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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission File Number 0-5965
NORTHERN TRUST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2723087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 South La Salle Street
Chicago, Illinois 60675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312)630-6000
------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.66 2/3 Par Value
--------
Preferred Stock Purchase Rights
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Depositary Shares, each representing one-twentieth of a share of the
6.25% Cumulative Convertible Preferred Stock, Series E of the Registrant
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] YES [_] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At February 7, 1994, 53,311,961 shares of Common Stock, $1.66 2/3 Par Value,
were outstanding, and the aggregate market value of the common stock (based upon
the closing representative bid price of the common stock on February 7, 1994, as
reported by NASDAQ) held by nonaffiliates was approximately $1,918,831,652.
Determination of stock ownership by nonaffiliates was made solely for the
purpose of responding to this requirement and the registrant is not bound by
this determination for any other purpose.
Portions of the following documents are incorporated by reference:
Annual Report to Stockholders for the Fiscal Year Ended December 31, 1993 -
Part I and Part II
1994 Notice and Proxy Statement for the Annual Meeting of Stockholders to be
held on April 19, 1994 - Part III
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Northern Trust Corporation
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
INDEX
Page
PART I
Item 1 Business...................................................... 4
Supplemental Item-Executive Officers of the Registrant........ 22
Item 2 Properties.................................................... 23
Item 3 Legal Proceedings............................................. 23
Item 4 Submission of Matters to a Vote of Security Holders........... 23
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 24
Item 6 Selected Financial Data....................................... 24
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 24
Item 8 Financial Statements and Supplementary Data................... 24
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 24
PART III
Item 10 Directors and Executive Officers of the Registrant............ 25
Item 11 Executive Compensation........................................ 25
Item 12 Security Ownership of Certain Beneficial Owners
and Management.............................................. 25
Item 13 Certain Relationships and Related Transactions................ 25
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K......................................... 26
Signatures.............................................................. 27
Exhibit Index........................................................... 28
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PART I
Item 1--Business
NORTHERN TRUST CORPORATION
Northern Trust Corporation is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended. The Corporation was organized in
Delaware in 1971 and on December 1 of that year became the owner of all of the
outstanding capital stock, except directors' qualifying shares, of The Northern
Trust Company (Bank), an Illinois banking corporation located in the Chicago
financial district. The Corporation also owns three other banks in the Chicago
metropolitan area, a bank in each of Florida, Arizona, California and Texas, and
various other nonbank subsidiaries, including a securities brokerage firm and a
futures commission merchant. The Corporation expects that although the
operations of other subsidiaries will be of increasing significance, the Bank
will in the foreseeable future continue to be the major source of the
Corporation's assets, revenues and net income. Except where the context
otherwise requires, the term "Corporation" refers to Northern Trust Corporation
and its consolidated subsidiaries.
At December 31, 1993, the Corporation had consolidated total assets of
approximately $16.9 billion and stockholders' equity of $1.2 billion. At June
30, 1993 the Corporation was the third largest bank holding company
headquartered in Illinois and the 40th largest in the United States, based on
consolidated total assets of approximately $16.3 billion on that date.
THE NORTHERN TRUST COMPANY
The Bank was founded by Byron L. Smith in 1889 to provide banking and trust
services to the public. Currently in its one hundred and fifth year, the Bank's
growth has come from internal sources rather than through merger or acquisition.
At December 31, 1993, the Bank had consolidated assets of approximately $13.5
billion. At June 30, 1993, the Bank was the third largest bank in Illinois and
the 38th largest in the United States, based on consolidated total assets of
approximately $13.1 billion on that date.
At December 31,1993 the Bank had seven active wholly owned subsidiaries: The
Northern Trust International Banking Corporation, NorLease, Inc., The Northern
Trust Safe Deposit Company, MFC Company, Inc., Nortrust Nominees Ltd., The
Northern Trust Company U.K. Pension Plan Limited and The Northern Trust Company,
Canada. The Northern Trust International Banking Corporation, located in New
York, was organized under the Edge Act for the purpose of conducting
international business. NorLease, Inc. was established by the Bank to enable it
to broaden its leasing and leasing-related lending activities. The Northern
Trust Safe Deposit Company was established in order to offer safe deposit
facilities to the public. MFC Company, Inc. holds properties that are received
from the Bank in connection with certain problem loans. Nortrust Nominees Ltd.,
located in London, is a U.K. trust corporation organized to hold U.K. real
estate for fiduciary accounts. The Northern Trust Company U.K. Pension Plan
Limited was established in connection with the pension plan for the Bank's
London branch. The Northern Trust Company, Canada was established to offer
institutional trust products and services to Canadian entities.
OTHER NORTHERN TRUST CORPORATION SUBSIDIARIES
The Corporation has three banking subsidiaries in the Chicago metropolitan
area: Northern Trust Bank/O'Hare N.A., Northern Trust Bank/DuPage, and Northern
Trust Bank/Lake Forest N.A. At December 31, 1993, the three Illinois banking
subsidiaries had nine office locations with combined total assets of
approximately $1.5 billion. The Corporation's Florida banking subsidiary,
Northern Trust Bank of Florida N.A., is headquartered in Miami and at December
31, 1993, had fifteen offices located throughout Florida, with total assets of
approximately $1.3 billion. The Corporation's Arizona banking subsidiary,
Northern Trust Bank of Arizona N.A., is headquartered in Phoenix and at December
31, 1993 had total assets of approximately $214 million and serviced clients
from four office locations. The Corporation has a Texas banking subsidiary,
Northern Trust Bank of Texas N.A., headquartered in Dallas. It had four office
locations and total assets of $152 million at December 31, 1993. The Corporation
has one banking subsidiary in California, Northern Trust Bank of California
N.A., headquartered in Santa Barbara. At December 31, 1993, it had six office
locations and total assets of $141 million.
The Corporation has several nonbank subsidiaries. Among them are Northern
Trust Services, Inc., which provides management consulting services to
nonaffiliated financial institutions. Northern Trust Securities, Inc. provides
full brokerage services to clients of the Bank and the Corporation's other
banking and trust subsidiaries and selectively underwrites general obligation
tax-exempt securities. Northern Futures Corporation is a futures commission
merchant. Northern Investment Corporation holds certain investments, including a
loan made to a developer of a property in which
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the Bank is the principal tenant. The Northern Trust Company of New York
provides security clearance services for all nondepository eligible securities
held by trust, agency, and fiduciary accounts administered by the Corporation's
subsidiaries. Berry, Hartell, Evers & Osborne, Inc. is an investment management
firm in San Francisco. Northern Trust Cayman International, Ltd. provides
fiduciary services to clients residing outside of the U.S.
CORPORATION'S INTERNAL ORGANIZATION
The Corporation is organized into three principal business units: Corporate
Financial Services and Personal Financial Services report to President and Chief
Operating Officer William A. Osborn, who also heads the Commercial Banking and
Corporate Management Services unit. In addition, the Corporation's Risk
Management Unit focuses on financial and risk management. The following is a
brief summary of the Corporation's business activities.
CORPORATE FINANCIAL SERVICES
John S. Sutfin, Vice Chairman of the Corporation, is head of Corporate
Financial Services (CFS) which encompasses domestic and global custody trust-
related services for securities traded in the United States and foreign markets,
as well as securities lending, asset management, and cash management services.
Master Trust/Master Custody is the principal product of CFS in the United
States. Global Custody, the extension of domestic Master Custody to securities
traded in markets foreign to the client, has been provided primarily through the
Bank's London branch and Banque Scandinave en Suisse (BSS), in which the Bank
has an investment of approximately 21%. The Corporation expects to transition
most accounts custodied at BSS to the London branch during 1994. Related foreign
exchange activities are conducted at the London branch.
As measured by number of clients, the Corporation is a leading provider of
Master Trust/Master Custody services in various market segments. At December 31,
1993 total assets under administration were $426.5 billion. The major market
segments served are Corporate ERISA (pension and profit sharing funds subject to
regulation under the Employment Retirement Income Security Act of 1974); public
funds; taxable asset portfolios (foundations, endowments and insurance
companies); and international asset portfolios (global assets of domestic and
foreign institutions).
To broaden the services provided to the defined contribution market, the
Corporation signed a definitive agreement in December 1993 to acquire Hazlehurst
& Associates, Inc., a privately-held retirement benefit plan services company
based in Atlanta, Georgia. Hazlehurst's well established capabilities in
retirement plan design, participant record keeping, and actuarial and consulting
services will complement the Corporation's custody, fiduciary and investment
management capabilities. The agreement is expected to close in the second
quarter of 1994 subject to the approval of Hazlehurst shareholders and to
regulatory approval.
CFS also includes a correspondent trust market segment which provides custody,
systems and investment services to smaller bank trust departments. Trust
operations, The Northern Trust Company of New York and The Northern Trust
Company, Canada are also included in CFS.
PERSONAL FINANCIAL SERVICES
Services to individuals is another major dimension of the Corporation's trust
business. Barry G. Hastings, Vice Chairman of the Corporation, is head of
Personal Financial Services (PFS) which encompasses personal trust and
investment management services, estate administration, personal banking and
mortgage lending. The Corporation's personal trust strategy combines private
banking and trust services to targeted high net worth individuals in rapidly
growing areas of wealth concentration. PFS is one of the largest bank managers
of personal trust assets in the United States, with total assets under
administration of $50.0 billion at December 31, 1993.
The Corporation has created a broad national presence in the delivery of
specialized private banking and personal trust services through the Bank and a
network of banking subsidiaries located in Florida, Arizona, California, Texas
and suburban Chicago. These full service banking subsidiaries are predominantly
private banking and personal trust oriented and are included in PFS.
In December 1993 the Corporation entered into a definitive agreement to
acquire Beach One Financial Services, Inc., parent of The Beach Bank of Vero
Beach in Florida. The agreement is expected to close in the third quarter of
1994 subject to the approval of Beach One shareholders and to regulatory
approval.
The Northern Trust Safe Deposit Company, Berry, Hartell, Evers & Osborne,
Inc., and Northern Trust Securities, Inc. are also part of PFS.
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COMMERCIAL BANKING AND CORPORATE MANAGEMENT SERVICES
Commercial Banking is headed by Gregg D. Behrens, Executive Vice President of
the Bank. Commercial Banking offers a full range of banking services through the
Bank and places special emphasis on developing institutional relationships in
three target markets: middle market and small business companies in the Chicago
and Midwest area, large domestic corporations, and financial institutions (both
domestic and international). Credit services are administered in three groups: a
Metropolitan Group, a Special Industries Group, and a Corporate and
Correspondent Group. NorLease, Inc. and The Northern Trust International Banking
Corporation are also part of Commercial Banking.
Corporate Management Services (CMS), headed by J. David Brock, Executive Vice
President of the Corporation, encompasses the treasury management products and
services offered by the Corporation. This business serves the treasury needs of
major corporations and financial institutions by providing products and services
to accelerate cash collections, control disbursement outflows, and generate
information to manage their cash positions. Treasury management products and
services, including lockbox collection, controlled disbursement products and
electronic banking, are developed and marketed in the Banking Services Group
within CMS. CMS also includes banking operations and building management.
RISK MANAGEMENT UNIT
The Risk Management Unit, headed by Senior Executive Vice President and Chief
Financial Officer Perry R. Pero, includes the Credit Policy function and the
Bank's Treasury Department. The Credit Policy function is described fully on
pages 16 to 17 of this report. The Treasury Department is responsible for
managing the Bank's wholesale funding and interest rate risk, as well as the
portfolio of interest rate risk management instruments under the direction of
the Corporate Asset and Liability Policy Committee. It is also responsible for
the investment portfolios of the Corporation and the Bank and provides
investment advice and management services to the subsidiary banks.
The Risk Management Unit also includes the Corporate Controller, Corporate
Treasurer and Economic Research functions.
GOVERNMENT POLICIES
The earnings of the Bank, other banking subsidiaries, and the Corporation are
affected by numerous external influences, principally general economic
conditions, both domestic and international, and actions that the United States
and foreign governments and their central banks take in managing their
economies. These general conditions affect all of the Corporation's businesses,
as well as the quality and volume of the loan and investment portfolios.
An important regulator of domestic economic conditions is the Board of
Governors of the Federal Reserve System, which has the general objective of
promoting orderly economic growth in the United States. Implementation of this
objective is accomplished by its open market operations in United States
government securities, the discount rate at which member banks may borrow from
Federal Reserve Banks and changes in the reserve requirements for deposits. The
policies adopted by the Federal Reserve may strongly influence interest rates
and hence what banks earn on their loans and investments and what they pay on
their savings and time deposits and other purchased funds. Fiscal policies in
the United States and abroad also affect the composition and use of the
Corporation's resources.
COMPETITION
The Corporation's principal business strategy is to provide quality financial
services to targeted market segments in which it believes it has a competitive
advantage and favorable growth prospects. As part of this strategy, the
Corporation seeks to deliver a level of service to its clients that
distinguishes it from its competitors. The Corporation emphasizes the
development and growth of recurring sources of fee-based income and is one of
only eight major bank holding companies in the United States that generates more
revenues from fee-based services than from net interest income. The Corporation
seeks to develop and expand its recurring fee-based revenue by identifying
selected market niches and providing a high level of individualized service to
its clients in such markets. The Corporation also seeks to preserve its asset
quality through established credit review procedures and to maintain a
conservative balance sheet. Finally, the Corporation seeks to maintain a strong
management team with senior officers having broad experience and long tenure
with the Corporation.
Active competition exists in all principal areas in which the subsidiaries of
the Corporation are presently engaged. The Corporate and Personal Financial
Services business units compete with domestic and foreign financial
institutions, trust companies, financial companies, personal loan companies,
mutual funds and investment advisors. The Corporation is a leading provider of
Master Trust/Master Custody services and has the leading market share in the
Chicago area personal trust market.
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The Commercial Banking and Corporate Management Services business unit
competes with domestic and foreign financial institutions, finance companies and
leasing companies. Its products also face increased competition due to the
general trend among corporations and other institutions to rely more upon direct
access to the credit and capital markets (such as through the direct issuance of
commercial paper) and less upon commercial banks and other traditional financial
intermediaries.
The chief local competitors of the Bank for trust and banking business are
Continental Bank N.A., The First National Bank of Chicago and its affiliate
American National Bank and Trust Company of Chicago, Harris Trust and Savings
Bank, and LaSalle National Bank. The chief national competitors of the Bank for
Master Trust/Master Custody services are Mellon Bank Corporation, State Street
Boston Corporation, Bankers Trust New York Corporation, Chase Manhattan
Corporation and Bank of New York Company, Inc.
REGULATION AND SUPERVISION
The Corporation is a bank holding company subject to the Bank Holding Company
Act of 1956, as amended (Act), and to regulation by the Board of Governors of
the Federal Reserve System. The Act limits the activities which may be engaged
in by the Corporation and its nonbanking subsidiaries to those so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. Also, under section 106 of the 1970 amendments to the Act and the
Federal Reserve Board's regulations, a bank holding company, as well as certain
of its subsidiaries, is prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit or provision of any property or
services.
The Act also prohibits bank holding companies from acquiring substantially all
the assets of or owning more than 5% of the voting shares of any bank or
nonbanking company which is not already majority owned without prior approval of
the Board of Governors. No application to acquire shares or assets of a bank
located outside the state in which the operations of a bank holding company's
banking subsidiaries are principally conducted may be approved by the Federal
Reserve Board unless such acquisition is specifically authorized by a statute of
the state in which the bank to be acquired is located.
Illinois law permits bank holding companies located in any state of the United
States to acquire banks or bank holding companies located in Illinois subject to
regulatory determinations that the laws of the other state permit Illinois bank
holding companies to acquire banks and bank holding companies within that state
on qualifications and conditions not unduly restrictive compared to those
imposed by Illinois law. Subject to these regulatory determinations, the
Corporation may acquire banks and bank holding companies in such states, and
bank holding companies in those states may acquire banks and bank holding
companies in Illinois.
Applicable laws also permit the Corporation to acquire banks or bank holding
companies in Arizona, California, Texas, Florida and certain other states.
Illinois law permits an Illinois bank holding company to acquire banks
anywhere in the state. Illinois legislation also now allows Illinois banks to
open branches anywhere within Illinois.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) amended the Act to authorize the Federal Reserve Board to allow bank
holding companies to acquire any savings association (whether healthy, failed or
failing) and removed "tandem operations" restrictions, which previously
prohibited savings associations from being operated in tandem with a bank
holding company's other subsidiaries. As a result, bank holding companies,
including the Corporation, now have expanded opportunities to acquire thrift
institutions.
Under FIRREA, an insured depository institution which is commonly controlled
with another insured depository institution shall generally be liable for any
loss incurred, or reasonably anticipated to be incurred, by the Federal Deposit
Insurance Corporation (FDIC) in connection with the default of such commonly
controlled institution, or for any assistance provided by the FDIC to such
commonly controlled institution, which is in danger of default. The term
"default" is defined to mean the appointment of a conservator or receiver for
such institution. Thus, any of the Corporation's banking subsidiaries could
incur liability to the FDIC pursuant to this statutory provision in the event of
a loss suffered by the FDIC in connection with any of the Corporation's other
banking subsidiaries (whether due to a default or the provision of FDIC
assistance). Although neither the Corporation nor any of its nonbanking
subsidiaries may be assessed for such loss under FIRREA, the Corporation has
agreed to indemnify each of its banking subsidiaries, other than the Bank, for
any payments a banking subsidiary may be liable to pay to the FDIC pursuant to
the provisions of FIRREA.
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The Bank is a member of the Federal Reserve System, its deposits are insured
by the FDIC and it is subject to regulation by both these entities, as well as
by the Illinois Commissioner of Banks and Trust Companies. The Bank is also a
member of and subject to the rules of the Chicago Clearinghouse Association, and
is registered as a government securities dealer in accordance with the
Government Securities Act of 1986. As a government securities dealer its
activities are subject to the rules and regulations of the Department of the
Treasury. The Bank is registered as a transfer agent with the Federal Reserve
and is therefore subject to the rules and regulations of the Federal Reserve.
The Corporation's national bank subsidiaries are members of the Federal
Reserve System and the FDIC and are subject to regulation by the Comptroller of
the Currency. Northern Trust Bank/DuPage, a state chartered institution that is
not a member of the Federal Reserve System, is regulated by the FDIC and the
Illinois Commissioner of Banks and Trust Companies.
The Corporation's nonbanking affiliates are all subject to examination by the
Federal Reserve. In addition, The Northern Trust Company of New York is subject
to regulation by the Banking Department of the State of New York. Northern
Futures Corporation is registered as a futures commission merchant with the
Commodity Futures Trading Commission, is a member of the National Futures
Association, the Chicago Board of Trade and the Board of Trade Clearing
Corporation, and is a clearing member of the Chicago Mercantile Exchange.
Northern Trust Securities, Inc. is registered with the Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc., and, as such, is subject to the rules and regulations of both these
bodies. Berry, Hartell, Evers & Osborne, Inc. is registered with the Securities
and Exchange Commission under the Investment Advisers Act of 1940 and is subject
to that Act and the rules and regulations of the Commission promulgated
thereunder. Various other subsidiaries and branches conduct business in other
states and foreign countries and, therefore, may be subject to their regulations
and restrictions.
The Corporation and its subsidiaries are affiliates within the meaning of the
Federal Reserve Act so that the banking subsidiaries are subject to certain
restrictions with respect to loans to the Corporation or its nonbanking
subsidiaries and certain other transactions with them or involving their
securities.
Information regarding dividend restrictions on the Corporation's banking
subsidiaries is incorporated herein by reference to Note 12 titled Restrictions
on Subsidiary Dividends and Loans or Advances on page 53 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1993.
Under the FDIC's risk-based insurance assessment system, each insured bank is
placed in one of nine risk categories based on its level of capital and other
relevant information. Each insured bank's insurance assessment rate is then
determined by the risk category in which it has been classified by the FDIC.
There is an eight basis point spread between the highest and lowest assessment
rates, so that banks classified as strongest by the FDIC are subject to a rate
of .23%, and banks classified as weakest by the FDIC are subject to a rate of
.31%. The FDIC is prohibited from lowering the average assessment rate below
.23% until the Bank Insurance Fund (Fund) has reached a reserve ratio of 1.25%.
The FDIC currently estimates the Fund will achieve the designated reserve ratio
in the first half of 2002.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
substantially revised the bank regulatory and funding provisions of the Federal
Deposit Insurance Act and made revisions to several other federal banking
statutes. In general, FDICIA subjects banks to significantly increased
regulation and supervision. Among other things, FDICIA requires federal bank
regulatory authorities to take "prompt corrective action" with respect to banks
that do not meet minimum capital requirements, and imposes certain restrictions
upon banks which meet minimum capital requirements but are not "well
capitalized" for purposes of FDICIA. FDICIA and the regulations adopted under it
establish five capital categories as follows, with the category for any
institution determined by the lowest of any of these ratios:
Tier 1 Tier 1 Total
Leverage Ratio Risk-Based Ratio Risk-Based Ratio
-------------- ---------------- ----------------
Well Capitalized 5% or above 6% or above 10% or above
Adequately Capitalized 4% or above* 4% or above 8% or above
Undercapitalized Less than 4% Less than 4% Less than 8%
Significantly
Undercapitalized Less than 3% Less than 3% Less than 6%
Critically
Undercapitalized - - 2% or below
*3% for banks with the highest CAMEL (supervisory) rating.
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An insured depository institution may be deemed to be in a capitalization
category that is lower than is indicated by the capital position reflected on
its statement of condition if it receives an unsatisfactory rating by its
examiners with respect to its assets, management, earnings or liquidity.
Although a bank's capital categorization thus depends upon factors other than
the statement of condition ratios in the table above, the Corporation has set
capital goals for each of its subsidiary banks that would allow each bank to
meet the minimum ratios that are one of the conditions for it to be considered
to be well capitalized. At December 31, 1993, the Bank and each of the
Corporation's other subsidiary banks met or exceeded these goals. The
Corporation's capital ratios are disclosed and discussed on page 39 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1993.
Under FDICIA, a bank that is not well capitalized is generally prohibited from
accepting or renewing brokered deposits and offering interest rates on deposits
significantly higher than the prevailing rate in its normal market area or
nationally (depending upon where the deposits are solicited); in addition,
"pass-through" insurance coverage may not be available for certain employee
benefit accounts.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized banks are subject to limitations on growth
and are required to submit a capital restoration plan, which must be guaranteed
by the institution's parent company. Institutions that fail to submit an
acceptable plan, or that are significantly undercapitalized, are subject to a
host of more drastic regulatory restrictions and measures.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions or depository institutions' holding companies relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses and other standards as they deem appropriate. Many
regulations implementing these directives have been proposed and adopted by the
agencies.
FDICIA also contains a variety of other provisions that may affect the
operations of a bank, including new reporting requirements, regulatory standards
for real estate lending, "truth in savings" provisions and a requirement that a
depository institution give 90 days' prior notice to customers and regulatory
authorities before closing any branch.
STAFF
The Corporation and its subsidiaries employed 6,259 full-time equivalent
officers and staff members as of December 31, 1993, approximately 4,600 of whom
were employed by the Bank.
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STATISTICAL DISCLOSURES
The following statistical disclosures, included in the Corporation's Annual
Report to Stockholders for the year ended December 31, 1993, are incorporated
herein by reference.
1993
ANNUAL REPORT
SCHEDULE PAGE(S)
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Foreign Outstandings............................................. .......... 33
Nonperforming Assets and 90 Day Past Due Loans................... .......... 34
Analysis of Reserve Credit Losses................................ .......... 35
Average Statement of Condition................................... .......... 62
Ratios........................................................... .......... 62
Analysis of Net Interest Income.................................. ..... 64 & 65
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Additional statistical information as to the Corporation on a consolidated
basis is set forth below.
INVESTMENT SECURITIES
DECEMBER 31
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(In Millions) 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------- -------- -------- -------- -------- -------- --------
Securities Held for Investment
U.S. Government $2,343.7 $1,522.8 $1,822.2 $ 295.0 $ 822.9 $ 784.9
Obligations of States and Political Subdivisions 493.5 508.5 526.1 535.5 486.2 380.1
Federal Agency 833.1 559.2 293.1 563.5 297.8 257.0
Preferred Stock 15.5 15.4 152.3 146.5 134.6 82.1
Other 105.0 173.6 321.0 653.9 485.0 680.8
- -------------------------------------------------- -------- -------- -------- -------- -------- --------
Total Securities Held for Investment $3,790.8 $2,779.5 $3,114.7 $2,194.4 $2,226.5 $2,184.9
- -------------------------------------------------- -------- -------- -------- -------- -------- --------
Total Securities Held for Sale $ 211.6 $ 400.1 $ -- $ -- $ -- $ --
- -------------------------------------------------- -------- -------- -------- -------- -------- --------
Average Investment Securities $4,202.5 $3,174.1 $2,467.7 $2,339.6 $2,692.4 $1,962.8
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REMAINING MATURITY AND AVERAGE YIELD OF INVESTMENT SECURITIES
(Yield on a taxable equivalent basis giving effect of the federal and state tax
rates)
DECEMBER 31, 1993
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ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS OVER TEN YEARS
---------------- ----------------- ----------------- -------------- AVERAGE
(Amounts in Millions) BOOK YIELD BOOK YIELD BOOK YIELD BOOK YIELD MATURITY
- ------------------------------------ -------- ----- ------ ------ ------ ----- ------ ----- --------
Securities Held for Investment
U.S. Government $1,934.4 3.61% $364.7 4.37% $ 44.6 5.60% $ -- --% 8 mos.
Obligations of States and
Political Subdivisions 42.9 12.03 204.9 12.44 144.3 11.21 101.4 10.19 68 mos.
Federal Agency 405.6 3.59 388.0 3.91 38.2 3.76 1.3 3.76 19 mos.
Other--Fixed 21.5 6.64 12.3 4.60 .2 10.40 16.6 6.05 50 mos.
--Floating 27.2 4.15 28.0 4.12 4.4 4.08 10.3 8.72 43 mos.
- ------------------------------------ -------- ----- ------ ------ ------ ----- ------ ----- --------
Total Securities Held for Investment $2,431.6 3.78% $997.9 5.84% $231.7 8.76% $129.6 9.48% 19 mos.
- ------------------------------------ -------- ----- ------ ------ ------ ----- ------ ----- --------
Total Securities Held for Sale $ 11.2 7.24% $ 25.5 6.73% $ 18.5 6.68% $156.4 4.56% 111 mos.
- ------------------------------------ -------- ----- ------ ------ ------ ----- ------ ----- --------
December 31, 1992
----------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years Over Ten Years
---------------- ----------------- ----------------- -------------- Average
(Amounts in Millions) Book Yield Book Yield Book Yield Book Yield Maturity
- ------------------------------------ -------- ----- ------ ------ ------ ----- ------ ----- --------
Securities Held for Investment
U.S. Government $1,231.4 3.66% $291.4 4.60% $ -- --% $ -- --% 8 mos.
Obligations of States and
Political Subdivisions 32.1 11.49 163.5 12.15 152.5 11.22 160.4 11.13 80 mos.
Federal Agency 295.3 4.03 260.9 4.26 3.0 5.71 -- -- 21 mos.
Other--Fixed 13.6 9.03 38.1 5.54 .2 10.40 14.6 6.82 41 mos.
--Floating 32.4 4.08 79.3 4.21 .6 5.66 10.2 10.36 35 mos.
- ------------------------------------ -------- ----- ------ ------ ------ ----- ------ ----- --------
Total Securities Held for Investment $1,604.8 3.94% $833.2 5.98% $156.3 11.09% $185.2 10.74% 26 mos.
- ------------------------------------ -------- ----- ------ ------ ------ ----- ------ ----- --------
Total Securities Held for Sale $ 245.1 5.90% $ 56.8 6.28% $ -- --% $ 98.2 4.72% 35 mos.
- ------------------------------------ -------- ----- ------ ------ ------ ----- ------ ----- --------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10
- --------------------------------------------------------------------------------
LOANS AND LEASES BY TYPE
DECEMBER 31
---------------------------------------------------------------
(In Millions) 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------- -------- -------- -------- -------- -------- --------
Domestic
Commercial $2,421.1 $2,409.0 $2,719.4 $2,596.0 $2,698.4 $2,280.2
Broker 249.4 336.3 336.0 83.2 348.8 313.5
Residential Real Estate 2,883.3 2,372.8 1,793.6 1,472.1 1,156.0 919.3
Commercial Real Estate 506.5 511.2 515.0 608.0 595.4 419.7
Consumer 617.5 505.9 449.7 334.3 276.4 218.7
Other 453.5 392.0 37.2 92.4 163.0 171.1
Lease Financing 138.4 135.2 120.7 97.4 77.1 66.5
- ------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total Domestic 7,269.7 6,662.4 5,971.6 5,283.4 5,315.1 4,389.0
International 353.3 273.5 308.1 252.9 345.0 276.7
- ------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total Loans and Leases $7,623.0 $6,935.9 $6,279.7 $5,536.3 $5,660.1 $4,665.7
- ------------------------------------------------------- -------- -------- -------- -------- -------- --------
Average Loans and Leases $7,297.1 $6,452.9 $6,199.4 $5,847.7 $5,020.9 $4,276.4
- ------------------------------------------------------- -------- -------- -------- -------- -------- --------
Loans were classified based on credit risk exposure for 1993, 1992, 1991 and
1990. Loan breakdowns prior to 1990 were based on industry classifications
defined by the Federal Reserve.
- --------------------------------------------------------------------------------
REMAINING MATURITY OF SELECTED LOANS AND LEASES
DECEMBER 31, 1993
--------------------------------------------
ONE YEAR ONE TO OVER FIVE
(In Millions) TOTAL OR LESS FIVE YEARS YEARS
- ------------------------------------------------------------------- -------- -------- ---------- ---------
Domestic (Excluding Residential Real Estate and Consumer Loans)
Commercial $2,421.1 $1,742.5 $560.0 $118.6
Commercial Real Estate 506.5 224.7 234.9 46.9
Other 702.9 687.3 7.0 8.6
Lease Financing 138.4 20.4 65.3 52.7
- ------------------------------------------------------------------- -------- -------- ---------- ---------
Total Domestic 3,768.9 2,674.9 867.2 226.8
International 353.3 282.7 59.9 10.7
- ------------------------------------------------------------------- -------- -------- ---------- ---------
Total Selected Loans and Leases $4,122.2 $2,957.6 $927.1 $237.5
- ------------------------------------------------------------------- -------- -------- ---------- ---------
Interest Rate Sensitivity of Loans and Leases
Fixed Rate $2,895.3 $2,101.6 $606.3 $187.4
Variable Rate 1,226.9 856.0 320.8 50.1
- ------------------------------------------------------------------- -------- -------- ---------- ---------
Total $4,122.2 $2,957.6 $927.1 $237.5
- ------------------------------------------------------------------- -------- -------- ---------- ---------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11
- --------------------------------------------------------------------------------
AVERAGE DEPOSITS BY TYPE
(In Millions) 1993 1992 1991 1990 1989 1988
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Domestic Offices
Demand and Noninterest-Bearing
Individuals, Partnerships and Corporations $ 1,487.5 $1,354.1 $1,191.8 $1,126.4 $1,113.2 $1,151.0
Correspondent Banks 201.1 199.6 182.9 188.6 237.2 254.8
Other 866.3 322.3 261.1 282.2 219.7 194.2
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Total 2,554.9 1,876.0 1,635.8 1,597.2 1,570.1 1,600.0
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Time
Savings and Money Market Deposits 3,432.1 3,372.2 3,208.1 2,975.9 2,382.4 2,364.1
Savings Certificates less than $100,000 668.6 732.6 835.7 790.0 685.9 591.5
Savings Certificates $100,000 and more 504.3 638.2 734.0 666.9 581.6 384.6
Other Certificates 404.7 493.9 533.1 520.8 392.4 442.1
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Total 5,009.7 5,236.9 5,310.9 4,953.6 4,042.3 3,782.3
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Total Domestic Offices 7,564.6 7,112.9 6,946.7 6,550.8 5,612.4 5,382.3
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Foreign Offices
Demand 65.3 56.2 41.8 81.8 99.2 93.7
Time 2,436.4 1,815.6 1,100.6 1,105.6 844.4 835.0
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Total Foreign Offices 2,501.7 1,871.8 1,142.4 1,187.4 943.6 928.7
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Total Deposits $10,066.3 $8,984.7 $8,089.1 $7,738.2 $6,556.0 $6,311.0
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
- --------------------------------------------------------------------------------
AVERAGE RATES PAID ON TIME DEPOSITS BY TYPE
1993 1992 1991 1990 1989 1988
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Time Deposits
Savings and Money Market Deposits 2.30% 2.94% 4.96% 6.54% 6.75% 5.67%
Savings Certificates less than $100,000 4.61 5.46 6.47 7.76 7.94 6.95
Savings Certificates $100,000 and more 3.91 4.68 6.85 8.05 8.77 7.42
Other Certificates 3.88 5.15 7.19 8.18 8.64 7.42
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Total Domestic Offices 2.89 3.71 5.68 7.11 7.43 6.25
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
Total Foreign Offices Time 3.71 5.27 8.05 9.90 8.91 7.13
----------------------------------------------- --------- -------- -------- -------- -------- --------
Total Time Deposits 3.16% 4.11% 6.09% 7.62% 7.69% 6.41%
- ----------------------------------------------- --------- -------- -------- -------- -------- --------
- -------------------------------------------------------------------------------
REMAINING MATURITY OF TIME DEPOSITS $100,000 AND MORE
DECEMBER 31, 1993 December 31, 1992
------------------------------- -------------------------------
DOMESTIC OFFICES Domestic Offices
-------------------- --------------------
CERTIFICATES OTHER FOREIGN Certificates Other Foreign
(In Millions) OF DEPOSIT TIME OFFICES of Deposit Time Offices
- --------------------------------- ------------ ----- -------- ------------ ----- --------
3 Months or Less $399.1 $ 1.0 $2,716.6 $501.9 $ 1.5 $1,809.0
Over 3 through 6 Months 163.1 2.2 18.2 189.5 .7 31.2
Over 6 through 12 Months 95.9 2.0 4.4 132.9 2.8 3.1
Over 12 Months 140.2 5.3 -- 159.7 7.2 6.7
- --------------------------------- ------------ ----- -------- ------------ ----- --------
Total $798.3 $10.5 $2,739.2 $984.0 $12.2 $1,850.0
- --------------------------------- ------------ ----- -------- ------------ ----- --------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12
- -------------------------------------------------------------------------------
PURCHASED FUNDS
FEDERAL FUNDS PURCHASED
(Overnight Borrowings)
(Amounts in Millions) 1993 1992 1991
- ------------------------------------------------- -------- -------- --------
Balance on December 31 $1,215.8 $2,034.2 $1,580.3
Highest Month-End Balance 2,311.5 2,034.2 2,108.5
Year--Average Balance 1,692.5 1,540.2 1,412.8
--Average Rate 3.02% 3.47% 5.57%
Average Rate at Year-End 2.82 3.12 3.44
- ------------------------------------------------- -------- -------- --------
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
(Amounts in Millions) 1993 1992 1991
- ------------------------------------------------- -------- -------- --------
Balance on December 31 $ 602.2 $ 282.3 $ 432.6
Highest Month-End Balance 1,571.2 1,052.2 662.4
Year--Average Balance 664.4 542.9 463.8
--Average Rate 3.00% 3.65% 5.65%
Average Rate at Year-End 2.81 3.18 4.44
- ------------------------------------------------- -------- -------- --------
OTHER BORROWINGS
(Includes Treasury Tax and Loan Demand Notes and
Term Federal Funds Purchased)
(Amounts in Millions) 1993 1992 1991
- ------------------------------------------------- -------- -------- --------
Balance on December 31 $2,001.2 $ 672.8 $ 956.7
Highest Month-End Balance 2,620.7 1,782.8 1,634.5
Year--Average Balance 868.9 526.6 703.3
--Average Rate 2.83% 3.45% 5.78%
Average Rate at Year-End 2.85 2.61 3.87
- ------------------------------------------------- -------- -------- --------
TOTAL PURCHASED FUNDS
(Amounts in Millions) 1993 1992 1991
- ------------------------------------------------- -------- -------- --------
Balance on December 31 $3,819.2 $2,989.3 $2,969.6
Year--Average Balance 3,225.8 2,609.7 2,579.9
--Average Rate 2.96% 3.50% 5.64%
- ------------------------------------------------- -------- -------- --------
- -------------------------------------------------------------------------------
COMMERCIAL PAPER
(Amounts in Millions) 1993 1992 1991
- ------------------------------------------------- -------- -------- --------
Balance on December 31 $ 124.1 $ 127.0 $ 129.4
Highest Month-End Balance 167.6 163.1 161.1
Year--Average Balance 131.5 132.9 129.3
--Average Rate 3.23% 3.88% 6.19%
Average Rate at Year-End 3.19 3.62 4.73
- ------------------------------------------------- -------- -------- --------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
CHANGES IN NET INTEREST INCOME
1993/92 1992/91
-------------------------- ---------------------------
CHANGE DUE TO Change Due To
(Interest on a taxable equivalent basis) -------------------------- ---------------------------
(In Millions) VOLUME RATE TOTAL Volume Rate Total
- ------------------------------------------------------------------ ------ ------- ------ ------ ------- -------
INCREASE (DECREASE) IN INTEREST INCOME
Loans and Leases--Domestic $ 51.6 $ (56.4) $ (4.8) $ 18.5 $ (93.3) $ (74.8)
--International (.4) (3.6) (4.0) (.8) (6.6) (7.4)
Money Market Assets
Federal Funds Sold and Repurchase Agreements (2.2) (1.1) (3.3) (2.5) (6.5) (9.0)
Time Deposits with Banks--Domestic - (.1) (.1) (.6) .2 (.4)
--International 14.9 (23.9) (9.0) 17.4 (29.5) (12.1)
Other (1.1) (.9) (2.0) (7.5) (8.6) (16.1)
Investment Securities--Held for Investment
U.S. Government 31.1 (23.7) 7.4 41.9 (16.6) 25.3
Obligations of States and Political Subdivisions (1.6) 1.0 (.6) (2.0) (.2) (2.2)
Federal Agency 9.3 (3.9) 5.4 8.0 (9.4) (1.4)
Other (11.8) (3.2) (15.0) (16.2) (13.2) (29.4)
Investment Securities--Held for Sale 10.9 - 10.9 - - -
Securities Held for Trading 1.0 .2 1.2 (1.0) (.5) (1.5)
- ------------------------------------------------------------------ ------ ------- ------ ------ ------- -------
Total $101.7 $(115.6) $(13.9) $ 55.2 $(184.2) $(129.0)
- ------------------------------------------------------------------ ------ ------- ------ ------ ------- -------
INCREASE (DECREASE) IN INTEREST EXPENSE
Deposits
Savings and Money Market Deposits $ 1.4 $ (21.7) $ (20.3) $ 4.8 $ (64.9) $ (60.1)
Savings Certificates (8.5) (10.9) (19.4) (10.1) (24.3) (34.4)
Other Time (3.4) (6.3) (9.7) (2.0) (10.9) (12.9)
Foreign Offices Time 23.0 (28.3) (5.3) 37.7 (30.6) 7.1
Federal Funds Purchased 4.6 (7.0) (2.4) 4.4 (29.6) (25.2)
Securities Sold under Agreements to Repurchase 3.7 (3.5) .2 2.9 (9.3) (6.4)
Commercial Paper (.1) (.8) (.9) .1 (2.9) (2.8)
Other Borrowings 9.7 (3.2) 6.5 (6.1) (16.5) (22.6)
Senior Medium-Term Notes 15.5 (.1) 15.4 2.8 .1 2.9
Notes Payable 3.0 (.7) 2.3 1.1 (1.5) (.4)
- ------------------------------------------------------------------ ------ ------- ------- ------ ------- -------
Total 48.9 (82.5) (33.6) 35.6 (190.4) (154.8)
- ------------------------------------------------------------------ ------ ------- ------- ------ ------- -------
INCREASE (DECREASE) IN NET INTEREST INCOME $ 52.8 $ (33.1) $ 19.7 $ 19.6 $ 6.2 $ 25.8
- ------------------------------------------------------------------ ------ ------- ------- ------ ------- -------
Note: Changes not due only to volume changes or rate changes are included in the
change due to volume column.
- --------------------------------------------------------------------------------
INTERNATIONAL OPERATIONS (BASED ON OBLIGOR'S DOMICILE)
See also Note 20 titled International Operations on pages 57 and 58 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1993, which is incorporated herein by reference.
SELECTED AVERAGE ASSETS AND LIABILITIES ATTRIBUTABLE TO INTERNATIONAL OPERATIONS
(In Millions) 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total Assets $2,328.8 $2,033.0 $1,709.2 $1,297.5 $1,007.4 $1,295.3
- ----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Time Deposits with Banks 1,956.7 1,618.6 1,323.4 889.1 582.1 840.5
Other Money Market Assets .9 38.8 3.2 2.7 7.8 14.9
Loans 279.9 287.6 299.4 310.0 327.4 418.1
Customers' Acceptance Liability 4.8 3.8 10.2 11.2 18.3 32.8
Foreign Investments 29.8 31.4 30.3 30.8 26.2 28.6
- ----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total Liabilities $2,715.0 $2,125.3 $1,278.2 $1,364.0 $1,133.9 $1,159.4
- ----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
Deposits 2,706.2 2,099.0 1,214.7 1,287.5 1,032.0 1,057.0
Liability on Acceptances 4.8 3.8 10.3 11.2 18.3 32.8
- ----------------------------------------------------------------- -------- -------- -------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14
- --------------------------------------------------------------------------------
PERCENT OF INTERNATIONAL RELATED AVERAGE ASSETS AND LIABILITIES TO TOTAL
CONSOLIDATED AVERAGE ASSETS
1993 1992 1991 1990 1989 1988
- ------------------------------------- ---- ---- ---- ---- ---- ----
Assets 15% 15% 14% 11% 10% 14%
- ------------------------------------- ---- ---- ---- ---- ---- ----
Liabilities 17 16 11 12 11 13
- ------------------------------------- ---- ---- ---- ---- ---- ----
- --------------------------------------------------------------------------------
RESERVE FOR CREDIT LOSSES RELATING TO INTERNATIONAL OPERATIONS
(In Millions) 1993 1992 1991 1990 1989 1988
- ------------------------------- ---- ---- ---- ------ ------ ------
Balance at Beginning of Year $5.3 $6.9 $7.0 $ 21.3 $ 79.4 $176.8
Losses Charged to Reserve (.6) (6.0) -- (1.1) (16.3) (99.8)
Recoveries Credited to Reserve .1 .4 .1 2.2 2.4 4.1
Provision for Credit Losses 1.9 4.0 (.2) (15.4) (44.2) (1.7)
- ------------------------------- ---- ---- ---- ------ ------ ------
Balance at End of Year $6.7 $5.3 $6.9 $ 7.0 $ 21.3 $ 79.4
- ------------------------------- ---- ---- ---- ------ ------ ------
The Securities and Exchange Commission requires the Corporation to disclose a
reserve for credit losses that is applicable to international operations. The
above table has been prepared in compliance with this disclosure requirement and
is used in determining international operating performance. In 1989, $51.5
million and in 1990 the remaining $13.1 million of the reserve designated for
loans to less developed countries was transferred to the general unallocated
portion of the reserve for credit losses. The amounts shown in the table should
not be construed as being the only amounts that are available for international
loan charge-offs, since the entire reserve for credit losses is available to
absorb losses on both domestic and international loans. In addition, these
amounts are not intended to be indicative of future charge-off trends.
- --------------------------------------------------------------------------------
DISTRIBUTION OF INTERNATIONAL LOANS AND DEPOSITS BY TYPE
DECEMBER 31
---------------------------------------------
Loans 1993 1992 1991 1990 1989
- ------------------------------ ------ ------ ------ ------ ------
Commercial $157.9 $122.3 $166.9 $146.0 $214.4
Foreign Governments and
Official Institutions 47.1 26.4 27.3 10.7 19.3
Banks 145.9 121.9 113.8 95.9 105.3
Other 2.4 2.9 .1 .3 6.0
- ------------------------------ ------ ------ ------ ------ ------
Total $353.3 $273.5 $308.1 $252.9 $345.0
- ------------------------------ ------ ------ ------ ------ ------
DECEMBER 31
----------------------------------------------
Deposits 1993 1992 1991
- ------------------------------ -------- -------- --------
Commercial $2,378.0 $1,195.1 $1,098.6
Foreign Governments and
Official Institutions 263.2 353.6 13.9
Banks 410.8 367.8 83.9
Other Time 200.4 159.2 348.0
Other Demand 6.6 80.3 21.9
- ------------------------------ -------- -------- --------
Total $3,259.0 $2,156.0 $1,566.3
- ------------------------------ -------- -------- --------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
CREDIT RISK MANAGEMENT
OVERVIEW
The Credit Policy function reports to the Chief Financial Officer. Credit
Policy provides a system of checks and balances for the Corporation's diverse
credit-related activities by establishing and monitoring all credit-related
policies and practices throughout the Corporation and ensuring their uniform
application. These activities are designed to ensure that credit exposure is
diversified on an industry and client basis, thus lessening the overall credit
risk to the Corporation.
Individual credit authority within the Commercial Banking and Personal
Financial Services business units is limited to specified amounts and
maturities. Credit decisions involving commitment exposure in excess of the
specified individual limits are submitted to the appropriate Group Credit
Approval Committee (Committee). Each Committee is chaired by the executive in
charge of the area and has a Credit Policy officer as a voting participant. Each
Committee's credit approval authority is specified, based on commitment levels,
credit ratings and maturities. Credits involving commitment exposure in excess
of these group credit limits require, dependent upon the internal credit rating,
the approval of the Credit Policy Credit Approval Committee, the head of Credit
Policy, or the business unit head.
Credit Policy established the Counterparty Risk Management Committee in order
to manage the Corporation's counterparty risk more effectively. This committee
has sole credit authority for exposure to all foreign banks, certain domestic
banks which Credit Policy deems to be counterparties and which do not have
commercial credit relationships within the Corporation, and other organizations
which Credit Policy deems to be counterparties.
Under the auspices of Credit Policy, country exposure limits are reviewed and
approved on a country-by-country basis.
As part of the Corporation's ongoing credit granting process, internal credit
ratings are assigned to each client and credit before credit is extended, based
on creditworthiness. Credit Policy performs a semi-annual review of selected
significant credit exposures which is designed to identify at the earliest
possible stages clients who might be facing financial difficulties. Internal
credit ratings are also reviewed during this process. Above average risk loans,
which will vary from time to time, receive special attention by both lending
officers and Credit Policy. This approach allows management to take remedial
action in an effort to deal with potential problems.
An integral part of the Credit Policy function is a monthly formal review of
all past due and potential problem loans to determine which credits, if any,
need to be placed on nonaccrual status or charged off. The provision is reviewed
quarterly to determine the amount necessary to maintain an adequate reserve for
credit losses.
The Corporation's management of credit risk is reviewed by various bank
regulatory agencies. The Corporation's independent auditors also perform a
review of credit-related procedures, the loan portfolio and other extensions of
credit, and the reserve for credit losses as part of their audit of the
Corporation's annual financial statements.
ALLOCATION OF THE RESERVE FOR CREDIT LOSSES
The reserve for credit losses is established and maintained on an overall
portfolio basis. However, bank disclosure guidelines issued by the Securities
and Exchange Commission request management to furnish a breakdown of the reserve
for credit losses by loan category. Thus, in accordance with these disclosure
guidelines, breakdowns are provided for the major domestic and foreign loan
categories as follows:
Allocated Reserve. Credit Policy estimates the amount that is necessary to
provide for potential losses relating to specific nonperforming loans. The
allocated portion of the reserve totaled $0.2 million at December 31, 1993,
which related entirely to specific nonperforming loans. Total nonperforming
loans were $27.3 million at December 31, 1993.
Unallocated Reserve. The unallocated portion of the reserve is available for
unknown losses that are inherent not only in the loan portfolio, but also in
other extensions of credit. While the unallocated portion serves to cover
specific groups of loans and other extensions of credit that entail higher than
average risk, it is considered a general reserve available to absorb all credit-
related losses. The unallocated portion of the reserve totaled $145.3 million at
December 31, 1993 compared with $134.5 million at December 31, 1992.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
In connection with management's assessment of the unallocated portion of the
reserve for credit losses at December 31, 1993, the following groups of loans
with specific risk elements were considered:
. Management's ongoing review process identified loans with above average
credit risk, including nonperforming loans with no specific reserve
allocation, which totaled $336.3 million at December 31, 1993. Management
assigns risk factors of either 5% to 10% or 5% to 20% to loan categories in
this group and ascribed $16.8 million to $49.7 million of the unallocated
reserve to this group.
. Another risk group identified is composed of commercial real estate loans.
Management believes that this group, which totaled $369.4 million at
December 31, 1993 (not including $137.1 million of loans with above average
credit risk just described), represented a general risk factor of 5% to 10%
at year-end and accordingly $18.5 million to $36.9 million of the
unallocated reserve was ascribed to this group of loans.
. Another risk group identified is composed of highly leveraged credit
transactions (HLTs). At December 31, 1993, HLTs, as defined by bank
regulatory agencies and not included in the groups of loans discussed
above, totaled $42.0 million. Management assigned a general risk factor of
3% to 5% and ascribed $1.3 million to $2.1 million of the unallocated
reserve to HLTs.
Based on this analysis, $36.6 million to $88.7 million of the unallocated
portion of the reserve for credit losses at December 31, 1993 has been ascribed
to the above three groups of loans. Management believes the amount of the
remaining reserve is adequate to cover both the remaining loan portfolio and
other credit-related activities.
As required by the Securities and Exchange Commission, the breakdown of the
reserve for credit losses at December 31, 1989 through 1993 is presented below.
RESERVE FOR CREDIT LOSSES
DECEMBER 31
------------------------------------------
(In Millions) 1993 1992 1991 1990 1989
- --------------------------------- ------ ------ ------ ------ ------
Allocated Reserve
Commercial $ -- $ 8.5 $ -- $ 3.3 $ .1
Commercial Real Estate -- 1.1 2.3 4.1 .3
Consumer .2 1.4 3.0 1.3 .9
International -- -- -- -- 14.0
------ ------ ------ ------ ------
Total Allocated Reserve .2 11.0 5.3 8.7 15.3
Unallocated Reserve 145.3 134.5 140.4 139.3 134.8
- --------------------------------- ------ ------ ------ ------ ------
Total Reserve $145.5 $145.5 $145.7 $148.0 $150.1
- --------------------------------- ------ ------ ------ ------ ------
- --------------------------------------------------------------------------------
Loan categories as a percent of total loans as of December 31, 1989 through
1993, are presented below.
LOAN CATEGORY TO TOTAL LOANS
DECEMBER 31
--------------------------------
1993 1992 1991 1990 1989
- ---------------------------------------- ---- ---- ---- ---- ----
Loan Category
Commercial 33% 37% 45% 49% 49%
Residential Real Estate 38 34 29 27 20
Commercial Real Estate 7 7 8 11 11
Consumer 8 7 7 6 5
Other 9 11 6 3 9
International 5 4 5 4 6
- ---------------------------------------- ---- ---- ---- ---- ----
Total 100% 100% 100% 100% 100%
- ---------------------------------------- ---- ---- ---- ---- ----
Loans were classified based on credit risk exposure for 1993, 1992, 1991 and
1990. Loan breakdowns for 1989 were based on industry classifications defined by
the Federal Reserve.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
17
- --------------------------------------------------------------------------------
The information presented in the Credit Risk Management" section should be
read in conjunction with the following information that is incorporated herein
by reference to the Corporation's Annual Report to Stockholders for the year
ended December 31, 1993:
1993
ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS PAGE(S)
- -------------------------------------------------------------- -------------
1. Accounting Policies
E. Interest Risk Management Instruments................... .......... 44
F. Loans and Leases....................................... .......... 44
G. Reserve for Credit Losses.............................. .......... 44
J. Other Real Estate Owned................................ .......... 45
4. Loans and Leases.......................................... .......... 49
5. Reserve for Credit Losses................................. .......... 49
15. Contingent Liabilities.................................... .......... 55
16. Off-Balance Sheet Financial Instruments................... .......... 55
- --------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------
Asset Quality and Credit Risk................................. ....... 31-35
Outlook....................................................... .......... 35
- -------------------------------------------------------------- -------------
In addition, the following schedules on page 15 of this Form 10-K should be
read in conjunction with the Credit Risk Management section:
Reserve for Credit Losses Relating to International Operations
Distribution of International Loans and Deposits by Type
- --------------------------------------------------------------------------------
18
- -------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY ANALYSIS
As described in the Management's Discussion and Analysis of Financial
Condition and Results of Operations, in the section titled Liquidity and Rate
Sensitivity on pages 37 through 39 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1993, rate sensitivity arises when
interest rates on assets change in a different time period or in a different
proportion from that of interest rates on liabilities. The objective of interest
rate sensitivity management is to prudently structure the balance sheet so that
movements of interest rates on assets and liabilities (adjusted for off-balance
sheet hedges) are highly correlated and produce a reasonable net interest margin
even in periods of volatile interest rates.
Proactive rate sensitivity management for the Corporation is presently focused
on the Bank. Other subsidiary banks and foreign offices of the Bank operate
under policies that limit the risk of a significant mismatch in their interest
sensitivity gap. The Corporate Asset and Liability Policy Committee meets at
least monthly to review and determine these rate sensitivity policies.
Rate sensitivity management procedures consist of performing net interest
income simulations as well as monitoring assets and liabilities that are
rate-sensitive within 90 days, 182 days and one year. As a matter of policy, a
reasonable balance of rate-sensitive assets and liabilities on a cumulative one
year basis is maintained, thus minimizing the risk related to a sustained change
in interest rates.
Because of daily volatility in our balance sheet items, day-to-day interest
sensitivity gaps are not necessarily indicative of the desired position at a
specific time or the average experience in the surrounding time period. A
negative rate sensitivity gap generally indicates a timing mismatch in that more
liabilities than earning assets will be repriced within the period.
The economic impact of creating a negative rate sensitivity position depends
on the magnitude of actual changes in interest rates relative to the anticipated
interest rates. If mismatches are created in a market that anticipates rising
interest rates, but the actual increase in rates is lower than expected, net
interest income is enhanced by taking the negative rate sensitivity gap. As a
result of positions taken as of December 31, 1993, the Corporation's net
interest income would be enhanced by not only a decline in interest rates but
also by a modest increase.
The table below reflects the Corporation's consolidated rate sensitivity
position at December 31, 1993.
INTEREST RATE SENSITIVITY ANALYSIS
RATE SENSITIVE
WITHIN ONE YEAR NOT RATE
------------------------------- SENSITIVE
91 DAYS 92 TO 365 WITHIN
(In Millions) OR LESS DAYS SUB-TOTAL ONE YEAR TOTAL
- ---------------------------------------------- ------- --------- --------- --------- -------
EARNING ASSETS
Investment Securities--Held For Investment $ 1,776 $1,100 $ 2,876 $ 915 $ 3,791
--Held For Sale 130 4 134 78 212
Securities Held For Trading 36 -- 36 -- 36
Money Market Assets 2,720 20 2,740 -- 2,740
Loans and Leases 4,049 899 4,948 2,675 7,623
- ---------------------------------------------- ------- --------- --------- --------- -------
Total $ 8,711 $2,023 $10,734 $3,668 $14,402
- ---------------------------------------------- ------- --------- --------- --------- -------
SOURCE OF FUNDS
Savings and NOW Accounts $ 423 $ -- $ 423 $ 870 $ 1,293
Money Market Deposits and Savings Certificates 2,307 778 3,085 364 3,449
Other Time 2,766 41 2,807 23 2,830
Purchased Funds and Commercial Paper 3,866 35 3,901 42 3,943
Senior Medium-Term Notes and Notes Payable 166 617 783 361 1,144
Noninterest-Related Funds, net 300 -- 300 1,443 1,743
- ---------------------------------------------- ------- --------- --------- --------- -------
Total $ 9,828 $1,471 $11,299 $3,103 $14,402
- ---------------------------------------------- ------- --------- --------- --------- -------
Interest Sensitivity Gap (1,117) 552 (565) 565
Interest Sensitive Hedges (424) 662 238 (238)
- ---------------------------------------------- ------- --------- --------- ---------
Adjusted Sensitivity Gap $(1,541) $1,214 $ (327) $ 327
- ---------------------------------------------- ------- --------- --------- ---------
- --------------------------------------------------------------------------------
Allocations were made to specific interest sensitivity periods based primarily
on the earlier of the repricing or maturity date, with the exception of the net
noninterest-related funds component. In this case, the temporary difference
between the actual volume at December 31, 1993 and the trend volume was
allocated to the "91 Days or Less" interest sensitivity period. The trend volume
of net noninterest-related funds was allocated to the "Not Rate Sensitive Within
One Year" category.
- --------------------------------------------------------------------------------
19
- --------------------------------------------------------------------------------
The following unaudited Consolidated Statement of Condition and Consolidated
Statement of Income for The Northern Trust Company were prepared in accordance
with generally accepted accounting principles and are provided here for
informational purposes. These financial statements should be read in conjunction
with the footnotes accompanying the consolidated financial statements of the
Corporation, included in the Corporation's Annual Report to Stockholders for the
year ended December 31, 1993, and incorporated herein by reference on page 24 of
this report.
THE NORTHERN TRUST COMPANY
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31
---------------------
(In Millions) 1993 1992
- ------------------------------------------------------ --------- ---------
ASSETS
Cash and Due from Banks $ 1,386.6 $ 924.2
Investment Securities--Held for Investment (Fair Value
$3,209.4 in 1993 and $2,094.9
in 1992) 3,171.4 2,063.8
--Held for Sale (Fair Value $41.6
in 1993 and $305.3 in 1992) 41.5 301.9
Securities Held for Trading 34.7 .1
Money Market Assets
Federal Funds Sold and Securities Purchased under
Agreements to Resell 551.3 441.2
Time Deposits with Banks--International 2,090.2 1,859.4
Other 70.7 80.8
- ------------------------------------------------------ --------- ---------
Total 2,712.2 2,381.4
- ------------------------------------------------------ --------- ---------
Loans and Leases--Domestic 5,055.5 4,789.0
--International 352.8 272.4
- ------------------------------------------------------ --------- ---------
Total 5,408.3 5,061.4
- ------------------------------------------------------ --------- ---------
Reserve for Credit Losses (114.9) (114.8)
Buildings and Equipment 220.0 218.3
Customers' Acceptance Liability 53.1 204.0
Trust Security Settlement Receivables 293.1 562.1
Other Assets 332.1 305.0
- ------------------------------------------------------ --------- ---------
Total Assets $13,538.1 $11,907.4
- ------------------------------------------------------ --------- ---------
LIABILITIES
Deposits
Demand and Other Noninterest-Bearing $ 2,039.0 $ 2,281.8
Savings and Money Market Deposits 1,874.6 2,187.8
Savings Certificates 521.8 624.4
Other Time 159.0 206.9
Foreign Offices--Demand 297.2 38.1
--Time 2,877.8 1,856.8
- ------------------------------------------------------ --------- ---------
Total Deposits 7,769.4 7,195.8
Federal Funds Purchased 1,300.0 2,181.9
Securities Sold under Agreements to Repurchase 482.7 174.5
Other Borrowings 2,021.2 815.5
Senior Medium-Term Notes 815.0 310.0
Notes Payable 210.0 235.2
Liability on Acceptances 53.1 204.0
Other Liabilities 162.9 145.2
- ------------------------------------------------------ --------- ---------
Total Liabilities 12,814.3 11,262.1
- ------------------------------------------------------ --------- ---------
STOCKHOLDER'S EQUITY
Capital Stock--Par Value $60 in 1993 and $40 in 1992 198.0 132.0
Surplus 198.0 132.0
Undivided Profits 327.2 380.7
Translation Adjustment .6 .6
- ------------------------------------------------------ --------- ---------
Total Stockholder's Equity 723.8 645.3
- ------------------------------------------------------ --------- ---------
Total Liabilities and Stockholder's Equity $13,538.1 $11,907.4
- ------------------------------------------------------ --------- ---------
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
THE NORTHERN TRUST COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED
DECEMBER 31
- ------------------------------------------------------------------------------------- -----------------------
(In Millions) 1993 1992 1991
- ------------------------------------------------------------------------------------- ------ ------- ------
Interest Income
Loans and Leases --Domestic $270.6 $282.9 $357.3
--International 14.4 18.3 25.8
- ------------------------------------------------------------------------------------- ------ ------- ------
Total 285.0 301.2 383.1
- ------------------------------------------------------------------------------------- ------ ------- ------
Money Market Assets
Federal Funds Sold and Securities Purchased under Agreements to Resell 5.6 8.7 17.4
Time Deposits with Banks--International 86.4 95.4 107.5
Other 2.9 4.5 20.5
- ------------------------------------------------------------------------------------- ------ ------- ------
Total 94.9 108.6 145.4
- ------------------------------------------------------------------------------------- ------ ------- ------
Investment Securities --Held for Investment 132.0 123.2 119.1
--Held for Sale 6.2 -- --
Securities Held for Trading 1.8 .6 2.3
- ------------------------------------------------------------------------------------- ------ ------- ------
Total Interest Income 519.9 533.6 649.9
- ------------------------------------------------------------------------------------- ------ ------- ------
Interest Expense
Deposits --Savings and Money Market Deposits 44.4 58.9 104.6
--Savings Certificates 23.2 34.1 55.1
--Other Time 7.7 14.4 23.6
--Foreign Offices 92.4 97.2 90.0
Federal Funds Purchased 53.1 55.8 83.7
Securities Sold under Agreements to Repurchase 16.6 15.1 19.0
Other Borrowings 27.2 28.1 64.5
Senior Medium--Term Notes 18.3 2.8 --
Notes Payable 17.9 12.7 9.0
- ------------------------------------------------------------------------------------- ------ ------- ------
Total Interest Expense 300.8 319.1 449.5
- ------------------------------------------------------------------------------------- ------ ------- ------
Net Interest Income 219.1 214.5 200.4
Provision for Credit Losses 17.4 20.8 22.3
- ------------------------------------------------------------------------------------- ------ ------- ------
Net Interest Income after Provision for Credit Losses 201.7 193.7 178.1
- ------------------------------------------------------------------------------------- ------ ------- ------
Noninterest Income
Trust Fees 297.9 273.3 240.2
Security Commissions and Trading Income (.5) .8 .7
Other Operating Income 113.2 109.7 84.6
Investment Security Gains 1.7 3.4 2.0
- ------------------------------------------------------------------------------------- ------ ------- ------
Total Noninterest Income 412.3 387.2 327.5
- ------------------------------------------------------------------------------------- ------ ------- ------
Income before Noninterest Expenses 614.0 580.9 505.6
- ------------------------------------------------------------------------------------- ------ ------- ------
Noninterest Expenses
Salaries 216.6 198.2 184.1
Pension and Other Employee Benefits 51.5 45.0 40.9
Occupancy Expense 38.8 37.8 37.1
Equipment Expense 33.9 29.6 27.2
Other Operating Expenses 105.7 116.4 87.6
- ------------------------------------------------------------------------------------- ------ ------- ------
Total Noninterest Expenses 446.5 427.0 376.9
- ------------------------------------------------------------------------------------- ------ ------- ------
Income before Income Taxes 167.5 153.9 128.7
Provision for Income Taxes (Includes related investment
security transactions tax provision of $.7 in 1993, $1.3 in 1992 and $.7 in 1991) 46.4 42.4 29.3
- ------------------------------------------------------------------------------------- ------ ------- ------
NET INCOME $121.1 $111.5 $ 99.4
- ------------------------------------------------------------------------------------- ------ ------- ------
Dividends Paid to Parent Company 44.0 40.0 34.0
- ------------------------------------------------------------------------------------- ------ ------- ------
- --------------------------------------------------------------------------------
21
- --------------------------------------------------------------------------------
SUPPLEMENTAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT
DAVID W. FOX
Mr. Fox was elected Chairman of the Board of the Corporation and the
Bank on April 17, 1990, and Chief Executive Officer of the Corporation
and the Bank on December 19, 1989. He held the title of President of the
Corporation and the Bank from 1987 through 1993. Mr. Fox, 62, joined the
Bank in 1955.
J. DAVID BROCK
Mr. Brock became an Executive Vice President of the Corporation and the
Bank in April 1990. He was Deputy Head of the Subsidiary Banks Group
from 1987 to 1989. Currently he is head of Corporate Management
Services. Mr. Brock, 49, joined the Bank in 1966.
ROBERT G. DEDERICK
Mr. Dederick returned to the Corporation and the Bank as an Executive
Vice President and Chief Economist in October 1983, after serving as
Undersecretary of Commerce for Economic Affairs at the Department of
Commerce from 1981 to 1983. Mr. Dederick, 64, first joined the Bank in
1964.
DAVID L. EDDY
Mr. Eddy became a Senior Vice President of the Corporation and the Bank
and Treasurer of the Corporation in 1986. Mr. Eddy, 57, joined the Bank
in 1960.
BARRY G. HASTINGS
Mr. Hastings was elected Vice Chairman of the Corporation and the Bank
effective January 1, 1994, and is currently head of Personal Financial
Services. He was a Senior Executive Vice President of the Corporation
and the Bank from 1992 through 1993 and prior to that time had served as
an Executive Vice President of the Bank since 1987, and of the
Corporation since 1990. Mr. Hastings, 46, began his career with the
Corporation in 1974.
JOHN V. N. MCCLURE
Mr. McClure was appointed an Executive Vice President of the Corporation
and the Bank effective February 15, 1994, and is currently responsible
for Strategic Planning and Marketing. Previously, he served as head of
the Private Banking Division of Personal Financial Services from 1989 to
1991. He had been a Senior Vice President of the Bank since 1986 and of
the Corporation since 1991. Mr. McClure, 42, joined the Bank in 1973.
WILLIAM A. OSBORN
Mr. Osborn was elected President and Chief Operating Officer of the
Corporation and the Bank effective January 1, 1994. He was a Senior
Executive Vice President of the Corporation and the Bank from 1992
through 1993 and prior to that time had served as an Executive Vice
President of the Bank since 1987, and of the Corporation since 1989. Mr.
Osborn, 46, began his career with the Bank in 1970.
PERRY R. PERO
Mr. Pero is Chief Financial Officer of the Corporation and the Bank and
Cashier of the Bank. Mr. Pero is also head of the Risk Management Unit
and Chairman of the Corporate Asset and Liability Policy Committee. He
became a Senior Executive Vice President of the Corporation and the Bank
in 1992 after serving as an Executive Vice President of the Corporation
and the Bank since 1987. He was Chairman of the Credit Policy Committee
from 1984 to 1988. Mr. Pero, 54, joined the Bank in 1964.
JOHN H. ROBINSON
Mr. Robinson was appointed Controller of the Bank in 1981 and of the
Corporation in 1985. He has been a Senior Vice President of the Bank
since 1984 and of the Corporation since 1985. Mr. Robinson, 59, joined
the Bank in 1960.
PETER L. ROSSITER
Mr. Rossiter was appointed General Counsel of the Corporation and the
Bank in April 1993. He joined the Corporation and the Bank in 1992 as an
Executive Vice President and Associate General Counsel. Mr. Rossiter,
45, had been a partner in the law firm of Schiff Hardin & Waite from
1979 to 1992.
- --------------------------------------------------------------------------------
22
- --------------------------------------------------------------------------------
JOHN S. SUTFIN
Mr. Sutfin was elected Vice Chairman of the Corporation and the Bank effective
January 1, 1994, and is currently head of Corporate Financial Services. He was
a Senior Executive Vice President of the Corporation and the Bank from 1992
through 1993. He was Chief Financial Officer of the Corporation and the Bank in
1987 and 1988. He became an Executive Vice President of the Corporation and the
Bank in 1982. Mr. Sutfin, 54, joined the Bank in 1961.
WILLIAM S. TRUKENBROD
Mr. Trukenbrod was appointed an Executive Vice President of the Corporation and
the Bank effective February 15, 1994, and is currently Chairman of the Credit
Policy Committee. Previously, he served as head of the U.S. Corporate Group of
Commercial Banking from 1987 to 1992. He had been a Senior Vice President of
the Bank since 1980 and of the Corporation since 1992. Mr. Trukenbrod, 54,
joined the Bank in 1962.
There is no family relationship between any of the above executive officers
and directors.
The positions of Chairman of the Board and Chief Executive Officer,
President and Vice Chairman are elected annually by the Board of Directors at
the first meeting of the Board of Directors held after each annual meeting of
stockholders. The other officers are appointed annually. Officers continue to
hold office until their successors are duly elected or unless removed by the
Board.
ITEM 2--PROPERTIES
The executive offices of the Corporation and the Bank are located at 50
South LaSalle Street in the financial district of Chicago. This Bank-owned
building is occupied by various divisions of the Corporation's business units
and the Bank's safe deposit and leasing companies. Financial services are
provided by the Bank at this location. Adjacent to this building are two office
buildings in which the Bank leases approximately 316,000 square feet of space
for staff divisions of the business units. The Bank also leases approximately
112,000 square feet of a building at 125 South Wacker Drive in Chicago for
computer facilities, banking operations and personal banking services.
Financial services are also provided by the Bank at two other Chicago area
locations, one of which is owned and one of which is leased. In April 1994, the
Bank is planning to open a branch office in a leased facility in Highland Park,
Illinois. The Bank's trust and banking operations are located in a 465,000
square foot facility at 801 South Canal Street in Chicago. The building is
owned by a developer and leased by the Corporation. Space for the Bank's London
branch, Edge Act subsidiary and The Northern Company, Canada are leased.
The Corporation's other subsidiaries operate from forty locations in
Florida, Illinois, Arizona, California, New York and Texas. Of these locations,
nine are owned and thirty-one are leased. Detailed information regarding the
addresses of these locations can be found on pages 70 and 71 in the
Corporation's Annual Report to Stockholders for the year ended December 31,
1993, which is incorporated herein by reference.
The Corporation believes that the facilities which are owned or leased are
suitable and adequate for its business needs. For additional information
relating to the Corporation's properties and lease commitments, refer to Note 6
titled Buildings and Equipment and Note 7 titled Lease Commitments on page 50
of the Corporation's Annual Report to Stockholders for the year ended December
31, 1993, which is incorporated herein by reference.
ITEM 3--LEGAL PROCEEDINGS
The information called for by this item is incorporated herein by reference
to Note 15 titled Contingent Liabilities on page 55 of the Corporation's Annual
Report to Stockholders for the year ended December 31, 1993.
In late November, 1993, the U.S. Department of Justice informed the
Corporation that the Department is investigating the mortgage lending practices
of the Bank and the Corporation's three other Illinois banking subsidiaries, as
part of its responsibility to investigate possible discrimination on the basis
of race or national origin under the Equal Credit Opportunity Act and the Fair
Housing Act. The Corporation intends to cooperate fully in the investigation
and has so informed the Department of Justice.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information called for by this item is incorporated herein by
reference to the section of the Consolidated Financial Statistics titled
Common Stock Dividend and Market Price on pages 66 and 67 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1993.
Information regarding dividend restrictions of the Corporation's banking
subsidiaries is incorporated herein by reference to Note 12 titled
Restrictions on Subsidiary Dividends and Loans or Advances on page 53 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1993.
ITEM 6--SELECTED FINANCIAL DATA
The information called for by this item is incorporated herein by
reference to the table titled Summary of Selected Financial Data on page 24 of
the Corporation's Annual Report to Stockholders for the year ended December
31, 1993.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this item is incorporated herein by
reference to Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 24 through 39 of the Corporation's Annual Report
to Stockholders for the year ended December 31, 1993.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Corporation and its subsidiaries
included in the Corporation's Annual Report to Stockholders for the year ended
December 31, 1993, are incorporated herein by reference.
1993
ANNUAL REPORT
FOR NORTHERN TRUST CORPORATION AND SUBSIDIARIES: PAGE(S)
---------------------------------------------------------------- -------------
Consolidated Statement of Condition--December 31, 1993 and 1992 .......... 40
Consolidated Statement of Income--Years Ended December 31,
1993, 1992 and 1991........................................... .......... 41
Statement of Changes in Stockholders' Equity--Years Ended
December 31, 1993, 1992 and 1991.............................. .......... 42
Consolidated Statement of Cash Flows--Years Ended December 31,
1993, 1992 and 1991........................................... .......... 43
---------------------------------------------------------------- -------------
FOR NORTHERN TRUST CORPORATION (Parent Company Only)
---------------------------------------------------------------- -------------
Statement of Condition--December 31, 1993 and 1992.............. .......... 59
Statement of Income--Years Ended December 31, 1993, 1992
and 1991...................................................... .......... 59
Statement of Changes in Stockholders' Equity--Years Ended
December 31, 1993, 1992 and 1991.............................. .......... 42
Statement of Cash Flows--Years Ended December 31, 1993, 1992
and 1991...................................................... .......... 59
---------------------------------------------------------------- -------------
NOTES TO FINANCIAL STATEMENTS................................... ....... 44-59
---------------------------------------------------------------- -------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS........................ .......... 60
---------------------------------------------------------------- -------------
The section titled Quarterly Financial Data on pages 66 and 67 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1993, is incorporated herein by reference.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
- --------------------------------------------------------------------------------
24
- --------------------------------------------------------------------------------
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10, relating to Directors and Nominees
for election to the Board of Directors, is incorporated herein by reference to
pages 2 through 5 of the Corporation's definitive Proxy Statement and Notice of
Meeting filed in connection with the solicitation of proxies for the Annual
Meeting of Stockholders to be held April 19, 1994. The information called for
by Item 10 relating to Executive Officers is set forth in Part I of this Annual
Report on Form 10K.
ITEM 11--EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by reference
to pages 8 and 9 and pages 10 through 16 of the Corporation's definitive Proxy
Statement and Notice of Meeting filed in connection with the solicitation of
proxies for the Annual Meeting of Stockholders to be held April 19, 1994.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by reference
to pages 6 through 8 of the Corporation's definitive Proxy Statement and Notice
of Meeting filed in connection with the solicitation of proxies for the Annual
Meeting of Stockholders to be held April 19, 1994.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by reference
to page 9 of the Corporation's definitive Proxy Statement and Notice of Meeting
filed in connection with the solicitation of proxies for the Annual Meeting of
Stockholders to be held April 19, 1994.
- --------------------------------------------------------------------------------
25
- --------------------------------------------------------------------------------
PART IV
Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8K
Item 14(a)(1) and (2)--Northern Trust Corporation and Subsidiaries List of
Financial Statements and Financial Statement Schedules
The following financial information is submitted in Item 1 for informational
purposes only:
Financial Information of The Northern Trust Company (Bank Only):
Unaudited Consolidated Statement of Condition--December 31, 1993 and
1992.
Unaudited Consolidated Statement of Income--Years Ended December 31,
1993, 1992 and 1991.
The following consolidated financial statements of the Corporation and its
subsidiaries are submitted in Item 8:
Consolidated Financial Statements of Northern Trust Corporation and
Subsidiaries:
Consolidated Statement of Condition--December 31, 1993 and 1992.
Consolidated Statement of Income--Years Ended December 31, 1993,
1992 and 1991.
Statement of Changes in Stockholders' Equity--Years Ended December
31, 1993, 1992 and 1991.
Consolidated Statement of Cash Flows--Years Ended December 31, 1993,
1992 and 1991.
The following financial information is submitted in Item 8:
Financial Statements of Northern Trust Corporation (Parent Company
Only):
Statement of Condition--December 31, 1993 and 1992.
Statement of Income--Years Ended December 31, 1993, 1992 and 1991.
Statement of Changes in Stockholders' Equity--Years Ended December
31, 1993, 1992 and 1991.
Statement of Cash Flows--Years Ended December 31, 1993, 1992 and
1991.
The Notes to Financial Statements as of December 31, 1993, submitted in Item
8, pertain to the Bank only information, consolidated financial statements and
parent company only information listed above.
The Report of Independent Public Accountants submitted in Item 8 pertains to
the consolidated financial statements and parent company only information
listed above.
Financial statement schedules have been omitted for the reason that they
are not required or are not applicable.
ITEM 14(a)3--EXHIBITS
The exhibits listed on the Exhibit Index beginning on page 28 of this Form
10K are filed herewith or are incorporated herein by reference to other
filings.
ITEM 14(b)--REPORTS ON FORM 8K
No reports on Form 8-K were filed by the Corporation during the quarter
ended December 31, 1993.
- --------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-K
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: March 15,1994 Northern Trust Corporation
(Registrant)
By: David W. Fox
-----------------------------------
DAVID W. FOX
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Form 10-K Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title
--------- -----
David W. Fox Chairman of the Board,
---------------------------
David W. Fox Chief Executive Officer and Director
Perry R. Pero Senior Executive Vice President
---------------------------
Perry R. Pero and Chief Financial Officer
John H. Robinson Senior Vice President and Controller
---------------------------
John H. Robinson (Chief Accounting Officer)
--------
Worley H. Clark Director
Robert S. Hamada Director
Barry G. Hastings Director
Robert A. Helman Director
Arthur L. Kelly Director
Ardis Krainik Director
Robert D. Krebs Director
Frederick A. Krehbiel Director ---- By: Peter L. Rossiter
-------------------------
William G. Mitchell Director Peter L. Rossiter
Attorney-in-Fact
William A. Osborn Director
William A. Pogue Director
Harold B. Smith Director
William D. Smithburg Director
John S. Sutfin Director
Bide L. Thomas Director
---------
Date: March 15,1994
- --------------------------------------------------------------------------------
27
- --------------------------------------------------------------------------------
EXHIBIT INDEX
The following Exhibits are filed herewith or are incorporated herein by
reference.
Exhibit Incorporated
By Reference to
Exhibit Prior Filing*
Number Description or Filed Herewith
- -------- ---------------------------------------------------------------------------------------- --------------------
(3) ARTICLES OF INCORPORATION AND BYLAWS
(i) Restated Certificate of Incorporation of Northern Trust Corporation
as amended to date............................................................... (3)
(ii) By-laws of the Corporation....................................................... (2)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
(i) Deposit Agreement, dated as of February 5, 1992 among Northern Trust Corporation,
Harris Trust & Savings Bank, As Depositary, and the holders from time to time of
the depositary receipts described herein......................................... (1)
(ii) Form of The Northern Trust Company's Senior
Medium-Term Bank Note (Fixed Rate)............................................... (3)
(iii) Form of The Northern Trust Company's Senior
Medium-Term Bank Note (Floating Rate)............................................ (3)
(iv) Form of The Northern Trust Company's
Subordinated Medium-Term Bank Note (Fixed Rate).................................. (3)
(v) Form of The Northern Trust Company's
Subordinated Medium-Term Bank Note (Floating Rate)............................... (3)
(10) MATERIAL CONTRACTS
(i) Trust System Implementation Agreement between The Northern Trust Company
and Andersen Consulting dated as of September 30, 1991........................... (1)
(ii) Northern Trust Corporation Amended Incentive Stock Plan,
as amended May 20, 1986.......................................................... (4)
(iii) Employment Agreement dated May 21, 1986, between Northern Trust Corporation
and David W. Fox................................................................. (4)
(iv) Form of Employment Security Agreement dated May 23, 1986,
between Northern Trust Corporation and each of 62 officers....................... (4)
(1) Amendment dated December 19, 1986, to Form of
Employment Security Agreement............................................. (5)
(v) Long-Term Performance Stock Plan of Northern Trust Corporation,
as amended April 19, 1988........................................................ (6)
(vi) Lease dated July 1, 1988 between American National Bank & Trust Company
of Chicago as Trustee under Trust Agreement dated February 12, 1986 and known
as Trust No. 66603 (Landlord) and Nortrust Realty Management, Inc. (Tenant)...... (6)
(vii) Northern Trust Employee Stock Ownership Plan, dated January 26, 1989............. (7)
(viii) Trust Agreement between The Northern Trust Company and Citizens and
Southern Trust Company (Georgia), N.A., (predecessor of NationsBank)
dated January 26, 1989........................................................... (7)
(ix) Form of Note Agreement dated January 26, 1989 between ESOP
Trust and each of the institutional lenders, with respect to the 8.23%
Notes of the ESOP Trust.......................................................... (7)
(x) Guaranty Agreement of Registrant with respect to the 8.23% Notes
of the ESOP Trust, dated January 26, 1989........................................ (7)
- --------------------------------------------------------------------------------
28
Exhibit Incorporated
By Reference to
Exhibit Prior Filing*
Number Description or Filed Herewith
- --------------------------------------------------------------------------------
(xi) Share Acquisition Agreement between
Registrant and the ESOP Trust, dated
January 26, 1989........................... (7)
(xii) Trust Agreement, dated September 14, 1989,
between The Northern Trust Company and
Harris Trust & Savings Bank regarding the
Supplemental Employee Stock Ownership Plan
for Employees of The Northern Trust
Company, the Supplemental Thrift-Incentive
Plan for Employees of The Northern Trust
Company and the Supplemental Pension Plan
for Employees of The Northern Trust
Company.................................... (8)
(xiii) Supplemental Employee Stock Ownership Plan
for Employees of The Northern Trust
Company.................................... (8)
(xiv) Supplemental Thrift-Incentive Plan for
Employees of The Northern Trust Company
as amended and restated.................... (8)
(xv) Supplemental Pension Plan for Employees of
The Northern Trust Company as amended and
restated................................... (8)
(xvi) Rights Agreement, dated as of October 17,
1989, between Northern Trust
Corporation and Harris Trust & Savings
Bank....................................... (9)
(xvii) Stock Ownership Program for Non-Employee
Directors of the Corporation, adopted
January 15, 1991........................... (10)
(1) Amendment dated August 20, 1991, to
Stock Ownership Program for Non-
Employee Directors of the Corporation. (11)
(xviii) Lease dated August 27, 1985 between
American National Bank & Trust Company of
Chicago as Trustee under Trust Agreement
dated April 5, 1990 and known as Trust
No. 110513-07 (Landlord) and The Northern
Trust Company (Tenant), as amended......... (10)
(xix) Lease dated July 8, 1987 between American
National Bank & Trust Company of Chicago as
Trustee under Trust Agreement dated July 12,
1984 and known as Trust No. 61523 (Landlord)
and The Northern Trust Company (Tenant), as
amended.................................... (10)
(xx) 1992 Incentive Stock Plan.................. (12)
(xxi) Amendments, dated December 21, 1993, to The
Northern Trust Company Employee Stock
Ownership Plan, Supplemental Pension Plan
for Employees of The Northern Trust Company,
and Supplemental Thrift-Incentive Plan for
Employees of the Northern Trust Company.... Filed Herewith
(11) Computation of Per Share Earnings.................. Filed Herewith
(13) 1993 Annual Report to Stockholders................. Filed Herewith
(18) Letter re Change in Accounting Principles.......... (13)
(21) Subsidiaries of the Registrant..................... Filed Herewith
(23) Consent of Independent Public Accountants.......... Filed Herewith
(24) Powers of Attorney................................. Filed Herewith
(99) Description of Common Stock (filed for the purpose
of updating the description of Common Stock
contained in the registration statement for such
securities)........................................ Filed Herewith
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*Prior Filings (File No. 0-5965, except as noted)
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(1) Annual Report on Form 10-K for the year ended December 31, 1992
(2) Registration Statement on Form S-4 dated February 10, 1994
(Reg. No. 33-52219)
(3) Quarterly Report on Form 10-Q for the quarter ended March 31, 1993
(4) Quarterly Report on Form 10-Q for the quarter ended September 30, 1986
(5) Annual Report on Form 10-K for the year ended December 31, 1986
(6) Annual Report on Form 10-K for the year ended December 31, 1988
(7) Form 8-K dated January 26, 1989
(8) Annual Report on Form 10-K for the year ended December 31, 1989
(9) Form 8-A dated October 30, 1989
(10) Annual Report on Form 10-K for the year ended December 31, 1990
(11) Annual Report on Form 10-K for the year ended December 31, 1991
(12) Quarterly Report on Form 10-Q for the quarter ended March 31,1992
(13) Form 8-K dated February 20, 1991
Upon written request to Peter L. Rossiter, Secretary, Northern Trust
Corporation, 50 South LaSalle Street, Chicago, Illinois 60675, copies of
exhibits listed above are available to Northern Trust Corporation stockholders
by specifically identifying each exhibit desired in the request.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Corporation hereby
agrees to furnish the Commission, upon request, any instrument defining the
rights of holders of long-term debt of the Corporation not filed as an exhibit
herein. No such instrument authorizes long-term debt securities in excess of 10%
of the total assets of the Corporation and its subsidiaries on a consolidated
basis.
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