<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 20, 1998
-------------------------------
NORTHERN TRUST CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-5965 36-2723087
- ---------------------------------- ------------------------------------
(Commission File Number) (IRS Employer Identification No.)
Fifty South LaSalle Street, Chicago, Illinois 60675
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 630-6000
------------------------------
<PAGE>
Item 5. Other Events
The information contained in the registrant's July 20, 1998 press release,
reporting on the registrant's earnings for the first quarter and first six
months of 1998, a copy of which is filed as Exhibit 99 hereto, is incorporated
herein by reference.
Item 7. Financial Statements and Exhibits
(c) Exhibits:
Exhibit 99 July 20, 1998 Press Release
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<PAGE>
SIGNATURE
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)
Dated: July 21, 1998 By: Perry R. Pero
--------------------------
Perry R. Pero
Senior Executive Vice President
and Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
-------------
Number Description Page Number
- ------ ----------- -----------
99 July 20, 1998 Press Release
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<PAGE>
EXHIBIT 99
- --------------------------------------------------------------------------------
NEWS RELEASE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Northern Trust Corporation
50 South LaSalle Street
Chicago, Illinois 60675
Contact: Laurie McMahon, Investor Relations
(312) 444-7811 or
Dianne Kotsogiannis, Public Relations
Release #01477 (312) 444-4281 http://www.northerntrust.com
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
- ---------------------
NORTHERN TRUST CORPORATION REPORTS RECORD 1998 SECOND QUARTER EARNINGS OF $.75
PER SHARE, UP 15%.
(Chicago, July 20, 1998) Northern Trust Corporation reported record net income
of $87.2 million for the second quarter, an increase of 16% from the $75.4
million earned a year ago. Net income per share increased 15% to a record $.75
from the $.65 earned in the second quarter of last year. This performance
resulted in a strong return on average common equity of 20.5%.
William A. Osborn, Chairman and Chief Executive Officer, commented, "We are
pleased to report another record quarter, again confirming the value of our
unique business mix. Total revenues increased 16% from 1997 levels and
represented top tier performance in our industry, led by 20% growth in trust
fees. Our 15% earnings per share growth for the quarter and the 20.5% return on
common equity exceeded our strategic financial targets. The quarter also
demonstrated our continued success in generating positive operating leverage as
the 16% growth in revenues was well above the 14% increase in noninterest
expenses. Since June 30, 1997, trust assets under administration have grown 34%
to $1.2 trillion, with assets under management increasing 44% to $229 billion."
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Mr. Osborn continued, "During the quarter we completed the acquisition of
Trust Bank of Colorado for $15 million, marking our entry into the attractive
Denver market as part of our plan to build our national Personal Financial
Services franchise. We also opened a new office in Glenview, Illinois and expect
to open our new Bloomfield Hills, Michigan office during the third quarter."
SECOND QUARTER PERFORMANCE HIGHLIGHTS
Trust fees grew 20% to a record $202.3 million in the quarter compared to
$168.3 million in the second quarter of last year, representing 51% of total
revenues and 76% of noninterest income.
Trust fees from Personal Financial Services (PFS) in the quarter increased
25% and totaled $96.8 million compared to $77.4 million in the year-ago quarter.
The increase resulted primarily from strong new business throughout Northern
Trust's PFS office network and favorable equity markets. Trust fees in each
state increased 20% or more from last year's second quarter with growth
exceptionally strong in Florida, Arizona and Texas. The Wealth Management Group,
which now administers $32.6 billion for significant family asset pools
nationwide, also had excellent performance, with trust fees increasing 24%.
With the Colorado acquisition, Northern Trust's network of Personal
Financial Services offices now includes 64 locations in six states, with plans
to open four additional offices during the second half of 1998. Total personal
trust assets under administration increased $4.7 billion since March 31, 1998
and totaled $110.2 billion at June 30, 1998. Of this, $66.8 billion is managed
by Northern Trust.
Trust fees from Corporate & Institutional Services (C&IS) in the quarter
increased 16% and totaled $105.5 million compared to $90.9 million in the year-
ago quarter, reflecting excellent new business with approximately 40% coming
from existing clients and 60% from new
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<PAGE>
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SECOND QUARTER PERFORMANCE HIGHLIGHTS(Continued)
relationships. 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 second quarter fee growth. Strong custody fees contributed approximately
one-third of the growth in C&IS trust fees. New business drove a 26% increase in
retirement services recordkeeping and consulting fees. Securities lending
continued to achieve outstanding results, with fees increasing 16%, or $3.1
million, from the prior year quarter to a record $22.6 million. Corporate trust
fees also benefited from $3.6 million in fees generated by Northern Trust
Quantitative Advisors, Inc., a December 31, 1997 acquisition. Since March 31,
1998, total C&IS trust assets under administration increased $33.8 billion to
$1.1 trillion at June 30, 1998, of which $161.9 billion is managed by Northern
Trust. Trust assets under administration included approximately $179 billion of
global custody assets.
Foreign exchange trading profits of $23.1 million declined slightly from
the $23.9 million in the same quarter last year. This performance reflects a
lower level of client trading volume in Asian currencies and decreased
volatility in the EMU currencies.
Total treasury management revenues from both fees and the computed value of
compensating deposit balances increased 5% from the second quarter of 1997 to
$24.1 million, reflecting the continued growth in business from both new and
existing clients. The fee portion of these revenues accrued in the quarter was
$17.4 million, up from $15.0 million in the comparable quarter last year.
Security commissions and trading income increased 10% and totaled $7.2 million,
reflecting a 29% increase in securities brokerage commissions partially offset
by lower futures commissions. Other operating income was $15.2 million for the
second quarter compared with $9.4 million in the same period of last year. The
increase over last year is primarily due to higher fees from trust deposit
activities and banking services and $1.1 million in gains relating to the sale
of mortgage loans. In addition, a $1.2 million gain from the sale
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SECOND QUARTER PERFORMANCE HIGHLIGHTS (Continued)
of exchange memberships owned by Northern Futures Corporation was realized
during the quarter. This gain was essentially offset by incremental operating
expenses associated with Northern Trust's previously announced exit from the
futures business, which was completed during the quarter.
Net interest income for the quarter, stated on a fully taxable equivalent
basis, totaled a record $128.2 million, up 9% from the $117.7 million reported
in last year's second quarter. The increase in net interest income reflects
higher levels of noninterest-related funds, driven by increases in demand and
noninterest-bearing deposits and common equity, and 12% growth in average
earning assets. The asset growth included a 13% or $1.5 billion increase in
loans and leases and a 16% or $1.1 billion increase in securities. The net
interest margin decreased to 2.14% from 2.20% reported in the year-ago quarter.
The decline in the margin is attributable to the flattening yield curve which
has compressed interest rate spreads and a higher proportion of assets held in
lower spread short-term securities and money market assets.
Nonperforming assets of $29.0 million at quarter-end decreased from $43.3
million at December 31, 1997 and $39.2 million at March 31, 1998. The overall
quality of the loan portfolio remains strong. Nonaccrual and restructured loans
of $27.0 million at quarter-end represent .20% of total loans and were covered
5.4 times by the $146.7 million reserve for credit losses. Second quarter net
charge-offs, at .13% of average loans, totaled $4.2 million. The provision for
credit losses of $3.0 million in the second quarter was $2.5 million higher than
the comparable quarter in 1997.
Noninterest expenses totaled $247.7 million for the quarter, an increase of
14% or $30.7 million from the $217.0 million in the year-ago quarter.
Approximately 65% of the increase in expenses related to salaries and employee
benefits. In addition, the expense growth reflects
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SECOND QUARTER PERFORMANCE HIGHLIGHTS (Continued)
costs associated with technology, occupancy and business promotion, and
unusually high expenses relating to the processing of certain securities
transactions.
The increase in salaries and benefits was primarily attributable to staff
growth, merit increases and higher performance-based compensation. Performance-
based compensation expenses were higher because of excellent new business
results, strong corporate earnings and the price increase in Northern Trust
Corporation stock. Staff levels increased from one year ago to support growth
initiatives and strong new business in both PFS and C&IS. Staff on a full-time
equivalent basis at June 30, 1998 totaled 7,883, up 9% from 7,254 at June 30,
1997, and up 4% from 7,553 at December 31, 1997.
BALANCE SHEET
Balance sheet assets averaged $26.6 billion for the quarter, up 11% from
last year's average of $23.9 billion, reflecting growth in loans and securities.
Loans and leases averaged $13.1 billion for the quarter, an increase of $1.5
billion or 13%. Residential mortgages increased $711 million or 15% to average
$5.5 billion for the quarter and represented 42% of the total loan portfolio.
Commercial and industrial loans averaged $4.0 billion during the quarter
compared to $3.6 billion in the second quarter of 1997. The securities portfolio
increased $1.1 billion or 16% to $7.6 billion reflecting a higher level of
investments in short-term U.S. agency securities. Money market assets averaged
$3.4 billion in the quarter, virtually unchanged from last year.
Common stockholders' equity averaged $1.7 billion, up 13% from last year's
second quarter. The increase primarily reflects the retention of earnings offset
in part by the repurchase of common stock pursuant to the Corporation's share
buyback program. During the quarter, the Corporation acquired a total of 464,731
shares at a cost of $32.9 million. An
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BALANCE SHEET (Continued)
additional 2.4 million shares may be purchased after June 30, 1998 under the
current share buyback program. In June, 1998, The Northern Trust Company issued
$100 million of 6.25% subordinated notes due 2008.
SIX-MONTH PERFORMANCE HIGHLIGHTS
Net income per common share increased 17% to $1.48 for the six-month period
ended June 30, 1998. Net income also increased 17% to $172.1 million compared
with $147.1 million last year and resulted in a return on average common equity
of 20.6%.
Total revenues increased 16% from 1997 levels. Trust fees totaled $396.0
million, up 21% from $326.6 million reported last year. Foreign exchange trading
profits totaled $51.2 million, up 15% from last year's performance. Treasury
Management revenues from both fees and the computed value of compensating
deposit balances increased 5% to $47.6 million. Net interest income, stated on a
fully taxable equivalent basis, totaled $250.2 million, up 8% from the $231.8
million reported last year.
The $7.0 million provision for credit losses was $6.0 million higher than
the unusually low provision required in the first half of 1997. Noninterest
expenses were up 14% and totaled $483.9 million compared to $423.5 million a
year ago.
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<PAGE>
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FORWARD-LOOKING STATEMENTS
This news release may be deemed to include forward-looking statements, such
as statements that relate to financial goals, business outlook, expansion plans,
and credit quality. Actual results could differ materially from those indicated
by these statements. Northern Trust's 1997 Annual Report to Stockholders and
1998 periodic reports to the SEC, including the section of the Quarterly Report
on Form 10-Q for March 31, 1998 captioned "Forward-Looking Information", contain
additional information about factors that could affect actual results.
///
<PAGE>
NORTHERN TRUST CORPORATION Page 1
(Supplemental Consolidated Financial Information)
<TABLE>
<CAPTION>
STATEMENT OF INCOME STATISTICS ($ IN MILLIONS)
SECOND QUARTER
-----------------------------------------
1998 1997 % Change *
-----------------------------------------
<S> <C> <C> <C>
Interest Income (Taxable Equivalent) $379.3 $340.3 11%
Interest Expense 251.1 222.6 13
------ ------ ------
Net Interest Income (Taxable Equivalent) 128.2 117.7 9
Noninterest Income
Trust Fees 202.3 168.3 20
Treasury Management Fees 17.4 15.0 16
Foreign Exchange Trading Profits 23.1 23.9 (3)
Security Commissions & Trading Income 7.2 6.6 10
Other Operating Income 15.2 9.4 60
Investment Security Transactions 0.5 0.0 N/M
------ ------ ------
Total Noninterest Income 265.7 223.2 19
Total Revenue (Taxable Equivalent) 393.9 340.9 16
Noninterest Expenses
Salaries 125.2 107.6 16
Pension and Other Employee Benefits 22.8 20.5 11
Occupancy Expense 17.3 16.4 6
Equipment Expense 14.9 14.9 0
Other Operating Expenses 67.5 57.6 17
------ ------ ------
Total Noninterest Expenses 247.7 217.0 14
Provision for Credit Losses 3.0 0.5 N/M
Taxable Equivalent Adjustment 9.0 8.5 6
------ ------ ------
Income Before Income Taxes 134.2 114.9 17
Provision for Income Taxes 47.0 39.5 19
------ ------ ------
NET INCOME $87.2 $75.4 16%
====== ====== ======
Net Income Per Common Share
Basic $0.78 $0.67 16%
Diluted 0.75 0.65 15
Return on Average Common Equity 20.48% 20.01%
Average Common Equity $1,685.4 $1,485.7 13%
Return on Average Assets 1.32% 1.27%
Common Dividend Declared per Share $0.21 $0.18 17%
Preferred Dividends (millions) 1.2 1.2 N/M
Average Common Shares Outstanding (000s)
Basic 110,809 111,030
Diluted 115,007 114,484
</TABLE>
(N/M) Not Meaningful
(*) Percentage change calculations are based on actual balances rather
than the rounded amounts presented in Supplemental Consolidated
Financial Information.
Note: Certain reclassifications have been made to prior periods' financial
statements to place them on a basis comparable with the current
period's financial statements.
<PAGE>
NORTHERN TRUST CORPORATION Page 2
(Supplemental Consolidated Financial Information)
<TABLE>
<CAPTION>
STATEMENT OF INCOME STATISTICS ($ IN MILLIONS)
SIX MONTHS
------------------------------------
1998 1997 % Change *
------------------------------------
<S> <C> <C> <C>
Interest Income (Taxable Equivalent) $745.0 $648.3 15%
Interest Expense 494.8 416.5 19
------ ------ ------
Net Interest Income (Taxable Equivalent) 250.2 231.8 8
Noninterest Income
Trust Fees 396.0 326.6 21
Treasury Management Fees 33.3 29.6 13
Foreign Exchange Trading Profits 51.2 44.3 15
Security Commissions & Trading Income 14.4 12.5 15
Other Operating Income 26.2 18.9 39
Investment Security Transactions 1.2 0.6 N/M
------ ------ ------
Total Noninterest Income 522.3 432.5 21
Total Revenue (Taxable Equivalent) 772.5 664.3 16
Noninterest Expenses
Salaries 246.9 209.0 18
Pension and Other Employee Benefits 46.3 41.6 11
Occupancy Expense 34.2 32.5 5
Equipment Expense 31.4 29.8 5
Other Operating Expenses 125.1 110.6 13
------ ------ ------
Total Noninterest Expenses 483.9 423.5 14
Provision for Credit Losses 7.0 1.0 N/M
Taxable Equivalent Adjustment 17.4 16.5 5
------ ------ ------
Income Before Income Taxes 264.2 223.3 18
Provision for Income Taxes 92.1 76.2 21
------ ------ ------
NET INCOME $172.1 $147.1 17%
====== ====== ======
Net Income Per Common Share
Basic $1.53 $1.30 18%
Diluted 1.48 1.26 17
Return on Average Common Equity 20.60% 19.96%
Average Common Equity $1,660.8 $1,461.6 14%
Return on Average Assets 1.32% 1.28%
Common Dividends Declared per Share $0.42 $0.36 17%
Preferred Dividends (millions) 2.5 2.4 N/M
Average Common Shares Outstanding (000s)
Basic 110,855 110,980
Diluted 115,031 114,567
</TABLE>
<PAGE>
NORTHERN TRUST CORPORATION Page 3
(Supplemental Consolidated Financial Information)
<TABLE>
<CAPTION>
BALANCE SHEET ($ IN MILLIONS)
JUNE 30
-------------------------------------
1998 1997 % Change *
-------------------------------------
<S> <C> <C> <C>
Assets
Money Market Assets $5,234.7 $3,941.3 33%
Securities
U.S. Government 344.6 805.7 (57)
Federal Agency and Other 7,352.6 5,808.0 27
Municipal 449.8 416.4 8
Trading Account 11.6 5.8 101
--------- --------- ---------
Total Securities 8,158.6 7,035.9 16
Loans and Leases 13,617.7 11,958.1 14
--------- --------- ---------
Total Earning Assets 27,011.0 22,935.3 18
Reserve for Credit Losses (146.7) (148.4) (1)
Cash and Due from Banks 1,389.4 1,791.6 (22)
Trust Security Settlement Receivables 346.0 254.9 36
Buildings and Equipment 329.5 312.0 6
Other Nonearning Assets 847.8 905.6 (6)
--------- --------- ---------
Total Assets $29,777.0 $26,051.0 14%
========= ========= =========
Liabilities and Stockholders' Equity
Interest-Bearing Deposits
Savings $6,506.3 $5,952.9 9%
Other Time 483.7 857.6 (44)
Foreign Office Time 6,208.2 4,727.7 31
--------- --------- ---------
Total Interest-Bearing Deposits 13,198.2 11,538.2 14
Borrowed Funds 8,820.5 6,484.1 36
Senior Notes and Long-Term Debt 1,309.8 1,365.8 (4)
--------- --------- ---------
Total Interest-Related Funds 23,328.5 19,388.1 20
Demand & Other Noninterest-Bearing Deposits 3,926.1 4,352.9 (10)
Other Liabilities 681.3 661.1 3
--------- --------- ---------
Total Liabilities 27,935.9 24,402.1 14
Common Equity 1,721.1 1,528.9 13
Preferred Equity 120.0 120.0 -
--------- --------- ---------
Total Liabilities and Stockholders' Equity $29,777.0 $26,051.0 14%
========= ========= =========
</TABLE>
<PAGE>
NORTHERN TRUST CORPORATION Page 4
(Supplemental Consolidated Financial Information)
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET ($ IN MILLIONS)
SECOND QUARTER
---------------------------------------
1998 1997 % Change *
---------------------------------------
<S> <C> <C> <C>
Assets
Money Market Assets $3,381.0 $3,371.1 N/M%
Securities
U.S. Government 369.0 893.8 (59)
Federal Agency and Other 6,757.3 5,195.7 30
Municipal 432.1 415.6 4
Trading Account 12.1 9.4 29
--------- --------- ---------
Total Securities 7,570.5 6,514.5 16
Loans and Leases 13,100.7 11,610.4 13
--------- --------- ---------
Total Earning Assets 24,052.2 21,496.0 12
Reserve for Credit Losses (147.2) (148.4) (1)
Nonearning Assets 2,667.1 2,512.1 6
--------- --------- ---------
Total Assets $26,572.1 $23,859.7 11%
========= ========= =========
Liabilities and Stockholders' Equity
Interest-Bearing Deposits
Savings $6,429.5 $5,918.7 9%
Other Time 517.4 772.6 (33)
Foreign Office Time 5,183.7 4,503.2 15
--------- --------- ---------
Total Interest-Bearing Deposits 12,130.6 11,194.5 8
Borrowed Funds 6,739.4 6,132.0 10
Senior Notes and Long-Term Debt 1,491.2 909.0 64
--------- --------- ---------
Total Interest-Related Funds 20,361.2 18,235.5 12
Demand & Other Noninterest-Bearing Deposits 3,750.8 3,370.9 11
Other Liabilities 654.7 647.6 1
--------- --------- ---------
Total Liabilities 24,766.7 22,254.0 11
Common Equity 1,685.4 1,485.7 13
Preferred Equity 120.0 120.0 -
--------- --------- ---------
Total Liabilities and Stockholders' Equity $26,572.1 $23,859.7 11%
========= ========= =========
</TABLE>
<PAGE>
NORTHERN TRUST CORPORATION Page 5
(Supplemental Consolidated Financial Information)
<TABLE>
<CAPTION>
Quarterly Trend Data ($ In Millions)
- ------------------------------------ 1998 1997
Quarters Quarters
------------------- ----------------------------
Second First Fourth Third Second
------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Net Income Summary
Trust Fees $202.3 $193.7 $185.2 $177.4 $168.3
Other Noninterest Income 63.4 62.9 62.1 77.3 54.9
Net Interest Income (Taxable Equivalent) 128.2 122.0 121.5 117.6 117.7
-------- -------- -------- -------- --------
Total Revenue (Taxable Equivalent) 393.9 378.6 368.8 372.3 340.9
Provision for Credit Losses 3.0 4.0 3.0 5.0 0.5
Noninterest Expenses 247.7 236.2 233.6 234.7 217.0
-------- -------- -------- -------- --------
Pretax Income (Taxable Equivalent) 143.2 138.4 132.2 132.6 123.4
Taxable Equivalent Adjustment 9.0 8.4 8.2 8.0 8.5
Provision for Income Taxes 47.0 45.1 42.7 43.6 39.5
-------- -------- -------- -------- --------
Net Income $87.2 $84.9 $81.3 $81.0 $75.4
======== ======== ======== ======== ========
Per Common Share
Net Income - Basic $0.78 $0.75 $0.72 $0.72 $0.67
- Diluted 0.75 0.73 0.70 0.70 0.65
Dividend Declared 0.21 0.21 0.21 0.18 0.18
Book Value (EOP) $15.46 $15.07 $14.54 $14.14 $13.69
Market Value (EOP) 76.25 74.75 69.75 59.13 48.38
Ratios
Return on Average Common Equity 20.48% 20.73% 20.04% 20.68% 20.01%
Return on Average Assets 1.32 1.32 1.25 1.33 1.27
Net Interest Margin 2.14 2.11 2.07 2.14 2.20
Productivity Ratio * 159% 160% 158% 159% 157%
Risk-based Capital Ratios:
Tier 1 9.3% 9.8% 9.6% 9.9% 9.6%
Total (Tier 1 + Tier 2) 12.6 13.0 12.8 13.2 12.9
Leverage 7.0 7.0 6.9 7.3 7.2
Trust Assets (in Billions)-EOP **
Corporate $1,090.3 $1,056.5 $983.4 $920.4 $811.4
Personal 110.2 105.5 95.9 91.7 87.0
-------- -------- -------- -------- --------
Total Trust Assets $1,200.5 $1,162.0 $1,079.3 $1,012.1 $898.4
======== ======== ======== ======== ========
Memo: Managed Assets 228.7 216.5 196.6 164.5 158.4
Asset Quality ($ in Millions) - EOP
Nonaccrual and Restructured Loans $27.0 $36.2 $41.4 $46.3 $55.3
Other Real Estate Owned (OREO) 2.0 3.0 1.9 4.1 3.2
-------- -------- -------- -------- --------
Total Nonperforming Assets $29.0 $39.2 $43.3 $50.4 $58.5
======== ======== ======== ======== ========
Nonperforming Assets / Loans & OREO 0.21% 0.30% 0.34% 0.41% 0.49%
Gross Charge-offs $4.6 $4.7 $5.4 $6.0 $0.9
Gross Recoveries 0.4 0.8 2.0 0.6 0.4
-------- -------- -------- -------- --------
Net Charge-offs $4.2 $3.9 $3.4 $5.4 $0.5
======== ======== ======== ======== ========
Net Charge-offs
(Annualized) to Average Loans 0.13% 0.12% 0.11% 0.18% 0.02%
Reserve for Credit Losses $146.7 $147.7 $147.6 $148.0 $148.4
Reserve to Nonaccrual and Restructured Loans 543% 408% 356% 319% 268%
</TABLE>
(*) The productivity ratio is defined as total revenue on a taxable
equivalent basis divided by noninterest expenses.
(**) Effective 1/1/98, the Middle Market segment was transferred to C&IS
from PFS. Trust assets and fees for all periods have been restated.
