reset Period, an "Interest Reset Date"), as specified on the face hereof. Unless
otherwise indicated on the face hereof, if this Senior Note resets daily, the
Interest Reset Date will be each Business Day; if this Senior Note resets weekly
and the Interest Rate Basis is not the Treasury Rate, the Interest Reset Date
will be the Wednesday of each week; if this Senior Note resets weekly and the
Interest Rate Basis is the Treasury Rate, the Interest Reset Date will be the
Tuesday of each week (except as provided below); if this Senior Note resets
monthly and the Interest Rate Basis is not the 11th District Cost of Funds Rate,
the Interest Reset Date will be the third Wednesday of each month; if this
Senior Note resets monthly and the Interest Rate Basis is the 11th District Cost
of Funds Rate, the Interest Reset Date will be the first calendar day of each
month; if this Senior Note resets
-4-
<PAGE>
quarterly, the Interest Reset Date will be the third Wednesday of March, June,
September and December; if this Senior Note resets semi-annually, the Interest
Reset Date will be the third Wednesday of each of two months of each year that
are six months apart, as specified on the face hereof; and if this Senior Note
resets annually, the Interest Reset Date will be the third Wednesday of one
month of each year, as specified on the face hereof; provided, however, that (i)
the interest rate in effect from the Original Issue Date to the first Interest
Reset Date will be the Initial Interest Rate specified on the face hereof, and
(ii) the interest rate in effect for the ten calendar days immediately prior to
maturity or earlier redemption or repayment of any installment of principal
hereof will be the interest rate in effect on the tenth calendar day preceding
such Maturity Date or date of earlier redemption or repayment, as the case may
be. If any Interest Reset Date with respect to this Senior Note would otherwise
be a day that is not a Business Day, such Interest Reset Date will be the next
succeeding Business Day, except that in the case that the Interest Rate Basis
specified on the face hereof is LIBOR, if such Business Day is in the next
succeeding calendar month, such Interest Reset Date will be the immediately
preceding Business Day.
Except as otherwise specified in this paragraph, the rate of interest
on this Senior Note for each Interest Reset Date shall be the rate determined in
accordance with the provisions set forth under the applicable heading below
corresponding to the Interest Rate Basis specified on the face hereof:
Commercial Paper Rate. If the Interest Rate Basis of this Senior Note
---------------------
is the Commercial Paper Rate, the interest rate hereon for any Interest Reset
Date shall equal the Commercial Paper Rate (as determined below), as adjusted
(x) by the addition or subtraction of the Spread, if any, specified on the face
hereof and/or (y) by the multiplication by the Spread Multiplier, if any,
specified on the face hereof. "Commercial Paper Rate" means, with respect to any
Commercial Paper Interest Determination Date (as defined below), the Money
Market Yield (calculated as described below) of the rate on the relevant
Commercial Paper Interest Determination Date for commercial paper having the
Index Maturity specified on the face hereof as such rate is published by the
Board of Governors of the Federal Reserve System in the weekly statistical
release entitled "Statistical Release H.15(519), Selected Interest Rates" or any
successor publication published by the Board of Governors of the Federal Reserve
System ("H.15(519)") under the heading "Commercial Paper-Nonfinancial." If such
rate is not published prior to 3:00 P.M., New York City time, on the Calculation
Date pertaining to such Commercial Paper Interest Determination Date, then the
Commercial Paper Rate will be the Money Market Yield (calculated as described
below) of the rate on such Commercial Paper Interest Determination Date for
commercial paper having the Index Maturity specified on the face hereof as such
rate is published by the Federal Reserve Bank of New York in its daily
statistical release entitled "Composite 3:30 P.M. Quotations for U.S. Government
Securities" or any successor publication published by the Federal Reserve Bank
of New York ("Composite Quotations") under the heading "Commercial Paper". If
such rate is published in neither H.15(519) nor in Composite Quotations by 3:00
P.M., New York City time, on such Calculation Date, the Commercial Paper Rate
for such Commercial Paper Interest Determination Date will be the Money Market
Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York
City time, on such Commercial Paper Interest Determination Date, of three
leading dealers of commercial paper in The City of New York (which may include
one or more of the Agents (as defined below)) selected by the Calculation Agent
for commercial paper having the Index Maturity specified on the face hereof
placed for an industrial issuer whose senior unsecured bond rating is "AA", or
the equivalent, from at least two nationally recognized rating agencies;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Commercial Paper Rate
determined on such Commercial Paper Interest Determination Date will be the
Commercial Paper Rate in effect on such Commercial Paper Interest Determination
Date.
-5-
<PAGE>
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = D x 360 x 100
--------------
360 - (Dx M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
LIBOR. If the Interest Rate Basis of this Senior Note is LIBOR, the
-----
interest rate hereon for any Interest Reset Date shall equal LIBOR (as
determined below), as adjusted (x) by the addition or subtraction of the Spread,
if any, specified on the face hereof and/or (y) by the multiplication by the
Spread Multiplier, if any, specified on the face hereof. LIBOR shall be
determined by the Calculation Agent in accordance with the following provisions:
(a) With respect to any LIBOR Interest Determination Date (as
defined below), LIBOR will be either: (i) if "LIBOR Reuters" is
specified on the face hereof, the arithmetic mean of the offered rates
for deposits in U.S. dollars having the Index Maturity specified on the
face hereof, commencing on the second London Business Day immediately
following such LIBOR Interest Determination Date, that appear on the
Reuters Screen LIBO Page (as defined below) as of 11:00 A.M. London
time on such LIBOR Interest Determination Date, if at least two such
offered rates appear on the Reuters Screen LIBO Page, or (ii) if "LIBOR
Telerate" is specified on the face hereof, the rate for deposits in
U.S. dollars having the Index Maturity specified on the face hereof,
commencing on the second London Business Day immediately following such
LIBOR Interest Determination Date, that appears on Telerate Page 3750
(as defined below) as of 11:00 A.M. London time, on such LIBOR Interest
Determination Date. The "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service
(or such other page as may replace the LIBO page on that service for
purposes of displaying London interbank offered rates of major banks).
"Telerate Page 3750" means the display designated as page 3750 on the
Dow Jones Telerate Service (or such other page or pages as may replace
the 3750 page on that service or such other service or services as may
be nominated by the British Bankers' Association for the purpose of
displaying London interbank offered rates for U.S. dollar deposits). If
neither LIBOR Reuters nor LIBOR Telerate is specified on the face
hereof, LIBOR will be determined as if LIBOR Reuters has been
specified. Notwithstanding the foregoing, if fewer than two offered
rates appear on the Reuters Screen LIBO Page, or no rate appears on
Telerate Page 3750, as applicable, LIBOR in respect of a related LIBOR
Interest Determination Date will be determined as if the parties had
specified the rate described in paragraph (b) below.
-6-
<PAGE>
(b) With respect to a LIBOR Interest Determination Date on
which fewer than two offered rates appear on the Reuters Screen LIBO
Page, as specified in paragraph (a)(i) above, or on which no rate
appears on Telerate Page 3750, as specified in paragraph (a)(ii) above,
as the case may be, the Calculation Agent will request the principal
London offices of each of four major reference banks in the London
interbank market, as selected by the Calculation Agent, to provide the
Calculation Agent with its offered quotation for deposits for the
period of the Index Maturity specified on the face hereof, commencing
on the second London Business Day immediately following such LIBOR
Interest Determination Date, to prime banks in the London interbank
market at approximately 11:00 A.M., London time, on such LIBOR Interest
Determination Date and in a principal amount of not less than
$1,000,000 that is representative for a single transaction in such
market at such time. If at least two such quotations are provided,
LIBOR determined on such LIBOR Interest Determination Date will be the
arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR determined on such LIBOR Interest Determination Date
will be the arithmetic mean of the rates quoted at approximately 11:00
A.M. New York City time on such LIBOR Interest Determination Date by
three major banks in The City of New York selected by the Calculation
Agent for loans in U.S. dollars to leading European banks, having the
Index Maturity specified on the face hereof, commencing on the second
London Business Day following such LIBOR Interest Determination Date,
and in a principal amount of not less than $1,000,000 that is
representative for a single transaction in such market at such time;
provided, however, that if the banks so selected by the Calculation
Agent are not quoting as mentioned in this sentence, LIBOR determined
on such LIBOR Interest Determination Date will be LIBOR as in effect on
such LIBOR Interest Determination Date.
Treasury Rate. If the Interest Rate Basis of this Senior Note is the
-------------
Treasury Rate, the interest rate hereon for any Interest Reset Date shall equal
the Treasury Rate (as determined below) as adjusted (x) by the addition or
subtraction of the Spread, if any, specified on the face hereof and/or (y) by
the multiplication by the Spread Multiplier, if any, specified on the face
hereof. "Treasury Rate" means the rate for the most recent auction of direct
obligations of the United States ("Treasury bills") having the Index Maturity
specified on the face hereof, as such rate is published in H.15(519) under the
heading "U.S. Government Securities/Treasury Bills/Auction Average (Investment)"
or, if such rate is not so published by 3:00 P.M., New York City time, on the
Calculation Date, the auction average rate (expressed as a bond equivalent, on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) for such auction as otherwise announced by the United States Department
of the Treasury by 3:00 P.M., New York City time, on such Calculation Date. If
the results of the auction of Treasury bills having the Index Maturity specified
on the face hereof are neither published in H.15(519) nor otherwise published or
reported as provided above by 3:00 P.M., New York City time, on such Calculation
Date, or if no such auction is held in a particular week, then the Treasury Rate
will be calculated by the Calculation Agent and will be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates as of 3:30 P.M., New York City time, on such Treasury
Interest Determination Date (as defined below), of three leading primary United
States government securities dealers in The City of New York selected by the
Calculation Agent, for the issue of Treasury bills with a remaining maturity
closest to the Index Maturity specified on the face hereof or, if there are two
such issues which are equidistant from the Index Maturity specified on the face
hereof, then the longer of the two; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the Treasury Rate determined on such Treasury Interest
Determination Date will be the Treasury Rate in effect on such Treasury Interest
Determination Date.
-7-
<PAGE>
CD Rate. If the Interest Rate Basis of this Senior Note is the CD Rate,
-------
the interest rate hereon for any Interest Reset Date shall equal the CD Rate (as
determined below), as adjusted (x) by the addition or subtraction of the Spread,
if any, specified on the face hereof and/or (y) by the multiplication by the
Spread Multiplier, if any, specified on the face hereof. "CD Rate" means the
rate on the relevant CD Interest Determination Date (as defined below) for
negotiable certificates of deposit having the Index Maturity specified on the
face hereof, as published in H.15(519) under the heading "CDs (Secondary
Market)". If such rate is not so published before 3:00 P.M., New York City time,
on the Calculation Date pertaining to such CD Interest Determination Date, then
the CD Rate will be the rate on such CD Interest Determination Date for
negotiable certificates of deposit having the Index Maturity specified on the
face hereof as published in Composite Quotations under the heading "Certificates
of Deposit". If such rate is published neither in H.15(519) nor in Composite
Quotations by 3:00 P.M., New York City time, on such Calculation Date, the CD
Rate will be calculated by the Calculation Agent and will be the arithmetic mean
of the secondary market offered rates as of 10:00 A.M., New York City time, on
such CD Interest Determination Date, of three leading non-bank dealers of
negotiable U.S. dollar certificates of deposit in The City of New York (which
may include one or more of the Agents) selected by the Calculation Agent for
negotiable certificates of deposit of the four highest rated banks (as rated by
two nationally recognized rating agencies) of the 25 largest United States banks
based on the most recent year-end survey published in The American Banker (or a
comparable publication) with a remaining maturity closest to the Index Maturity
specified on the face hereof in a denomination of $5,000,000; provided, however,
that, if the dealers selected as aforesaid by the Calculation Agent are not
quoting as mentioned in this sentence, the CD Rate determined on such CD
Interest Determination Date will be the CD Rate in effect on such CD Interest
Determination Date.
Federal Funds Rate. If the Interest Rate Basis of this Senior Note is
------------------
the Federal Funds Rate, the interest rate hereon for any Interest Reset Date
shall equal the Federal Funds Rate (as determined below, as adjusted (x) by the
addition or subtraction of the Spread, if any, specified on the face hereof
and/or (y) by the multiplication by the Spread Multiplier, if any, specified on
the face hereof. "Federal Funds Rate" means the rate on the relevant Federal
Funds Interest Determination Date (as defined below) for Federal Funds having
the Index Maturity specified on the face hereof, as published in H.15(519) under
the heading "Federal Funds (Effective)". If such rate is not published by 3:00
P.M., New York City time, on the Calculation Date pertaining to such Federal
Funds Interest Determination Date, then the Federal Funds Rate will be the rate
on such Federal Funds Interest Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate". If such rate is
published neither in H.15(519) nor in Composite Quotations by 3:00 P.M., New
York City time, on such Calculation Date, the Federal Funds Rate will be
calculated by the Calculation Agent and will be the arithmetic mean of the
rates, as of 3:00 P.M., New York City time, on such Federal Funds Interest
Determination Date, for the last transaction in overnight Federal Funds arranged
by three leading brokers of Federal Funds transactions in The City of New York
(which may include one or more of the Agents) selected by the Calculation Agent;
provided, however, that if the brokers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Federal Funds Rate
determined on such Federal Funds Interest Determination Date will be the Federal
Funds Rate in effect on such Federal Funds Interest Determination Date.
Prime Rate. If the Interest Rate Basis of this Senior Note is the Prime
----------
Rate, the interest rate hereon for any Interest Reset Date shall equal the Prime
Rate (as determined below), as adjusted (x) by the addition or subtraction of
the Spread, if any, specified on the face hereof and/or (y) by the
multiplication by the Spread Multiplier, if any, specified on the face hereof.
"Prime Rate" means the rate set forth on the relevant Prime Interest
Determination Date (as defined below) in H.15(519) under the heading "Bank Prime
Loan". If such rate is not published prior to 9:00 A.M., New York City time, on
the Calculation Date
-8-
<PAGE>
pertaining to such Prime Interest Determination Date, then the Prime Rate will
be determined by the Calculation Agent and will be the arithmetic mean of the
rates of interest publicly announced by each bank that appears on the Reuters
Screen USPRIME1 Page (as defined below) as such bank's prime rate or base
lending rate as in effect for such Prime Interest Determination Date. If fewer
than four such rates appear on the Reuters Screen USPRIME1 Page on such Prime
Interest Determination Date, the Prime Rate will be determined by the
Calculation Agent and will be the arithmetic mean of the prime rates quoted on
the basis of the actual number of days in the year divided by a 360-day year as
of the close of business on such Prime Interest Determination Date by four major
money center banks in The City of New York selected by the Calculation Agent. If
fewer than four such quotations are so provided, then the Prime Rate will be the
arithmetic mean of four prime rates quoted on the basis of the actual number of
days in the year divided by a 360-day year as of the close of business on such
Prime Interest Determination Date as furnished in The City of New York by the
major money center banks, if any, that have provided such quotations and by as
many substitute banks or trust companies as necessary in order to obtain four
such prime rate quotations, provided such substitute banks or trust companies
are organized and doing business under the laws of the United States, or any
State thereof, each having total equity capital of at least $500,000,000 and
being subject to supervision or examination by Federal or State authority,
selected by the Calculation Agent to provide such rate or rates; provided,
--------
however, that if the banks or trust companies selected as aforesaid by the
- -------
Calculation Agent are not quoting as mentioned in this sentence, the Prime Rate
determined on such Prime Interest Determination Date will be the Prime Rate in
effect on such Prime Interest Determination Date. "Reuters Screen USPRIME1 Page"
means the display designated as page "USPRIME1" on the Reuters Monitor Money
Rates Service (or such other page as may replace the USPRIME1 page on that
service for the purpose of displaying prime rates or base lending rates of major
United States banks).
11th District Cost of Funds Rate Notes. If the Interest Rate Basis of
--------------------------------------
this Senior Note is the 11th District Cost of Funds Rate, the interest rate
hereon for any Interest Reset Date shall equal the 11th District Cost of Funds
Rate (as determined below), as adjusted (x) by the addition or subtraction of
the Spread, if any, specified on the face hereof and/or (y) by the
multiplication by the Spread Multiplier, if any, specified on the face hereof.
"11th District Cost of Funds Rate" means the rate equal to the monthly
weighted average cost of funds for the calendar month immediately preceding the
month in which the relevant 11th District Cost of Funds Interest Determination
Date (as defined below) falls, as set forth under the caption "11th District" on
Telerate Page 7058 (as defined below) as of 11:00 A.M., San Francisco time, on
such 11th District Cost of Funds Interest Determination Date. If such rate does
not appear on Telerate Page 7058 on any related 11th District Cost of Funds
Interest Determination Date, the 11th District Cost of Funds Rate for such 11th
District Cost of Funds Interest Determination Date shall be the monthly weighted
average cost of funds paid by member institutions of the 11th Federal Home Loan
Bank District that was most recently announced (the "11th District Cost of Funds
Index") by the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco") as such cost of funds for the calendar month immediately preceding
the date of such announcement. If the FHLB of San Francisco fails to announce
such rate for the calendar month immediately preceding such 11th District Cost
of Funds Interest Determination Date, then the 11th District Cost of Funds Rate
determined as of such 11th District Cost of Funds Interest Determination Date
will be the 11th District Cost of Funds Rate in effect on such 11th District
Cost of Funds Interest Determination Date.
"Telerate Page 7058" means the display designated as page "7058" on the
Dow Jones Telerate Service (or such other page as may replace the 7058 page on
that service for the purpose of displaying the monthly weighted average cost of
funds paid by member institutions of the 11th Federal Home Loan Bank District).
-9-
<PAGE>
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, specified on the face hereof and
shall not be lower than the Minimum Interest Rate, if any, specified on the face
hereof. In addition, the interest rate hereon will in no event be higher than
the maximum rate permitted by Illinois law, as the same may be modified by
United States law of general application.
The Bank will at all times appoint and maintain a banking institution
as Calculation Agent hereunder. Unless otherwise specified on the face hereof,
the Bank has initially appointed itself as Calculation Agent. Upon the request
of the holder of this Senior Note, the Calculation Agent will provide the
interest rate then in effect, and, if different, the interest rate which will
become effective as a result of a determination made on the most recent Interest
Determination Date with respect to this Senior Note.
Unless otherwise specified on the face hereof, all percentages
resulting from any calculation on this Senior Note will be rounded, if
necessary, to the nearest one-hundred thousandth of a percentage point, with
five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) being rounded to 9.87655% (or .0987655) and 9.876544% (or .09876544)
being rounded to 9.87654% (or .0987654)), and all dollar amounts used in or
resulting from such calculation on this Senior Note will be rounded to the
nearest cent (with one-half cent being rounded upwards). The interest rate in
effect on any Interest Reset Date will be the applicable rate as reset on such
Interest Reset Date. The interest rate applicable to any other day is the
interest rate from the immediately preceding Interest Reset Date (or, if none,
the Initial Interest Rate). The Calculation Agent's determination of any
interest rate will be final and binding in the absence of manifest error.
The Interest Determination Date pertaining to an Interest Reset Date if
the rate of interest hereon shall be determined in accordance with the
provisions under the headings above entitled "Commercial Paper Rate" (the
"Commercial Paper Interest Determination Date"), "CD Rate" (the "CD Interest
Determination Date"), "Federal Funds Rate" (the "Federal Funds Interest
Determination Date") or "Prime Rate" (the "Prime Interest Determination Date")
will be the second Business Day preceding such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date if the rate of interest
hereon shall be determined in accordance with the provisions under the heading
above entitled "11th District Cost of Funds Rate" (the "11th District Cost of
Funds Interest Determination Date") will be the last working day of the month
immediately preceding such Interest Reset Date on which the FHLB of San
Francisco publishes the 11th District Cost of Funds Index. The Interest
Determination Date pertaining to an Interest Reset Date if the rate of interest
hereon shall be determined in accordance with the provisions under the heading
above entitled "LIBOR" (the "LIBOR Interest Determination Date") will be the
second London Business Day preceding such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date if the rate of interest
hereon shall be determined in accordance with the provisions under the heading
above entitled "Treasury Rate" (the "Treasury Interest Determination Date") will
be that day of the week in which such Interest Reset Date falls on which
Treasury bills would normally be auctioned. Treasury bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is usually held on the following Tuesday, except that such
auction may be held on the preceding Friday. If, as the result of a legal
holiday, an auction is so held on the preceding Friday, such Friday will be the
Treasury Interest Determination Date pertaining to the Interest Reset Date
occurring in the next succeeding week. If an auction date shall fall on any
Interest Reset Date for a Senior Note with respect to which the Interest Rate
Basis specified on the face hereof is the Treasury Rate, then such Interest
Reset Date shall instead be the first Business Day immediately following such
auction date.
-10-
<PAGE>
The Calculation Date pertaining to the Interest Determination Date for
any Senior Note shall be the tenth calendar day after such Interest
Determination Date or, if any such day is not a Business Day, the next
succeeding Business Day.
Payments of interest hereon with respect to any Interest Payment Date
will include interest accrued from, and including, the Original Issue Date or
from, and including, the last date on which interest has been paid to, but
excluding, such Interest Payment Date; provided, however, that, if the Interest
Reset Period with respect to this Senior Note is daily or weekly, the interest
payable on any Interest Payment Date, other than interest payable on any date on
which principal of this Senior Note is payable, will include interest accrued
from, and including, the Original Issue Date or from, but excluding, the last
date in respect of which interest has been paid or made available for payment,
as the case may be, to, and including, the Regular Record Date next preceding
such Interest Payment Date, except that the interest payable at maturity or upon
earlier redemption or repayment will include interest accrued to, but excluding,
the Maturity Date or the date of earlier redemption or repayment, as the case
may be.
Accrued interest on this Senior Note from the Original Issue Date or
from the last date to which interest has been paid or duly provided is
calculated by multiplying the face amount of this Senior Note by an accrued
interest factor. Such accrued interest factor is computed by adding the interest
factor calculated for each day from the Original Issue Date or from the last
date to which interest has been paid or duly provided for, as the case may be,
to the date for which accrued interest is being calculated in the period for
which interest is being calculated. The interest factor for each such day is
computed by dividing the interest rate applicable to such date by 360, in the
case that the Interest Rate Basis specified on the face hereof is the Commercial
Paper Rate, LIBOR, CD Rate, Federal Funds Rate, Prime Rate or 11th District Cost
of Funds Rate, or by the actual number of days in the year, in the case that the
Interest Rate Basis specified on the face hereof is the Treasury Rate.
If this Senior Note is an Original Issue Discount Note and if an Event
of Default with respect to the Senior Notes shall have occurred and be
continuing, the Default Amount (as defined hereafter) of this Senior Note may be
declared due and payable in the manner and with the effect provided herein. The
"Default Amount" shall be equal to the adjusted issue price as of the first day
of the accrual period as determined under Proposed Treasury Regulation Section
1.1272-1(e) (or successor regulation) under the United States Internal Revenue
Code of 1986, as amended, in which the date of acceleration occurs increased by
the daily portion of the original issue discount for each day in such accrual
period ending on the date of acceleration, as determined under Proposed Treasury
Regulation Section 1.1272-1(c) (or successor regulation) under the United States
Internal Revenue Code of 1986, as amended. Upon payment of (i) the amount of
principal or premium, if any, so declared due and payable and (ii) interest on
any overdue principal and overdue interest or premium, if any (in each case to
the extent that the payment of such interest shall be legally enforceable), all
of the Bank's obligations in respect of the payment of the principal of, and
interest or premium, if any, on, this Senior Note shall terminate.
In case any Senior Note shall at any time become mutilated, destroyed,
lost or stolen and such Senior Note or evidence satisfactory to the Bank of the
loss, theft or destruction thereof (together with indemnity satisfactory to the
Bank and such other documents or proof as may be required in the premises) shall
be delivered to the Bank, a new Senior Note of like tenor will be issued by the
Bank in exchange for the Senior Note so mutilated, or in lieu of the Senior Note
so destroyed or lost or stolen. All expenses and reasonable charges associated
with procuring the indemnity referred to above and with the preparation,
authentication and delivery of a new Senior Note shall be borne by the holder of
the Senior Note so mutilated, destroyed, lost or stolen. If any Senior Note
which has matured or is about to mature shall become mutilated, destroyed, lost
or stolen, the Bank may, instead of issuing a substitute Senior Note, pay
-11-
<PAGE>
or authorize the payment of the same (without surrender thereof except in the
case of a mutilated Senior Note) upon compliance by the holder thereof with the
provisions of this paragraph.
No recourse shall be had for the payment of the principal of, premium,
if any, or interest on, this Senior Note, for any claim based hereon, or
otherwise in respect hereof, against any shareholder, employee, officer or
director, as such, past, present or future, of the Bank or of any successor
corporation, either directly or through the Bank or any successor corporation,
whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
The occurrence of any of the following events shall constitute an
"Event of Default" with respect to this Senior Note: (i) default in the payment
of any interest with respect to this Senior Note when due, which continues for
30 days; (ii) default in the payment of any principal of, or premium, if any,
on, this Senior Note when due; (iii) the entry by a court having jurisdiction in
the premises of (a) a decree or order for relief in respect of the Bank in an
involuntary case or proceeding under any applicable United States federal or
state bankruptcy, insolvency, reorganization or other similar law or (b) a
decree or order appointing a conservator, receiver, liquidator, assignee,
trustee, sequestrator or any other similar official of the Bank, or of
substantially all of the property of the Bank, or ordering the winding up or
liquidation of the affairs of the Bank, and the continuance of any such decree
or order for relief or any such other decree or order unstayed and in effect for
a period of 60 consecutive days; or (iv) the commencement by the Bank of a
voluntary case or proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated as bankrupt or insolvent, or the consent by the
Bank to the entry of a decree or order for relief in an involuntary case or
proceeding under any applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding, or the filing by the Bank of a
petition or answer or consent seeking reorganization or relief under any
applicable United States federal or state law, or the consent by the Bank to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Bank or of substantially all of the property of the Bank, or the
making by the Bank of an assignment for the benefit of creditors, or the taking
of corporate action by the Bank in furtherance of any such action. If an Event
of Default shall occur and be continuing, the holder of this Senior Note may
declare the principal amount of, and accrued interest and premium, if any, on,
this Senior Note due and payable immediately by written notice to the Bank. Upon
such declaration and notice, such principal amount, accrued interest and
premium, if any, shall become due and payable seven calendar days after such
notice. Any Event of Default with respect to this Senior Note may be waived by
the holder hereof.
No provision of this Senior Note shall alter or impair the obligation
of the Bank, which is absolute and unconditional, to pay the principal, and
premium, if any, and interest on, this Senior Note in U.S. dollars at the times,
places and rate herein prescribed.
The Bank shall cause to be kept at the corporate trust office of the
Senior Note Registrar designated below a register (the register maintained in
such corporate trust office or any other office or agency of the Bank in the
Place of Payment herein referred to as the "Senior Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Bank shall
provide for the registration of the Senior Notes and of transfers of the Senior
Notes. The Bank is hereby initially appointed "Senior Note Registrar" for the
purposes of registering the Senior Notes and transfers of the Senior Notes as
herein provided.
-12-
<PAGE>
The transfer of this Senior Note is registrable in the Senior Note
Register, upon surrender of this Senior Note for registration of transfer at the
office or agency of the Bank in the Place of Payment, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the Bank
and the Paying Agent duly executed by, the holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Senior Notes of like tenor,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees. Notwithstanding the
foregoing, the Bank shall not be required to register the transfer of any Senior
Note that has been called for redemption during a period beginning at the
opening of business fifteen calendar days before the date of mailing of a notice
of such redemption and ending at the close of business on the date of such
mailing.
No service charge shall be made for any such registration of transfer
or exchange, but the Bank may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Senior Notes are issuable only in registered form without coupons
in minimum denominations of $250,000 and any integral multiple of $1,000 in
excess thereof. Each owner of a beneficial interest in this Senior Note is
required to hold a beneficial interest in $250,000 principal amount or any
integral multiple of $1,000 in excess thereof of this Senior Note at all times.
Prior to due presentment of this Senior Note for registration of
transfer, the Bank, the Paying Agent or any agent of the Bank or the Paying
Agent may treat the person in whose name this Senior Note is registered as the
owner hereof for all purposes, whether or not this Senior Note be overdue, and
neither the Bank, the Paying Agent nor any such agent shall be affected by
notice to the contrary.
All notices to the Bank under this Senior Note shall be in writing and
addressed to the Bank at 50 South LaSalle Street, Chicago, Illinois 60675, or to
such other address of the Bank asthe Bank may notify the holders of the Senior
Notes.
This Senior Note shall be governed by, and construed in accordance
with, the laws of the State of Illinois.
As used in this Senior Note, the term "Agents" shall mean Goldman Sachs
& Co., CS First Boston Corporation, J.P. Morgan Securities Inc., Lehman
Brothers, Lehman Brothers Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce
Fenner & Smith Incorporated, and any other person, firm or entity which shall
hereafter be designated as an "Agent" under that certain Amended and Restated
Distribution Agreement, dated September 6, 1995, among the Bank, Northern Trust
Corporation and the Agents (as hereinabove defined).
IN WITNESS WHEREOF, the Bank has caused this instrument to be duly
executed.
THE NORTHERN TRUST COMPANY
By:___
Authorized Signatory
-13-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of the within Senior Note, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT - ____________ Custodian ____________
(Cust) (Minor)
under Uniform Gifts to Minors Act
---------------------------------
(State)
Additional abbreviations may also be used
though not in the above list.
-14-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s)
unto__________
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address,
including postal zip code, of assignee)
the within Senior Note and all rights thereunder, and hereby irrevocably
constitutes and appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to transfer said Senior Note on the books of the Bank, with full power of
substitution in the premises.
Dated:
---------------
-------------------------------
NOTICE: The signature to this
assignment must correspond with
the name as written upon the
face of the within Senior Note
in every particular, without
alteration or enlargement or
any change whatsoever.
-15-
<PAGE>
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably request(s) and instruct(s) the Bank
to repay this Senior Note (or portion hereof specified below) pursuant to its
terms and at a price equal to 100% of the principal amount hereof to be repaid,
together with accrued and unpaid interest hereon, payable to the date of
repayment, to the undersigned, at__________
(Please print or typewrite name and address of the undersigned)
For this Senior Note to be repaid, the undersigned must give to the
Paying Agent at its offices located at 50 South LaSalle Street (Level BB-A),
Chicago, Illinois 60675, Attention: Securities Services, or at such other place
or places of which the Bank shall from time to time notify the holders of the
Senior Notes, not more than 60 days nor less than 30 days prior to the date of
repayment, this Senior Note with this "Option to Elect Repayment" form duly
completed.
If less than the entire principal amount of this Senior Note is to be
repaid, specify the portion hereof (which shall be increments of $1,000) which
the holder elects to have repaid and specify the denomination or denominations
(which shall be $250,000 or an integral multiple of $1,000 in excess thereof) of
the Senior Notes to be issued to the holder for the portion of this Senior Note
not being repaid (in the absence of any such specification, one such Senior Note
will be issued for the portion not being repaid):
$________________
Dated:___________
NOTICE: The signature on this
"Option to Elect Repayment"
form must correspond with the
name as written upon the face
of the within Senior Note in
every particular, without
alteration or enlargement or
any change whatsoever.
-16-
<PAGE>
EXHIBIT (4)(ii)
to 9/30/97 FORM 10-Q
Rev. 9/97
UNLESS THIS SUBORDINATED NOTE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) TO THE BANK OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY SUBORDINATED NOTE ISSUED UPON REGISTRATION OF TRANSFER OF, OR
IN EXCHANGE FOR, OR IN LIEU OF, THIS SUBORDINATED NOTE IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
IF THIS SUBORDINATED NOTE IS ISSUED WITH "ORIGINAL ISSUE DISCOUNT" FOR
PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE
FOLLOWING SHALL BE COMPLETED: THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR
PURPOSES OF APPLYING SECTIONS 1272, 1273 AND 1275 OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1986, AS AMENDED, TO THIS SUBORDINATED NOTE. THE ISSUE DATE OF
THIS SUBORDINATED NOTE IS _____________. THE ISSUE PRICE OF THIS SUBORDINATED
NOTE IS _____% OF ITS PRINCIPAL AMOUNT. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON
THIS SUBORDINATED NOTE IS $_________ PER $1,000 OF THE INITIAL PRINCIPAL AMOUNT,
THE YIELD TO MATURITY IS ____%, AND THE AMOUNT OF THE ORIGINAL ISSUE DISCOUNT
ALLOCABLE TO THE INITIAL SHORT ACCRUAL PERIOD, IF ANY, IS $_____ PER $1,000 OF
THE INITIAL PRINCIPAL AMOUNT, DETERMINED ON THE BASIS OF THE EXACT METHOD.
No. SUB FLR-______________ REGISTERED
CUSIP NO.: ________________________
THE NORTHERN TRUST COMPANY
GLOBAL SUBORDINATED MEDIUM-TERM BANK NOTE
(FLOATING RATE)
ORIGINAL ISSUE DATE: PRINCIPAL AMOUNT:
INITIAL INTEREST RATE: ______% MATURITY DATE:
INTEREST RATE BASIS: INDEX MATURITY:
SPREAD AND/OR SPREAD MULTIPLIER: REGULAR RECORD DATES (If other than the
15th day prior to each Interest
Payment Date):
MAXIMUM INTEREST RATE: MINIMUM INTEREST RATE:
INTEREST PAYMENT DATES: INTEREST PAYMENT PERIOD:
INTEREST RESET DATES: INTEREST RESET PERIOD:
INITIAL REDEMPTION DATE: ANNUAL REDEMPTION PERCENTAGE REDUCTION:
INITIAL REDEMPTION PERCENTAGE:
ORIGINAL ISSUE DISCOUNT NOTE: OID AMOUNT:
Yes: ______ No: _____
<PAGE>
OTHER PROVISIONS: CALCULATION AGENT:
ALTERNATE RATE EVENT SPREAD:
The Northern Trust Company, an Illinois banking corporation (the
"Bank"), for value received, hereby promises to pay to
________________________________________________, or registered assigns, the
principal sum of ___________________________________
________________________________________ United States Dollars on the Maturity
Date specified above and to pay interest thereon from the Original Issue Date
specified above or from the most recent interest payment date (or, if the
Interest Reset Period specified above is daily or weekly, from, and including,
the day following the most recent Regular Record Date) to which interest on this
Subordinated Note (or any predecessor Subordinated Note) has been paid or duly
provided for (each, an "Interest Payment Date"), on the Interest Payment Dates
specified above and at maturity or upon earlier redemption, if applicable,
commencing on the first Interest Payment Date next succeeding the Original Issue
Date (or, if the Original Issue Date is between a Regular Record Date and the
Interest Payment Date immediately following such Regular Record Date, on the
second Interest Payment Date following the Original Issue Date), at a rate per
annum equal to the Initial Interest Rate specified above until the first
Interest Reset Date following the Original Issue Date and, on and after such
Interest Reset Date, at the rate determined in accordance with the provisions
set forth herein, until the principal hereof is paid or made available for
payment, and (to the extent that the payment of such interest shall be legally
enforceable) at the last rate in effect prior to any payment default on any
overdue principal and premium, if any, and on any overdue installment of
interest. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will be paid to the person in whose name this
Subordinated Note (or any predecessor Subordinated Note) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the 15th calendar day (whether or not a Business Day (as defined below)) before
such Interest Payment Date (unless otherwise specified on the face hereof);
provided, however, that interest payable at maturity or upon earlier redemption,
if applicable, will be payable to the person to whom principal shall be payable.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the holder on such Regular Record Date and may either be
paid to the person in whose name this Subordinated Note (or any predecessor
Subordinated Note) is registered at the close of business on a special record
date for the payment of such defaulted interest (the "Special Record Date") to
be fixed by the Bank, notice of which shall be given to the holders of
Subordinated Notes not less than 10 calendar days prior to such Special Record
Date, or be paid at any time in any other lawful manner.
Payment of principal of, and premium, if any, and interest on, this
Subordinated Note will be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. The Bank will at all times appoint and maintain a paying agent
(the "Paying Agent") authorized by the Bank to pay the principal of, and
premium, if any, and interest on, this Subordinated Note on behalf of the Bank
and having an office or agency (the "Paying Agent Office") in The City of New
York or the City of Chicago, Illinois (the "Place of Payment"), where this
Subordinated Note may be presented or surrendered for payment and where notices,
designations or requests in respect of payments with respect to this
Subordinated Note may be served. The Bank has initially appointed itself as such
Paying Agent, with the Paying Agent Office currently located at 50 South LaSalle
Street (Level BB-A), Chicago, Illinois 60675, Attention: Securities Services.
THIS SUBORDINATED NOTE IS A DIRECT, UNCONDITIONAL AND UNSECURED GENERAL
OBLIGATION OF THE BANK, DOES NOT EVIDENCE A DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
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<PAGE>
GOVERNMENT AGENCY. THIS SUBORDINATED NOTE IS SUBORDINATE TO THE CLAIMS OF
DEPOSITORS AND GENERAL CREDITORS OF THE BANK.
Payment of the principal of, and premium, if any, and interest on, this
Subordinated Note due at maturity or upon earlier redemption, if applicable,
will be made in immediately available funds upon presentation and surrender of
this Subordinated Note to the Paying Agent at the Paying Agent Office in the
Place of Payment; provided that this Subordinated Note is presented to the
Paying Agent in time for the Paying Agent to make such payment in accordance
with its normal procedures. Payments of interest on this Subordinated Note
(other than at maturity or upon earlier redemption) will be made by wire
transfer to such account as has been appropriately designated to the Paying
Agent by the person entitled to such payments.
This Subordinated Note is one of a duly authorized issue of
Subordinated Medium-Term Bank Notes due from five to fifteen years from date of
issue of the Bank (herein called the "Subordinated Notes").
Unless otherwise indicated on the face hereof, if the rate of interest
on this Subordinated Note resets daily, weekly or monthly, the Interest Payment
Date for this Subordinated Note will be the third Wednesday of each month; if
the rate of interest on this Subordinated Note resets quarterly, the Interest
Payment Date for this Subordinated Note will be the third Wednesday of March,
June, September and December of each year; if the rate of interest on this
Subordinated Note resets semi-annually, the Interest Payment Date for this
Subordinated Note will be the third Wednesday of each of two months of each year
specified on the face hereof that are six months apart; and if the rate of
interest on this Subordinated Note resets annually, the Interest Payment Date
for this Subordinated Note will be the third Wednesday of the month specified on
the face hereof. If any Interest Payment Date, Maturity Date or date of earlier
redemption of this Subordinated Note falls on a day that is not a Business Day,
such Interest Payment Date, Maturity Date or date of earlier redemption will be
the next succeeding Business Day; provided, however, that, if the Interest Rate
Basis specified on the face hereof is LIBOR and such next succeeding Business
Day is in the next succeeding calendar month, such Interest Payment Date,
Maturity Date or date of earlier redemption will be the immediately preceding
Business Day. "Business Day" means any day that is not a Saturday or Sunday and
that is not a day on which banking institutions in The City of New York or the
City of Chicago, Illinois generally are authorized or obligated by law or
executive order to close, and with respect to Subordinated Notes with respect to
which the Interest Rate Basis specified on the face hereof is LIBOR, any day on
which dealings in deposits in U.S. dollars are transacted in the London
interbank market (a "London Business Day").
The indebtedness of the Bank evidenced by this Subordinated Note,
including principal and interest, is unsecured and subordinate and junior in
right of payment to the Bank's obligations to its depositors, its obligations
under bankers' acceptances and letters of credit, and its obligations to its
other creditors (including any obligations to any Federal Reserve Bank and the
Federal Deposit Insurance Corporation), whether now outstanding or hereafter
incurred, other than any obligations which rank on a parity with, or junior to,
the Subordinated Notes. In the event of any insolvency proceeding, receivership,
conservatorship, reorganization, readjustment of debt, marshalling of assets and
liabilities or similar proceedings or any liquidation or winding-up of the Bank,
whether voluntary or involuntary, all such obligations (except obligations which
rank on a parity with, or junior to, the Subordinated Notes) shall be entitled
to be paid in full before any payment shall be made on account of the principal
of, or interest on, the Subordinated Notes. In the event of any such proceeding,
after payment in full of all sums owing with respect to such prior obligations,
the holders of the Subordinated Notes, together with the holders of any
obligations of the Bank ranking on a parity with the Subordinated Notes, shall
be entitled to be paid, from the remaining assets of the Bank, the unpaid
principal of, and the unpaid interest on, the Subordinated
-3-
<PAGE>
Notes or such other obligations before any payment or other distribution,
whether in cash, property, or otherwise, shall be made on account of any capital
stock or any obligations of the Bank ranking junior to the Subordinated Notes.
The Subordinated Notes shall rank on a parity with the subordinated
note in the principal amount of $50,000,000, due January 2, 2000, issued by the
Bank to Northern Trust Corporation (the "Corporation"), the subordinated note in
the principal amount of $25,000,000, due July 1, 2002, issued by the Bank to the
Corporation, the $100,000,000 aggregate principal amount of 6.5% Subordinated
Notes due 2003 issued by the Bank in 1993, and such other obligations which may
be issued by the Bank which are specifically designated as ranking on a parity
with the Subordinated Notes by express provision in the instruments creating or
evidencing such obligations.
This Subordinated Note will not be subject to any sinking fund. If so
provided on the face of this Subordinated Note and subject to the approval of
the Federal Reserve Bank of Chicago, this Subordinated Note may be redeemed by
the Bank on and after the Initial Redemption Date, if any, specified on the face
hereof. If no Initial Redemption Date is specified on the face hereof, this
Subordinated Note may not be redeemed prior to the Maturity Date. On and after
the Initial Redemption Date, if any, and subject to the approval of the Federal
Reserve Bank of Chicago, this Subordinated Note may be redeemed at any time
either in whole or in part from time to time in increments of $1,000 (provided
that any remaining principal amount hereof shall be at least $250,000) at the
option of the Bank at the applicable Redemption Price (as defined below),
together with accrued and unpaid interest hereon at the applicable rate borne by
this Subordinated Note to the date of redemption (each such date, a "Redemption
Date"), on written notice given not more than 60 nor less than 30 calendar days
prior to the Redemption Date by the Bank to the registered holder hereof.
Whenever less than all the Subordinated Notes at any time outstanding are to be
redeemed, the terms of the Subordinated Notes to be so redeemed shall be
selected by the Bank. If less than all the Subordinated Notes with identical
terms at any time outstanding are to be redeemed, the Subordinated Notes to be
so redeemed shall be selected by the Paying Agent by lot or in any usual manner
approved by it. In the event of redemption of this Subordinated Note in part
only, a new Subordinated Note for the unredeemed portion hereof shall be issued
in the name of the holder hereof upon the surrender hereof.
The "Redemption Price" shall initially be the Initial Redemption
Percentage specified on the face hereof of the principal amount of this
Subordinated Note to be redeemed and shall decline at each anniversary of the
Initial Redemption Date specified on the face hereof by the Annual Redemption
Percentage Reduction, if any, specified on the face hereof, of the principal
amount to be redeemed until the Redemption Price is 100% of such principal
amount.
This Subordinated Note will not be repayable at the option of the
holder hereof prior to maturity.
The rate of interest on this Subordinated Note will be reset daily,
weekly, monthly, quarterly, semi-annually or annually (each such period, an
"Interest Reset Period" for this Subordinated Note, and the first calendar day
of an Interest Reset Period, an "Interest Reset Date"), as specified on the face
hereof. Unless otherwise indicated on the face hereof, if this Subordinated Note
resets daily, the Interest Reset Date will be each Business Day; if this
Subordinated Note resets weekly and the Interest Rate Basis is not the Treasury
Rate, the Interest Reset Date will be the Wednesday of each week; if this
Subordinated Note resets weekly and the Interest Rate Basis is the Treasury
Rate, the Interest Reset Date will be the Tuesday of each week (except as
provided below); if this Subordinated Note resets monthly and the Interest Rate
Basis is not the 11th District Cost of Funds Rate, the Interest Reset Date will
be the third Wednesday of each month; if this Subordinated Note resets monthly
and the Interest Rate Basis is the 11th District Cost of Funds Rate, the
Interest Reset Date will be the first calendar day of each month; if this
Subordinated Note resets quarterly,
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<PAGE>
the Interest Reset Date will be the third Wednesday of March, June, September
and December; if this Subordinated Note resets semi-annually, the Interest Reset
Date will be the third Wednesday of each of two months of each year which are
six months apart, as specified on the face hereof; and if this Subordinated Note
resets annually, the Interest Reset Date will be the third Wednesday of one
month of each year, as specified on the face hereof; provided, however, that (i)
the interest rate in effect from the Original Issue Date to the first Interest
Reset Date will be the Initial Interest Rate specified on the face hereof, and
(ii) the interest rate in effect for the ten calendar days immediately prior to
maturity or earlier redemption hereof will be the interest rate in effect on the
tenth calendar day preceding such Maturity Date or date of earlier redemption,
as the case may be. If any Interest Reset Date with respect to this Subordinated
Note would otherwise be a day that is not a Business Day, such Interest Reset
Date will be the next succeeding Business Day, except that in the case that the
Interest Rate Basis specified on the face hereof is LIBOR, if such Business Day
is in the next succeeding calendar month, such Interest Reset Date will be the
immediately preceding Business Day.
Except as otherwise specified in this paragraph, the rate of interest
on this Subordinated Note for each Interest Reset Date shall be the rate
determined in accordance with the provisions set forth under the applicable
heading below corresponding to the Interest Rate Basis specified on the face
hereof:
Commercial Paper Rate. If the Interest Rate Basis of this Subordinated
---------------------
Note is the Commercial Paper Rate, the interest rate hereon for any Interest
Reset Date shall equal the Commercial Paper Rate (as determined below), as
adjusted (x) by the addition or subtraction of the Spread, if any, specified on
the face hereof and/or (y) by the multiplication by the Spread Multiplier, if
any, specified on the face hereof. "Commercial Paper Rate" means, with respect
to any Commercial Paper Interest Determination Date (as defined below), the
Money Market Yield (calculated as described below) of the rate on the relevant
Commercial Paper Interest Determination Date for commercial paper having the
Index Maturity specified on the face hereof as such rate is published by the
Board of Governors of the Federal Reserve System in the weekly statistical
release entitled "Statistical Release H.15(519), Selected Interest Rates" or any
successor publication published by the Board of Governors of the Federal Reserve
System ("H.15(519)") under the heading "Commercial Paper-Nonfinancial." If such
rate is not published prior to 3:00 P.M., New York City time, on the Calculation
Date pertaining to such Commercial Paper Interest Determination Date, then the
Commercial Paper Rate will be the Money Market Yield (calculated as described
below) of the rate on such Commercial Paper Interest Determination Date for
commercial paper having the Index Maturity specified on the face hereof as such
rate is published by the Federal Reserve Bank of New York in its daily
statistical release entitled "Composite 3:30 P.M. Quotations for U.S. Government
Securities" or any successor publication published by the Federal Reserve Bank
of New York ("Composite Quotations") under the heading "Commercial Paper". If
such rate is published in neither H.15(519) nor in Composite Quotations by 3:00
P.M., New York City time, on such Calculation Date, the Commercial Paper Rate
for such Commercial Paper Interest Determination Date will be the Money Market
Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York
City time, on such Commercial Paper Interest Determination Date, of three
leading dealers of commercial paper in The City of New York (which may include
one or more of the Agents (as defined below)) selected by the Calculation Agent
for commercial paper having the Index Maturity specified on the face hereof
placed for an industrial issuer whose senior unsecured bond rating is "AA", or
the equivalent, from at least two nationally recognized rating agencies;
provided, however, that if the dealers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Commercial Paper Rate
determined on such Commercial Paper Interest Determination Date will be the
Commercial Paper Rate in effect on such Commercial Paper Interest Determination
Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
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<PAGE>
Money Market Yield = D x 360 x 100
-------
360 - (D x M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
LIBOR. If the Interest Rate Basis of this Subordinated Note is LIBOR,
-----
the interest rate hereon for any Interest Reset Date shall equal LIBOR (as
determined below), as adjusted (x) by the addition or subtraction of the Spread,
if any, specified on the face hereof and/or (y) by the multiplication by the
Spread Multiplier, if any, specified on the face hereof. LIBOR shall be
determined by the Calculation Agent in accordance with the following provisions:
(a) With respect to any LIBOR Interest Determination Date (as
defined below), LIBOR will be either: (i) if "LIBOR Reuters" is
specified on the face hereof, the arithmetic mean of the offered rates
for deposits in U.S. dollars having the Index Maturity specified on the
face hereof, commencing on the second London Business Day immediately
following such LIBOR Interest Determination Date, that appear on the
Reuters Screen LIBO Page (as defined below) as of 11:00 A.M. London
time on such LIBOR Interest Determination Date, if at least two such
offered rates appear on the Reuters Screen LIBO Page, or (ii) if "LIBOR
Telerate" is specified on the face hereof, the rate for deposits in
U.S. dollars having the Index Maturity specified on the face hereof,
commencing on the second London Business Day immediately following such
LIBOR Interest Determination Date, that appears on Telerate Page 3750
(as defined below) as of 11:00 A.M. London time, on such LIBOR Interest
Determination Date. The "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service
(or such other page as may replace the LIBO page on that service for
purposes of displaying London interbank offered rates of major banks).
"Telerate Page 3750" means the display designated as page 3750 on the
Dow Jones Telerate Service (or such other page or pages as may replace
the 3750 page on that service or such other service or services as may
be nominated by the British Bankers' Association for the purpose of
displaying London interbank offered rates for U.S. dollar deposits). If
neither LIBOR Reuters nor LIBOR Telerate is specified on the face
hereof, LIBOR will be determined as if LIBOR Reuters has been
specified. Notwithstanding the foregoing, if fewer than two offered
rates appear on the Reuters Screen LIBO Page, or no rate appears on
Telerate Page 3750, as applicable, LIBOR in respect of a related LIBOR
Interest Determination Date will be determined as if the parties had
specified the rate described in paragraph (b) below.
(b) With respect to a LIBOR Interest Determination Date on
which fewer than two offered rates appear on the Reuters Screen LIBO
Page, as specified in paragraph (a)(i) above, or on which no rate
appears on Telerate Page 3750, as specified in paragraph (a)(ii) above,
as the case may be, the Calculation Agent will request the principal
London offices of each of four major reference banks in the London
interbank market, as selected by the Calculation Agent, to provide the
Calculation Agent with its offered quotation for deposits for the
period of the Index Maturity specified on the face hereof, commencing
on the second London Business Day immediately following such LIBOR
Interest Determination Date, to prime banks in the London interbank
market at approximately 11:00 A.M., London time, on such LIBOR Interest
Determination Date and in a principal amount of not less than
$1,000,000 that is representative for a single transaction in such
market at such time. If at least two such quotations are provided,
LIBOR determined on
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<PAGE>
such LIBOR Interest Determination Date will be the arithmetic mean of
such quotations. If fewer than two quotations are provided, LIBOR
determined on such LIBOR Interest Determination Date will be the
arithmetic mean of the rates quoted at approximately 11:00 A.M. New
York City time on such LIBOR Interest Determination Date by three major
banks in The City of New York selected by the Calculation Agent for
loans in U.S. dollars to leading European banks, having the Index
Maturity specified on the face hereof, commencing on the second London
Business Day following such LIBOR Interest Determination Date, and in a
principal amount of not less than $1,000,000 that is representative for
a single transaction in such market at such time; provided, however,
that if the banks so selected by the Calculation Agent are not quoting
as mentioned in this sentence, LIBOR determined on such LIBOR Interest
Determination Date will be LIBOR as in effect on such LIBOR Interest
Determination Date.
Treasury Rate. If the Interest Rate Basis of this Subordinated Note is
-------------
the Treasury Rate, the interest rate hereon for any Interest Reset Date shall
equal the Treasury Rate (as determined below) as adjusted (x) by the addition or
subtraction of the Spread, if any, specified on the face hereof and/or (y) by
the multiplication by the Spread Multiplier, if any, specified on the face
hereof. "Treasury Rate" means the rate for the most recent auction of direct
obligations of the United States ("Treasury bills") having the Index Maturity
specified on the face hereof, as such rate is published in H.15(519) under the
heading "U.S. Government Securities/Treasury Bills/Auction Average (Investment)"
or, if such rate is not so published by 3:00 P.M., New York City time, on the
Calculation Date, the auction average rate (expressed as a bond equivalent, on
the basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) for such auction as otherwise announced by the United States Department
of the Treasury by 3:00 P.M., New York City time, on such Calculation Date. If
the results of the auction of Treasury bills having the Index Maturity specified
on the face hereof are neither published in H.15(519) nor otherwise published or
reported as provided above by 3:00 P.M., New York City time, on such Calculation
Date, or if no such auction is held in a particular week, then the Treasury Rate
will be calculated by the Calculation Agent and will be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates as of 3:30 P.M., New York City time, on such Treasury
Interest Determination Date (as defined below), of three leading primary United
States government securities dealers in The City of New York selected by the
Calculation Agent, for the issue of Treasury bills with a remaining maturity
closest to the Index Maturity specified on the face hereof or, if there are two
such issues which are equidistant from the Index Maturity specified on the face
hereof, then the longer of the two; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the Treasury Rate determined on such Treasury Interest
Determination Date will be the Treasury Rate in effect on such Treasury Interest
Determination Date.
CD Rate. If the Interest Rate Basis of this Subordinated Note is the CD
-------
Rate, the interest rate hereon for any Interest Reset Date shall equal the CD
Rate (as determined below), as adjusted (x) by the addition or subtraction of
the Spread, if any, specified on the face hereof and/or (y) by the
multiplication by the Spread Multiplier, if any, specified on the face hereof.
"CD Rate" means the rate on the relevant CD Interest Determination Date (as
defined below) for negotiable certificates of deposit having the Index Maturity
specified on the face hereof, as published in H.15(519) under the heading "CDs
(Secondary Market)". If such rate is not so published before 3:00 P.M., New York
City time, on the Calculation Date pertaining to such CD Interest Determination
Date, then the CD Rate will be the rate on such CD Interest Determination Date
for negotiable certificates of deposit having the Index Maturity specified on
the face hereof as published in Composite Quotations under the heading
"Certificates of Deposit". If such rate is published neither in H.15(519) nor in
Composite Quotations by 3:00 P.M., New York City time, on such Calculation Date,
the CD Rate will be calculated by the Calculation Agent and will be the
arithmetic mean of the secondary market offered rates as of 10:00 A.M., New York
City time, on such CD Interest
-7-
<PAGE>
Determination Date, of three leading non-bank dealers of negotiable U.S. dollar
certificates of deposit in The City of New York (which may include one or more
of the Agents) selected by the Calculation Agent for negotiable certificates of
deposit of the four highest rated banks (as rated by two nationally recognized
rating agencies) of the 25 largest United States banks based on the most recent
year-end survey published in The American Banker (or a comparable publication)
-------------------
with a remaining maturity closest to the Index Maturity specified on the face
hereof in a denomination of $5,000,000; provided, however, that, if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the CD Rate determined on such CD Interest Determination Date
will be the CD Rate in effect on such CD Interest Determination Date.
Federal Funds Rate. If the Interest Rate Basis of this Subordinated
------------------
Note is the Federal Funds Rate, the interest rate hereon for any Interest Reset
Date shall equal the Federal Funds Rate (as determined below, as adjusted (x) by
the addition or subtraction of the Spread, if any, specified on the face hereof
and/or (y) by the multiplication by the Spread Multiplier, if any, specified on
the face hereof. "Federal Funds Rate" means the rate on the relevant Federal
Funds Interest Determination Date (as defined below) for Federal Funds having
the Index Maturity specified on the face hereof, as published in H.15(519) under
the heading "Federal Funds (Effective)". If such rate is not published by 3:00
P.M., New York City time, on the Calculation Date pertaining to such Federal
Funds Interest Determination Date, then the Federal Funds Rate will be the rate
on such Federal Funds Interest Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate". If such rate is
published neither in H.15(519) nor in Composite Quotations by 3:00 P.M., New
York City time, on such Calculation Date, the Federal Funds Rate will be
calculated by the Calculation Agent and will be the arithmetic mean of the
rates, as of 3:00 P.M., New York City time, on such Federal Funds Interest
Determination Date, for the last transaction in overnight Federal Funds arranged
by three leading brokers of Federal Funds transactions in The City of New York
(which may include one or more of the Agents) selected by the Calculation Agent;
provided, however, that if the brokers selected as aforesaid by the Calculation
Agent are not quoting as mentioned in this sentence, the Federal Funds Rate
determined on such Federal Funds Interest Determination Date will be the Federal
Funds Rate in effect on such Federal Funds Interest Determination Date.
Prime Rate. If the Interest Rate Basis of this Subordinated Note is the
----------
Prime Rate, the interest rate hereon for any Interest Reset Date shall equal the
Prime Rate (as determined below), as adjusted (x) by the addition or subtraction
of the Spread, if any, specified on the face hereof and/or (y) by the
multiplication by the Spread Multiplier, if any, specified on the face hereof.
"Prime Rate" means the rate set forth on the relevant Prime Interest
Determination Date (as defined below) in H.15(519) under the heading "Bank Prime
Loan". In the event that such rate is not published prior to 9:00 A.M., New York
City time, on the Calculation Date pertaining to such Prime Interest
Determination Date, then the Prime Rate will be determined by the Calculation
Agent and will be the arithmetic mean of the rates of interest publicly
announced by each bank that appears on the Reuters Screen USPRIME1 Page (as
defined below) as such bank's prime rate or base lending rate as in effect for
such Prime Interest Determination Date. If fewer than four such rates appear on
the Reuters Screen USPRIME1 Page on such Prime Interest Determination Date, the
Prime Rate will be determined by the Calculation Agent and will be the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by a 360-day year as of the close of business on such
Prime Interest Determination Date by four major money center banks in The City
of New York selected by the Calculation Agent. If fewer than four such
quotations are so provided, then the Prime Rate will be the arithmetic mean of
four prime rates quoted on the basis of the actual number of days in the year
divided by a 360-day year as of the close of business on such Prime Interest
Determination Date as furnished in The City of New York by the major money
center banks, if any, that have provided such quotations and by as many
substitute banks or trust companies as necessary in order to obtain four such
prime rate quotations, provided such substitute banks or trust companies are
organized and doing
-8-
<PAGE>
business under the laws of the United States, or any State thereof, each having
total equity capital of at least $500,000,000 and being subject to supervision
or examination by Federal or State authority, selected by the Calculation Agent
to provide such rate or rates; provided, however, that if the banks or trust
-------- -------
companies selected as aforesaid by the Calculation Agent are not quoting as
mentioned in this sentence, the Prime Rate determined on such Prime Interest
Determination Date will be the Prime Rate in effect on such Prime Interest
Determination Date. "Reuters Screen USPRIME1 Page" means the display designated
as page "USPRIME1" on the Reuters Monitor Money Rates Service (or such other
page as may replace the USPRIME1 page on that service for the purpose of
displaying prime rates or base lending rates of major United States banks).
11th District Cost of Funds Rate Notes. If the Interest Rate Basis of
--------------------------------------
this Subordinated Note is the 11th District Cost of Funds Rate, the interest
rate hereon for any Interest Reset Date shall equal the 11th District Cost of
Funds Rate (as determined below), as adjusted (x) by the addition or subtraction
of the Spread, if any, specified on the face hereof and/or (y) by the
multiplication by the Spread Multiplier, if any, specified on the face hereof.
"11th District Cost of Funds Rate" means the rate equal to the monthly
weighted average cost of funds for the calendar month immediately preceding the
month in which the relevant 11th District Cost of Funds Interest Determination
Date (as defined below) falls, as set forth under the caption "11th District" on
Telerate Page 7058 (as defined below) as of 11:00 A.M., San Francisco time, on
such 11th District Cost of Funds Interest Determination Date. If such rate does
not appear on Telerate Page 7058 on any related 11th District Cost of Funds
Interest Determination Date, the 11th District Cost of Funds Rate for such 11th
District Cost of Funds Interest Determination Date shall be the monthly weighted
average cost of funds paid by member institutions of the 11th Federal Home Loan
Bank District that was most recently announced (the "11th District Cost of Funds
Index") by the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco") as such cost of funds for the calendar month immediately preceding
the date of such announcement. If the FHLB of San Francisco fails to announce
such rate for the calendar month immediately preceding such 11th District Cost
of Funds Interest Determination Date, then the 11th District Cost of Funds Rate
determined as of such 11th District Cost of Funds Interest Determination Date
will be the 11th District Cost of Funds Rate in effect on such 11th District
Cost of Funds Interest Determination Date.
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<PAGE>
"Telerate Page 7058" means the display designated as page "7058" on the
Dow Jones Telerate Service (or such other page as may replace the 7058 page on
that service for the purpose of displaying the monthly weighted average cost of
funds paid by member institutions of the 11th Federal Home Loan Bank District).
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, specified on the face hereof and
shall not be lower than the Minimum Interest Rate, if any, specified on the face
hereof. In addition, the interest rate hereon will in no event be higher than
the maximum rate permitted by Illinois law, as the same may be modified by
United States law of general application.
The Bank will at all times appoint and maintain a banking institution
as Calculation Agent hereunder. Unless otherwise specified on the face hereof,
the Bank has initially appointed itself as Calculation Agent. Upon the request
of the holder of this Subordinated Note, the Calculation Agent will provide the
interest rate then in effect, and, if different, the interest rate which will
become effective as a result of a determination made on the most recent Interest
Determination Date with respect to this Subordinated Note.
Unless otherwise specified on the face hereof, all percentages
resulting from any calculation on this Subordinated Note will be rounded, if
necessary, to the nearest one-hundred thousandth of a percentage point, with
five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) being rounded to 9.87655% (or .0987655) and 9.876544% (or .09876544)
being rounded to 9.87654% (or .0987654)), and all dollar amounts used in or
resulting from such calculation on this Subordinated Note will be rounded to the
nearest cent (with one-half cent being rounded upwards). The interest rate in
effect on any Interest Reset Date will be the applicable rate as reset on such
Interest Reset Date. The interest rate applicable to any other day is the
interest rate from the immediately preceding Interest Reset Date (or, if none,
the Initial Interest Rate). The Calculation Agent's determination of any
interest rate will be final and binding in the absence of manifest error.
The Interest Determination Date pertaining to an Interest Reset Date if
the rate of interest hereon shall be determined in accordance with the
provisions under the headings above entitled "Commercial Paper Rate" (the
"Commercial Paper Interest Determination Date"), "CD Rate" (the "CD Interest
Determination Date"), "Federal Funds Rate" (the "Federal Funds Interest
Determination Date") or "Prime Rate" (the "Prime Interest Determination Date")
will be the second Business Day preceding such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date if the rate of interest
hereon shall be determined in accordance with the provisions under the heading
above entitled "11th District Cost of Funds Rate" (the "11th District Cost of
Funds Interest Determination Date") will be the last working day of the month
immediately preceding such Interest Reset Date on which the FHLB of San
Francisco publishes the 11th District Cost of Funds Index. The Interest
Determination Date pertaining to an Interest Reset Date if the rate of interest
hereon shall be determined in accordance with the provisions under the heading
above entitled "LIBOR" (the "LIBOR Interest Determination Date") will be the
second London Business Day preceding such Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date if the rate of interest
hereon shall be determined in accordance with the provisions under the heading
above entitled "Treasury Rate" (the "Treasury Interest Determination Date") will
be that day of the week in which such Interest Reset Date falls on which
Treasury bills would normally be auctioned. Treasury bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is usually held on the following Tuesday, except that such
auction may be held on the preceding Friday. If, as the result of a legal
holiday, an auction is so held on the preceding Friday, such Friday will be the
Treasury Interest Determination Date pertaining to the Interest Reset Date
occurring in the next succeeding week. If an auction date shall fall on any
Interest Reset Date for a Subordinated Note with
-10-
<PAGE>
respect to which the Interest Rate Basis specified on the face hereof is the
Treasury Rate, then such Interest Reset Date shall instead be the first Business
Day immediately following such auction date.
The Calculation Date pertaining to the Interest Determination Date for
any Subordinated Note shall be the tenth calendar day after such Interest
Determination Date or, if any such day is not a Business Day, the next
succeeding Business Day.
Payments of interest hereon with respect to any Interest Payment Date
will include interest accrued from, and including, the Original Issue Date or
from, and including, the last date on which interest has been paid to, but
excluding, such Interest Payment Date; provided, however, that, if the Interest
Reset Period with respect to this Subordinated Note is daily or weekly, the
interest payable on any Interest Payment Date, other than interest payable on
any date on which principal of this Subordinated Note is payable, will include
interest accrued from, and including, the Original Issue Date or from, but
excluding, the last date in respect of which interest has been paid or made
available for payment, as the case may be, to, and including, the Regular Record
Date next preceding such Interest Payment Date, except that the interest payable
at maturity or upon earlier redemption will include interest accrued to, but
excluding, the Maturity Date or the date of earlier redemption, as the case may
be.
Accrued interest on this Subordinated Note from the Original Issue Date
or from the last date to which interest has been paid or duly provided is
calculated by multiplying the face amount of this Subordinated Note by an
accrued interest factor. Such accrued interest factor is computed by adding the
interest factor calculated for each day from the Original Issue Date or from the
last date to which interest has been paid or duly provided for, as the case may
be, to the date for which accrued interest is being calculated in the period for
which interest is being calculated. The interest factor for each such day is
computed by dividing the interest rate applicable to such date by 360, in the
case that the Interest Rate Basis specified on the face hereof is the Commercial
Paper Rate, LIBOR, CD Rate, Federal Funds Rate, Prime Rate or 11th District Cost
of Funds Rate, or by the actual number of days in the year, in the case that the
Interest Rate Basis specified on the face hereof is the Treasury Rate.
If this Subordinated Note is an Original Issue Discount Note and if an
Event of Default with respect to this Subordinated Note shall have occurred and
be continuing, the Default Amount (as defined hereafter) of this Subordinated
Note may be declared due and payable in the manner and with the effect provided
herein. The "Default Amount" shall be equal to the adjusted issue price as of
the first day of the accrual period as determined under Proposed Treasury
Regulation Section 1.1272-1(e) (or successor regulation) under the United States
Internal Revenue Code of 1986, as amended, in which the date of acceleration
occurs increased by the daily portion of the original issue discount for each
day in such accrual period ending on the date of acceleration, as determined
under Proposed Treasury Regulation Section 1.1272-1(c) (or successor regulation)
under the United States Internal Revenue Code of 1986, as amended. Upon payment
of (i) the amount of principal or premium, if any, so declared due and payable
and (ii) interest on any overdue principal and overdue interest or premium, if
any (in each case to the extent that the payment of such interest shall be
legally enforceable), all of the Bank's obligations in respect of the payment of
the principal of, and interest or premium, if any, on, this Subordinated Note
shall terminate.
In case any Subordinated Note shall at any time become mutilated,
destroyed, lost or stolen and such Subordinated Note or evidence satisfactory to
the Bank of the loss, theft or destruction thereof (together with indemnity
satisfactory to the Bank and such other documents or proof as may be required in
the premises) shall be delivered to the Bank, a new Subordinated Note of like
tenor will be issued by the Bank in exchange for the Subordinated Note so
mutilated, or in lieu of the Subordinated Note so destroyed or lost or stolen.
All expenses and reasonable charges associated with procuring the indemnity
referred to above and with the preparation, authentication and delivery of a new
Subordinated Note shall be borne by
-11-
<PAGE>
the holder of the Subordinated Note so mutilated, destroyed, lost or stolen. If
any Subordinated Note which has matured or is about to mature shall become
mutilated, destroyed, lost or stolen, the Bank may, instead of issuing a
substitute Subordinated Note, pay or authorize the payment of the same (without
surrender thereof except in the case of a mutilated Subordinated Note) upon
compliance by the holder thereof with the provisions of this paragraph.
No recourse shall be had for the payment of the principal of, premium,
if any, or interest on, this Subordinated Note, for any claim based hereon, or
otherwise in respect hereof, against any shareholder, employee, officer or
director, as such, past, present or future, of the Bank or of any successor
corporation, either directly or through the Bank or any successor corporation,
whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
An "Event of Default" with respect to this Subordinated Note will occur
if the Bank shall consent to, or a court or other governmental agency shall
enter a decree or order for, the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with respect to
the Bank or all or substantially all of its property and, in the case of a
decree or order, such decree or order shall have remained in force for a period
of 60 days. If an Event of Default shall occur and be continuing, the holder of
this Subordinated Note may declare the principal amount of, and accrued interest
and premium, if any, on, this Subordinated Note due and payable immediately by
written notice to the Bank. Upon such declaration and notice, such principal
amount, accrued interest and premium, if any, shall become due and payable seven
calendar days after such notice. Any Event of Default with respect to this
Subordinated Note may be waived by the holder hereof. NO PAYMENT MAY BE MADE ON
THIS SUBORDINATED NOTE IN THE EVENT OF ACCELERATION RESULTING FROM AN EVENT OF
DEFAULT WITHOUT THE PRIOR WRITTEN CONSENT OF THE FEDERAL RESERVE BANK OF
CHICAGO. THERE IS NO RIGHT OF ACCELERATION IN THE CASE OF A DEFAULT IN THE
PAYMENT OF PRINCIPAL OF, OR INTEREST ON, THIS SUBORDINATED NOTE OR IN THE
PERFORMANCE OF ANY OTHER OBLIGATION OF THE BANK UNDER THIS SUBORDINATED NOTE OR
UNDER ANY OTHER SECURITY ISSUED BY THE BANK.
No provision of this Subordinated Note shall alter or impair the
obligation of the Bank, which is absolute and unconditional, to pay the
principal, and premium, if any, and interest on, this Subordinated Note in U.S.
dollars at the times, places and rate herein prescribed.
The Bank shall cause to be kept at the corporate trust office of the
Subordinated Note Registrar designated below a register (the register maintained
in such corporate trust office or any other office or agency of the Bank in the
Place of Payment herein referred to as the "Subordinated Note Register") in
which, subject to such reasonable regulations as it may prescribe, the Bank
shall provide for the registration of the Subordinated Notes and of transfers of
the Subordinated Notes. The Bank is hereby initially appointed "Subordinated
Note Registrar" for the purposes of registering the Subordinated Notes and
transfers of the Subordinated Notes as herein provided.
The transfer of this Subordinated Note is registrable in the
Subordinated Note Register, upon surrender of this Subordinated Note for
registration of transfer at the office or agency of the Bank in the Place of
Payment, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Bank and the Paying Agent duly executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Subordinated Notes of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. Notwithstanding the foregoing, the Bank shall not be required to
register the transfer of any Subordinated Note that has been called for
redemption during a period beginning at the opening of business
-12-
<PAGE>
fifteen calendar days before the day of mailing of a notice of such redemption
and ending at the close of business on the day of such mailing.
No service charge shall be made for any such registration of transfer
or exchange, but the Bank may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Subordinated Notes are issuable only in registered form without
coupons in minimum denominations of $250,000 and any integral multiple of $1,000
in excess thereof. Each owner of a beneficial interest in this Subordinated Note
is required to hold a beneficial interest in $250,000 principal amount or any
integral multiple of $1,000 in excess thereof of this Subordinated Note at all
times.
Prior to due presentment of this Subordinated Note for registration of
transfer, the Bank, the Paying Agent or any agent of the Bank or the Paying
Agent may treat the person in whose name this Subordinated Note is registered as
the owner hereof for all purposes, whether or not this Subordinated Note be
overdue, and neither the Bank, the Paying Agent nor any such agent shall be
affected by notice to the contrary.
All notices to the Bank under this Subordinated Note shall be in
writing and addressed to the Bank at 50 South LaSalle Street, Chicago, Illinois
60675, or to such other address of the Bank as the Bank may notify the holders
of the Subordinated Notes.
This Subordinated Note shall be governed by, and construed in
accordance with, the laws of the State of Illinois.
As used in this Subordinated Note, the term "Agents" shall mean
Goldman, Sachs & Co., CS First Boston Corporation, J.P. Morgan Securities Inc.,
Lehman Brothers, Lehman Brothers Inc. and Merrill Lynch & Co., Merrill Lynch,
Pierce Fenner & Smith Incorporated, and any other person, firm or entity which
shall hereafter be designated as an "Agent" under that certain Amended and
Restated Distribution Agreement, dated September 6, 1995, among the Bank,
Northern Trust Corporation and the Agents (as hereinabove defined).
IN WITNESS WHEREOF, the Bank has caused this instrument to be duly
executed.
THE NORTHERN TRUST COMPANY
By:
---------------------------------
Authorized Signatory
-13-
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on
the face of the within Subordinated Note, shall be construed as though they were
written out in full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT - ____________ Custodian ____________
(Cust) (Minor)
under Uniform Gifts to Minors Act
- ---------------------------------
(State)
Additional abbreviations may also be
used though not in the above list.
-14-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
- --------------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address,
including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Subordinated Note and all rights thereunder, and hereby irrevocably
constitutes and appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to transfer said Subordinated Note on the books of the Bank, with full power
of substitution in the premises.
Dated:
-----------------------------
----------------------------------
NOTICE: The signature to this
assignment must correspond with
the name as written upon the face
of the within Subordinated Note in
every particular, without
alteration or enlargement or any
change whatsoever.
-15-
<PAGE>
EXHIBIT 10(i)
to 9/30/97 FORM 10-Q
FIRST AMENDMENT TO RIGHTS AGREEMENT
THIS AMENDMENT is made as of September 17, 1997 among Northern Trust
Corporation a Delaware corporation (the "Company"), and Harris Trust and Savings
Bank, an Illinois banking corporation (the "Rights Agent").
WHEREAS, the Company and the Rights Agent entered into a Rights
Agreement dated as of October 17, 1989 (the "Rights Agreement");
WHEREAS, the Company and the Rights Agent may from time to time
supplement or amend the Rights Agreement pursuant to Section 27 of the Rights
Agreement;
WHEREAS, no Distribution Date (as defined in the Rights Agreement) has
occurred;
WHEREAS, an appropriate officer of the Company has delivered a
certificate to the Rights Agent which states that this amendment complies with
the terms of Section 27 of the Rights Agreement; and
WHEREAS, all acts and things necessary to make this First Amendment a
valid, legal and binding instrument of the Company and the Rights Agent have
been duly done, performed and fulfilled, and the execution and delivery hereof
by each of the Company and the Rights Agent have been in all respects duly
authorized by the Company and the Rights Agent, respectively;
NOW, THEREFORE, the Company and the Rights Agent hereby agree that:
1. Pursuant to Section 27 of the Rights Agreement, Section 5(b) of the
Rights Agreement is hereby amended by deleting the words "in Chicago, Illinois"
from the first sentence thereof.
2. Pursuant to Section 27 of the Rights Agreement, Section 7(a) of the
Rights Agreement is hereby amended by deleting the words "in Chicago, Illinois"
from the first sentence thereof.
3. Pursuant to Section 27 of the Rights Agreement, Section 21 of the
Rights Agreement is hereby amended by revising clause (a) in the fifth sentence
thereof to read as follows: "(a) a corporation organized and doing business
under the laws of the United States or of any state of the United States, in
good standing, which is authorized under such laws to exercise corporate trust
powers and is subject to supervision or examination by federal or state
authority and which has
<PAGE>
at the time of its appointment as Rights Agent a combined capital and surplus of
at least $100,000,000".
4. The term "Agreement" as used in the Rights Agreement shall be deemed
to refer to the Rights Agreement as amended hereby.
5. This First Amendment may be executed in two or more counterparts,
each of such counterparts shall for all purposes be deemed to be an original and
all such counterparts shall together constitute but one and the same instrument.
Terms not defined herein shall, unless the context otherwise requires, have the
meanings assigned to such terms in the Rights Agreement.
6. In executing and delivering this First Amendment, the Rights Agent
shall be entitled to all of the priviledges and immunities afforded to the
Rights Agent under the terms and conditions of the Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the day and year first above written.
NORTHERN TRUST CORPORATION
Attest:
By: /s/Eileen C. Ratzka By: /s/ Peter L. Rossiter
----------------------------- ----------------------------
Name: Eileen C. Ratzka Name: Peter L. Rossiter
-------------------------- -------------------------
Title: Assistant Secretary Title: Executive Vice President
HARRIS TRUST AND SAVINGS BANK
Attest:
By: /s/Dennis M. Sneyers By: /s/ James S. Anderson
----------------------------- ----------------------------
Name: Dennis M. Sneyers Name: James S. Anderson
-------------------------- -------------------------
Title: Asst. Vice President Title: Vice President
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER (11)
TO 9/30/97 FORM 10-Q
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
Third Quarter Nine Months Ended
Ended September 30 September 30
----------------------------------------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computations Required by
- ------------------------
Regulation S-K
- --------------
Primary Earnings Per Share
- --------------------------
Net Income Applicable to
Common Shares $ 79,742,438 $ 65,225,457 $224,443,595 $187,669,908
============ ============ ============ ============
Weighted Average Number of Common
and Common Equivalent Shares Outstanding
Common Shares 111,065,939 111,743,592 111,008,921 112,221,554
Dilutive Effect of Common
Equivalent Shares (A)
Stock Options 2,827,563 2,011,176 2,783,251 1,879,490
Long Term Performance Stock Plan 567,377 631,490 576,961 582,118
Other 258,918 150,922 249,088 117,916
------------ ------------ ------------ ------------
114,719,797 114,537,180 114,618,221 114,801,078
============ ============ ============ ============
Net Income Per Common and
Common Equivalent Share $0.70 $0.57 $1.96 $1.63
============ ============ ============ ============
(A) Determined by application of the treasury stock method.
</TABLE>
<PAGE>
EXHIBIT NUMBER (11)
TO 9/30/97 FORM 10-Q
NORTHERN TRUST CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Third Quarter Ended September 30 Nine Months Ended September 30
----------------------------------- -------------------------------------
1997 1996 1997 1996
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Computations Required by
- ------------------------
Regulation S-K
- --------------
Fully Diluted Earnings Per Share
- --------------------------------
Net Income Applicable to
Common Shares $ 79,742,438 $ 65,225,457 $224,443,595 $187,669,908
Add Back: Dividend on Series E Convertible
Preferred Stock 14,756
------------ ------------ ------------ ------------
$ 79,742,438 $ 65,225,457 $224,443,595 $187,684,664
============ ============ ============ ============
Weighted Average Number of Common
and Common Equivalent Shares Outstanding
Common Shares 111,065,939 111,743,592 111,008,921 112,221,554
Dilutive Effect of Common
Equivalent Shares (A)
Stock Options 3,139,687 2,251,940 3,304,539 2,370,076
Long Term Performance Stock Plan 644,368 675,862 620,264 614,586
Other 282,823 170,900 262,764 132,818
Other Potentially Dilutive Securities
Equivalent Shares Assuming Conversion
Series E Convertible Preferred Stock 255,034
------------ ------------ ------------ -----------
115,132,817 114,842,294 115,196,488 115,594,068
============ ============ ============ ============
Net Income Per Common and
Common Equivalent Share $0.69 $0.57 $1.95 $1.62
============ ============ ============ ============
</TABLE>
(A) Determined by application of the treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and the Consolidated Statement of Income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,293,615
<INT-BEARING-DEPOSITS> 2,256,835
<FED-FUNDS-SOLD> 2,762,446
<TRADING-ASSETS> 10,889
<INVESTMENTS-HELD-FOR-SALE> 5,437,950
<INVESTMENTS-CARRYING> 475,824
<INVESTMENTS-MARKET> 493,098
<LOANS> 12,223,720
<ALLOWANCE> 148,044
<TOTAL-ASSETS> 26,919,195
<DEPOSITS> 15,843,449
<SHORT-TERM> 7,817,967
<LIABILITIES-OTHER> 692,379
<LONG-TERM> 867,881
<COMMON> 189,935
0
120,000
<OTHER-SE> 1,387,584
<TOTAL-LIABILITIES-AND-EQUITY> 26,919,195
<INTEREST-LOAN> 582,818
<INTEREST-INVEST> 259,365
<INTEREST-OTHER> 128,825
<INTEREST-TOTAL> 971,008
<INTEREST-DEPOSIT> 374,952
<INTEREST-EXPENSE> 646,147
<INTEREST-INCOME-NET> 324,861
<LOAN-LOSSES> 6,000
<SECURITIES-GAINS> 717
<EXPENSE-OTHER> 658,141
<INCOME-PRETAX> 347,913
<INCOME-PRE-EXTRAORDINARY> 228,129
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 228,129
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.95
<YIELD-ACTUAL> 2.22
<LOANS-NON> 43,808
<LOANS-PAST> 20,651
<LOANS-TROUBLED> 2,536
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 148,327
<CHARGE-OFFS> 8,955
<RECOVERIES> 2,673
<ALLOWANCE-CLOSE> 148,044
<ALLOWANCE-DOMESTIC> 99,390
<ALLOWANCE-FOREIGN> 2,845
<ALLOWANCE-UNALLOCATED> 45,809
</TABLE>
