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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
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to____________
Commission File Number 0-5965
Northern Trust Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-2723087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 South La Salle Street
Chicago, Illinois 60675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312)630-6000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.66 2/3 Par Value
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Preferred Stock Purchase Rights
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Floating Rate Capital Securities, Series A of NTC Capital I,
Fully and Unconditionally Guaranteed by the Registrant
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Floating Rate Junior Subordinated Debentures,
Series A of the Registrant
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At February 12, 1997, 111,454,205 shares of Common Stock, $1.66 2/3 par value,
were outstanding, and the aggregate market value of the Common Stock (based upon
the last sale price of the common stock at February 12, 1997, as reported by the
Nasdaq Stock Market) held by non-affiliates was approximately $4,326,135,396.
Determination of stock ownership by non-affiliates was made solely for the
purpose of responding to this requirement and the registrant is not bound by
this determination for any other purpose.
Portions of the following documents are incorporated by reference:
Annual Report to Stockholders for the Fiscal Year Ended December 31,
1996 - Part I and Part II
1997 Notice and Proxy Statement for the Annual Meeting of Stockholders
to be held on April 15, 1997 - 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.................................................................. 28
Exhibit Index............................................................... 29
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PART I
Item 1--Business
NORTHERN TRUST CORPORATION
Northern Trust Corporation (Corporation) is a bank holding company within the
meaning of the Bank Holding Company Act of 1956, as amended. The Corporation was
organized in Delaware in 1971 and that year became the owner of all of the
outstanding capital stock, except directors' qualifying shares of The Northern
Trust Company (Bank), an Illinois banking corporation headquartered in the
Chicago financial district and the Corporation's principal subsidiary. The
Corporation also owns banking subsidiaries in Arizona, California, Florida and
Texas, trust companies in Connecticut and New York and various other nonbank
subsidiaries, including a securities brokerage firm, a retirement services
company and a futures commission merchant. The Corporation expects that although
the operations of other subsidiaries will be of increasing significance, the
Bank will in the foreseeable future continue to be the major source of the
Corporation's assets, revenues and net income. Except where the context
otherwise requires, the term "Northern Trust" refers to Northern Trust
Corporation and its consolidated subsidiaries.
At December 31, 1996, Northern Trust had consolidated total assets of
approximately $21.6 billion and stockholders' equity of approximately $1.5
billion. At September 30, 1996 Northern Trust was the second largest bank
holding company headquartered in Illinois and the 34th largest in the United
States, based on consolidated total assets of approximately $21.4 billion on
that date.
THE NORTHERN TRUST COMPANY
The Bank was founded by Byron L. Smith in 1889 to provide banking and trust
services to the public. Currently in its 108th year, the Bank's growth has come
primarily from internal sources rather than through merger or acquisition. At
December 31, 1996, the Bank had consolidated assets of approximately $18.1
billion. At September 30, 1996, the Bank was the third largest bank in Illinois
and the 33rd largest in the United States, based on consolidated total assets of
approximately $18.2 billion on that date.
The Bank currently has sixteen banking offices in the Chicago metropolitan
area and nine active wholly owned subsidiaries: The Northern Trust International
Banking Corporation, NorLease, Inc., MFC Company, Inc., Nortrust Nominees Ltd.,
The Northern Trust Company U.K. Pension Plan Limited, The Northern Trust
Company, Canada, Northern Global Financial Services Limited, Northern Trust
Trade Services Limited and Northern Trust Fund Managers (Ireland) Ltd. The
Northern Trust International Banking Corporation, located in New York, was
organized under the Edge Act for the purpose of conducting international
business. NorLease, Inc. was established by the Bank to enable it to broaden its
leasing and leasing-related lending activities. MFC Company, Inc. holds
properties that are received from the Bank in connection with certain problem
loans. Nortrust Nominees Ltd., located in London, is a U.K. trust corporation
organized to hold U.K. real estate for fiduciary accounts. The Northern Trust
Company U.K. Pension Plan Limited, located in London, was established in
connection with the pension plan for the Bank's London Branch. The Northern
Trust Company, Canada, located in Toronto, was established to offer
institutional trust products and services to Canadian entities. Northern Global
Financial Services Ltd., located in Hong Kong, provides securities lending and
relationship services for large asset custody clients in Asia and the Pacific
Rim. Northern Trust Trade Services Limited provides trade finance services, and
Northern Trust Fund Managers (Ireland) Ltd. provides fund management services to
offshore clients.
OTHER NORTHERN TRUST CORPORATION SUBSIDIARIES
The Corporation's Florida banking subsidiary, Northern Trust Bank of Florida
N.A., headquartered in Miami, at December 31, 1996 had twenty-two offices
located throughout Florida, with total assets of approximately $2.3 billion. The
Corporation's Arizona banking subsidiary, Northern Trust Bank of Arizona N.A.,
is headquartered in Phoenix and at December 31, 1996 had total assets of
approximately $401 million and served clients from six office locations in
Arizona. The Corporation's Texas banking subsidiaries, Northern Trust Bank of
Texas N.A., headquartered in Dallas, and Bent Tree National Bank, also
headquartered in Dallas, had seven office locations and total assets of
approximately $604 million at December 31, 1996. The Corporation's California
banking subsidiary, Northern Trust Bank of California N.A., is headquartered in
Santa Barbara. At December 31, 1996, it had six office locations and total
assets of approximately $437 million.
The Corporation has several nonbank subsidiaries. Among them are Northern
Trust Securities, Inc. which provides full brokerage services to clients of the
Bank and the Corporation's other banking and trust subsidiaries and selectively
underwrites general obligation tax-exempt securities. Northern Futures
Corporation is a futures commission merchant. Northern Investment Corporation
holds certain investments, including a loan made to a developer of a property in
which the Bank is the principal tenant. Berry, Hartell, Evers & Osborne, Inc. is
an investment management firm in San Francisco, California. The Northern Trust
Company of New York provides security clearance services for all nondepository
eligible
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securities held by trust, agency, and fiduciary accounts administered by the
Corporation's subsidiaries. Northern Trust Cayman International, Ltd. provides
fiduciary services to clients residing outside of the United States. Northern
Trust Retirement Consulting, Inc. is a retirement benefit plan services company
in Atlanta, Georgia, and was formerly known as Hazlehurst & Associates, Inc.
Northern Trust Global Advisors, Inc. in Stamford, Connecticut (formerly known as
RCB International Inc.) is an international provider of institutional
investment management services, and the parent of RCB Trust Company.
INTERNAL ORGANIZATION
Northern Trust, under Chairman and Chief Executive Officer William A. Osborn,
organizes client services into two principal business units: Corporate and
Institutional Services and Personal Financial Services. In addition, the
Worldwide Operations and Technology business unit encompasses all trust and
banking operations and systems activities. These three business units, and the
Investment Services Group report to President and Chief Operating Officer Barry
G. Hastings. Also, a Risk Management unit focuses on financial and risk
management.
The following is a brief summary of each unit's business activities.
Corporate and Institutional Services
Corporate and Institutional Services (C&IS), headed by Sheila A. Penrose,
Executive Vice President of the Corporation and of the Bank, provides trust,
commercial banking and treasury management services to corporate and
institutional clients.
Trust activities encompass custody services for owners of securities in the
United States and foreign markets, as well as securities lending, asset
management and related cash management services. Master Trust and Master Custody
are the principal products. Services with respect to securities traded in
foreign markets are provided primarily through the Bank's London Branch. Related
foreign exchange services are also rendered at the London Branch as well as in
Chicago and in Singapore.
As measured by assets administered and by number of clients, Northern Trust is
a leading provider of Master Trust and Master Custody services in various market
segments. At December 31, 1996, total assets under administration were $693.7
billion. The major market segments served are large U.S. corporate,
institutional (insurance companies, foundations and endowments, and
correspondent trust services) and international clients, and public and union
retirement funds. The Northern Trust Company of New York, The Northern Trust
Company, Canada, NorLease, Inc., The Northern Trust International Banking
Corporation, Northern Futures Corporation, Northern Trust Retirement Consulting,
Inc., and Northern Trust Global Advisors, Inc. are also included in C&IS.
A full range of commercial banking services is offered through the Bank, which
places special emphasis on developing institutional relationships in two target
markets: large domestic corporations and financial institutions (both domestic
and international). Credit services are administered in two groups: a Large
Corporate Group and a Financial Institutions Group.
Treasury management services are provided to corporations and financial
institutions and include lockbox collection, controlled disbursement products
and electronic banking, and other products and services to accelerate cash
collections, control disbursement outflows, and generate information to manage
cash positions.
Personal Financial Services
Services to individuals is another major dimension of the trust business.
Headed by Mark Stevens, Executive Vice President of the Corporation and of the
Bank, Personal Financial Services (PFS) encompasses personal trust, estate
administration, personal banking, mortgage lending and trust and banking
services to individuals and middle market companies. A key element of the
personal trust business is to provide private banking and trust services to
targeted high net worth individuals in rapidly growing areas of wealth
concentration.
PFS services are delivered through the Bank and a network of banking
subsidiaries located in Arizona, California, Florida and Texas. PFS is one of
the largest bank managers of personal trust assets in the United States, with
total assets under administration of $85.2 billion at December 31, 1996.
Northern Trust Securities, Inc. and Berry, Hartell, Evers & Osborne, Inc. are
also part of PFS.
Worldwide Operations and Technology
Supporting all of Northern Trust's business activities is the Worldwide
Operations and Technology Unit. Headed by James J. Mitchell, Executive Vice
President of the Corporation and of the Bank, this unit focuses on supporting
sales, relationship management, transaction processing and product management
activities for C&IS and PFS.
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Investment Services
The Investment Services Group, headed by Executive Vice President James M.
Snyder, provides equity and fixed income research and portfolio management
services to clients of C&IS and PFS. The Group also acts as the investment
adviser to the Corporation's two families of mutual funds, the Northern Funds
and The Benchmark Funds.
Risk Management
The Risk Management Unit, headed by Senior Executive Vice President and Chief
Financial Officer Perry R. Pero, includes the Credit Policy and Treasury
functions. The Credit Policy function is described fully on page 16 of this
report. The Treasury Department is responsible for managing the Bank's wholesale
funding and interest rate risk, as well as the portfolio of interest rate risk
management instruments under the direction of the Corporate Asset and Liability
Policy Committee. It is also responsible for the investment portfolios of the
Corporation and the Bank and provides investment advice and management services
to the subsidiary banks.
The Risk Management Unit also includes Corporate Controller, Corporate
Treasurer, Investor Relations and Economic Research functions.
GOVERNMENT POLICIES
The earnings of Northern Trust are affected by numerous external influences,
principally general economic conditions, both domestic and international, and
actions that the United States and foreign governments and their central banks
take in managing their economies. These general conditions affect all of the
Northern Trust's businesses, as well as the quality and volume of their loan and
investment portfolios.
The Board of Governors of the Federal Reserve System is an important regulator
of domestic economic conditions and has the general objective of promoting
orderly economic growth in the United States. Implementation of this objective
is accomplished by its open market operations in United States Government
securities, its setting of the discount rate at which member banks may borrow
from Federal Reserve Banks and its changes in the reserve requirements for
deposits. The policies adopted by the Federal Reserve Board may strongly
influence interest rates and hence what banks earn on their loans and
investments and what they pay on their savings and time deposits and other
purchased funds. Fiscal policies in the United States and abroad also affect the
composition and use of Northern Trust's resources.
COMPETITION
Northern Trust's principal business strategy is to provide quality financial
services to targeted market segments in which it believes it has a competitive
advantage and favorable growth prospects. As part of this strategy, Northern
Trust seeks to deliver a level of service to its clients that distinguishes it
from its competitors. In addition, Northern Trust emphasizes the development and
growth of recurring sources of fee-based income and is one of only five major
bank holding companies in the United States that generates more revenues from
fee-based services than from net interest income. Northern Trust seeks to
develop and expand its recurring fee-based revenue by identifying selected
market niches and providing a high level of individualized service to its
clients in such markets. Northern Trust also seeks to preserve its asset quality
through established credit review procedures and by maintaining a conservative
balance sheet. Finally, Northern Trust seeks to maintain a strong management
team with senior officers having broad experience and long tenure.
Active competition exists in all principal areas in which the subsidiaries are
presently engaged. C&IS and PFS compete with domestic and foreign financial
institutions, trust companies, financial companies, personal loan companies,
mutual funds and investment advisers. Northern Trust is a leading provider of
Master Trust and Master Custody services and has the leading market share in the
Chicago area personal trust market.
Commercial banking and treasury management services compete with domestic and
foreign financial institutions, finance companies and leasing companies. These
products also face increased competition due to the general trend among
corporations and other institutions to rely more upon direct access to the
credit and capital markets (such as through the direct issuance of commercial
paper) and less upon commercial banks and other traditional financial
intermediaries.
The chief local competitors of the Bank for trust and banking business are
Bank of America Illinois N.A., First National Bank of Chicago and its affiliate
American National Bank and Trust Company of Chicago, Harris Trust and Savings
Bank, and LaSalle National Bank. Competitive pressures within the custody market
have resulted in consolidation in the industry, and the chief national
competitors of the Bank for Master Trust/Master Custody services are now Mellon
Bank Corporation, State Street Boston Corporation, Bankers Trust New York
Corporation, Chase Manhattan Corporation and Bank of New York Company, Inc.
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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 subject
to certain exceptions, subsidiary banks are prohibited from engaging in certain
tie-in arrangements with non-banking affiliates 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. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Act) permits an adequately capitalized and
adequately managed bank holding company to acquire, with Federal Reserve Board
approval, a bank located in a state other than the bank holding company's home
state, without regard to whether the transaction is permitted under any state
law, except that a host state may establish by statute the minimum age of its
banks (up to a maximum of 5 years) subject to acquisition by out-of-state bank
holding companies. The Federal Reserve Board may not approve the acquisition if
the applicant bank holding company, upon consummation, would control more than
10% of total U.S. insured depository institution deposits or more than 30% of
the host state's total insured depository institution deposits. The Interstate
Act also permits a bank, with the approval of the appropriate Federal bank
regulatory agency, to establish a de novo branch in a state, other than the
bank's home state, in which the bank does not presently maintain a branch if the
host state has enacted a law that applies equally to all banks and expressly
permits all out-of-state banks to branch de novo into the host state. Commencing
June 1, 1997, banks having different home states may, with approval of the
appropriate Federal bank regulatory agency, merge across state lines, unless the
home state of a participating bank has opted-out. In addition, the Interstate
Act permits any bank subsidiary of a bank holding company to receive deposits,
renew time deposits, close loans, service loans and receive payments on loans
and other obligations as agent for a bank or thrift affiliate, whether such
affiliate is located in a different state or in the same state.
State laws governing the Corporation's banking subsidiaries allow each bank
to establish branches anywhere in its state.
Under the Federal Deposit Insurance Act (FDIA), an insured depository
institution which is commonly controlled with another insured depository
institution shall generally be liable for any loss incurred, or reasonably
anticipated to be incurred, by the Federal Deposit Insurance Corporation (FDIC)
in connection with the default of such commonly controlled institution, or for
any assistance provided by the FDIC to such commonly controlled institution,
which is in danger of default. The term "default" is defined to mean the
appointment of a conservator or receiver for such institution. Thus, any of the
Corporation's banking subsidiaries could incur liability to the FDIC pursuant to
this statutory provision in the event of a loss suffered by the FDIC in
connection with any of the Corporation's other banking subsidiaries (whether due
to a default or the provision of FDIC assistance). Such liability is
subordinated in right of payment to deposit liabilities, secured obligations,
any other general or senior liability and any obligation subordinated to
depositors and or other general creditors, other than obligations owed to any
affiliate of the depository institution (with certain exceptions) and any
obligations to shareholders in such capacity. Although neither the Corporation
nor any of its nonbanking subsidiaries may be assessed for such loss under the
FDIA, 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 these provisions of the FDIA.
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 Office of Banks and Real Estate. The Bank is also a member of
and subject to the rules of the Chicago Clearinghouse Association, and is
registered as a government securities dealer in accordance with the Government
Securities Act of 1986. As a government securities dealer its activities are
subject to the rules and regulations of the Department of the Treasury. The Bank
is registered as a transfer agent with the Federal Reserve and is therefore
subject to the rules and regulations of the Federal Reserve in this area.
The national bank subsidiaries are members of the Federal Reserve System and
the FDIC and are subject to regulation by the Comptroller of the Currency.
The Corporation's nonbanking affiliates are all subject to examination by the
Federal Reserve. In addition, The Northern Trust Company of New York is subject
to regulation by the Banking Department of the State of New York. Northern
Futures Corporation, which is registered as a futures commission merchant with
the Commodity Futures Trading Commission, is a member of the National Futures
Association, the Chicago Board of Trade and the Board of Trade Clearing
Corporation, and a clearing member of the Chicago Mercantile Exchange. Northern
Trust Securities, Inc. is registered with the Securities and Exchange Commission
and is a member of the National Association of Securities Dealers, Inc., and, as
such, is subject to the rules and regulations of both these bodies. Berry,
Hartell, Evers & Osborne, Inc. and Northern Trust
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Retirement Consulting, Inc. are both registered with the Securities and
Exchange Commission under the Investment Advisers Act of 1940 and are subject to
that Act and the rules and regulations of the Commission promulgated thereunder.
Northern Trust Retirement Consulting, Inc. is also registered as a transfer
agent with the Securities and Exchange Commission under the Securities Exchange
Act of 1934 and is subject to that Act and the rules and regulations of the
Commission promulgated thereunder. Northern Trust Global Advisors, Inc. is
subject to regulation by the Securities and Exchange Commission and the Illinois
Securities Department. Its subsidiary RCB Trust Company is subject to regulation
by the Connecticut Department of Banking. Two families of mutual funds for which
the Bank acts as investment adviser are also subject to regulation by the
Securities and Exchange Commission under the Investment Company Act. The Bank
also acts as investment adviser of an investment company which is subject to
regulation by the Central Bank of Ireland under the Companies Act, 1990. Various
other subsidiaries and branches conduct business in other states and foreign
countries and are subject to their regulations and restrictions.
The Corporation and its subsidiaries are affiliates within the meaning of the
Federal Reserve Act so that the banking subsidiaries are subject to certain
restrictions with respect to loans to the Corporation or its nonbanking
subsidiaries and certain other transactions with them or involving their
securities. Information regarding these restrictions, and dividend restrictions
on banking subsidiaries, is incorporated herein by reference to Note 14 titled
"Restrictions on Subsidiary Dividends and Loans or Advances" on page 49 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1996.
Under the FDIC's risk-based insurance assessment system, each insured bank is
placed in one of nine risk categories based on its level of capital and other
relevant information. Each insured bank's insurance assessment rate is then
determined by the risk category in which it has been classified by the FDIC.
There is currently a twenty-seven basis point spread between the highest and
lowest assessment rates, so that banks classified as strongest by the FDIC are
subject in 1997 to .013% assessment, and banks classified as weakest by the FDIC
are subject to an assessment rate of .283%.
The Federal bank regulators have adopted risk-based capital guidelines for
bank holding companies and banks. The minimum ratio of qualifying total capital
to risk-weighted assets (including certain off-balance sheet items) (Total
Capital Ratio) is 8%. At least half of the Total Capital is to be comprised of
common stock, retained earnings, noncumulative perpetual preferred stock,
minority interests and, for bank holding companies, a limited amount of
qualifying cumulative perpetual preferred stock, less certain intangibles
including goodwill (Tier 1 capital). The balance may consist of other preferred
stock, certain other instruments, and limited amounts of subordinated debt and
the loan and lease loss allowance.
In addition, the Federal Reserve has established minimum Leverage Ratio (Tier
1 capital to quarterly average total assets) guidelines for bank holding
companies and banks. The Federal Reserve's guidelines provide for a minimum
Leverage Ratio of 3% for bank holding companies and banks that meet certain
specified criteria, including having the highest regulatory rating. All other
banking organizations are required to maintain a Leverage Ratio of at least 3%
plus an additional cushion of 100 to 200 basis points. The guidelines also
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. Furthermore, the guidelines indicate that the Federal Reserve will
continue to consider a "Tangible Tier 1 Leverage Ratio" in evaluating proposals
for expansion or new activities. The Tangible Tier 1 Leverage Ratio is the ratio
of Tier 1 capital, less intangibles not deducted from Tier 1 capital, to
quarterly average total assets. As of December 31, 1996, the Federal Reserve had
not advised the Corporation of any specific minimum Leverage Ratio applicable to
it.
Federal bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations. The Federal Reserve has
recently added interest rate and market risk components to risk-based capital
requirements.
In addition to the effects of the provisions described above, the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) substantially
revised the depository institution regulatory and funding provisions of the FDIA
and made revisions to several other federal banking statutes.
Among other things, FDICIA requires the federal banking regulators to take
prompt corrective action in respect of FDIC-insured depository institutions that
do not meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." A depository institution's
capital tier will depend upon how its capital levels compare to various relevant
capital measures and certain other factors, as established by regulation. Under
applicable regulations, an FDIC-insured bank is defined to be well capitalized
if it maintains a Leverage Ratio of at least 5%, a Tier 1 Capital Ratio (Tier 1
capital to risk-weighted assets) of at least 6% and a Total Capital Ratio of at
least 10% and is not otherwise in a "troubled condition" as specified by its
appropriate federal regulatory agency. A bank is generally considered to be
adequately capitalized if it is not defined to be well capitalized but meets all
of its minimum capital requirements, i.e., if it has a Total Capital Ratio of 8%
or greater, a Tier 1 capital ratio of 4% or greater and a Leverage Ratio of 4%
or greater (or a Leverage Ratio of 3% or greater if
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the institution is rated composite 1 in its most recent report of examination,
subject to appropriate federal banking agency guidelines). A bank will be
considered undercapitalized if it fails to meet any minimum required measure,
significantly undercapitalized if it is significantly below such measure and
critically undercapitalized if it maintains a level of tangible equity capital
equal to or less than 2% of total assets. A bank may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits an FDIC-insured depository institution from making
any capital distribution (including payment of dividends) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for an undercapitalized depository institution's capital restoration
plan to be acceptable, its holding company must guarantee the capital plan up to
an amount equal to the lesser of 5% of the depository institution's assets at
the time it became undercapitalized or the amount of the capital deficiency when
the institution fails to comply with the plan. In the event of the parent
holding company's bankruptcy, such guarantee would take priority over the
parent's general unsecured creditors. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
At December 31, 1996, the Bank and each of the Corporation's other subsidiary
banks met or exceeded the minimum regulatory ratios that are one of the
conditions for them to be considered to be well capitalized. At December 31,
1996, the Bank had Leverage, Total Capital and Tier 1 Capital Ratios of 6.1%,
10.8% and 7.8%, respectively.
FDICIA also contains a variety of other provisions that affect the operations
of a bank, including reporting requirements, regulatory standards for real
estate lending, "truth in savings" provisions and a requirement that a
depository institution give 90 days' prior notice to customers and regulatory
authorities before closing any branch.
STAFF
Northern Trust employed 6,933 full-time equivalent officers and staff members
as of December 31, 1996, approximately 5,053 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, 1996, are incorporated
herein by reference.
1996
Annual Report
Schedule Page
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Foreign Outstandings................................................ 29
Nonperforming Assets and 90 Day Past Due Loans...................... 30
Analysis of Reserve for Credit Losses............................... 31
Average Balance Sheet............................................... 66
Ratios.............................................................. 66
Analysis of Net Interest Income..................................... 68
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Additional statistical information on a consolidated basis is set forth
below.
Remaining Maturity and Average Yield of Securities Held to Maturity and
Available for Sale
(Yield on a taxable equivalent basis giving effect of the federal and state tax
rates)
December 31, 1996
------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years Over Ten Years
---------------- ----------------- ----------------- -------------- Average
($ in Millions) Book Yield Book Yield Book Yield Book Yield Maturity
- ----------------------------------- ------- ----- -------- ----- -------- ----- ----- ----- --------
Securities Held to Maturity
U.S. Government $ 70.8 6.75% $ 2.6 5.27% $ -- -- % $ -- -- % 6 mos.
Obligations of States and
Political Subdivisions 44.0 11.15 128.4 11.01 109.9 10.51 33.6 8.64 59 mos.
Federal Agency 2.0 7.14 16.2 6.32 -- -- -- -- 24 mos.
Other--Fixed 9.8 5.04 2.7 3.31 -- -- 19.5 6.02 77 mos.
--Floating 1.3 7.75 .8 7.75 .6 6.65 56.2 7.00 116 mos.
- ------------------------------------ -------- ------ ------ ----- ------ ----- ------ ----- --------
Total Securities Held to Maturity $ 127.9 8.15% $150.7 10.25% $110.5 10.49% $109.3 7.33% 58 mos.
- ------------------------------------ -------- ------ ------ ----- ------ ----- ------ ----- --------
Securities Available for Sale
U.S. Government $809.0 5.90% $ 97.7 5.97% $ -- -- % $ -- -- % 7 mos.
Obligations of States and
Political Subdivisions -- -- .5 9.88 10.0 9.68 106.5 8.32 146 mos.
Federal Agency 2,735.5 5.76 296.6 6.15 58.9 6.23 5.9 6.64 6 mos.
Other--Fixed 17.2 5.69 12.8 5.66 -- -- -- -- 11 mos.
--Floating 4.0 6.17 7.1 6.17 10.7 7.35 139.3 4.44 112 mos.
- ------------------------------------ -------- ------ ------ ----- ------ ----- ------ ----- --------
Total Securities Available for Sale $3,565.7 5.79% $414.7 6.10% $ 79.6 6.81% $251.7 6.13% 14 mos.
- ------------------------------------ -------- ------ ------ ----- ------ ----- ------ ----- --------
December 31, 1995
------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years Over Ten Years
---------------- ----------------- ----------------- -------------- Average
($ in Millions) Book Yield Book Yield Book Yield Book Yield Maturity
- ----------------------------------- ------- ----- -------- ----- -------- ----- ----- ----- --------
Securities Held to Maturity
U.S. Government $ 108.5 6.61% $ 7.6 5.58% $ -- -- % $ -- -- % 5 mos.
Obligations of States and
Political Subdivisions 48.1 11.44 149.1 11.10 127.3 10.72 42.4 8.72 63 mos.
Federal Agency -- -- 22.2 5.96 -- -- -- -- 36 mos.
Other--Fixed 8.1 6.98 1.5 9.70 .1 10.49 17.6 6.03 81 mos.
--Floating .3 8.00 2.0 8.00 .3 7.08 -- -- 34 mos.
- ------------------------------------ -------- ------ -------- ----- ------ ----- ------ ----- --------
Total Securities Held to Maturity $ 165.0 8.04% $182.4 10.20% $127.7 10.71% $ 60.0 7.93% 50 mos.
- ------------------------------------ -------- ------ -------- ----- ------ ----- ------ ----- --------
Securities Available for Sale
U.S. Government $ 829.7 5.80% $838.0 5.98% $ -- -- % $ -- -- % 12 mos.
Obligations of States and
Political Subdivisions -- -- -- -- 4.9 9.59 65.3 8.68 155 mos.
Federal Agency 2,236.0 6.04 883.2 6.30 27.4 6.42 6.2 6.57 9 mos.
Other--Fixed 46.3 5.63 26.3 6.24 -- -- -- -- 12 mos.
--Floating 7.7 6.51 7.8 6.51 .6 6.51 156.9 6.62 112 mos.
- ------------------------------------ -------- ------ -------- ----- ------ ----- ------ ----- --------
Total Securities Available for Sale $3,119.7 5.97% $1,755.3 6.14% $ 32.9 6.89% $228.4 7.21% 15 mos.
- ------------------------------------ -------- ------ -------- ----- ------ ----- ------ ----- --------
==================================================================================================================================
10
- ------------------------------------------------------------------------------------------------------------------------------------
Securities Held to Maturity and Available for Sale
December 31
------------------------------------------------------
(In Millions) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Securities Held to Maturity
U.S. Government $ 73.4 $ 116.1 $ 137.2 $2,343.7 $1,522.8
Obligations of States and Political Subdivisions 315.9 366.9 474.5 493.5 508.5
Federal Agency 18.2 22.2 - 833.1 559.2
Other 90.9 29.9 29.6 120.5 189.0
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Total Securities Held to Maturity $ 498.4 $ 535.1 $ 641.3 $3,790.8 $2,779.5
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Securities Available for Sale
U.S. Government $ 906.7 $1,667.7 $ 801.3 $ - $ 227.6
Obligations of States and Political Subdivisions 117.0 70.2 - - -
Federal Agency 3,096.9 3,152.8 3,251.5 40.9 46.1
Other 191.1 245.6 355.0 170.7 126.4
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Total Securities Available for Sale $ 4,311.7 $5,136.3 $4,407.8 $ 211.6 $ 400.1
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Average Total Securities $ 6,363.8 $6,193.0 $5,000.9 $4,232.0 $3,190.3
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Total Securities at Year-End $ 4,814.9 $5,760.3 $5,053.1 $4,038.7 $3,181.2
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
Loans and Leases by Type
December 31
------------------------------------------------------
(In Millions) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Domestic
Residential Real Estate $ 4,557.5 $3,896.4 $3,299.1 $2,883.3 $2,372.8
Commercial 3,161.4 3,202.1 2,672.0 2,421.1 2,409.0
Broker 389.1 304.0 274.6 249.4 336.3
Commercial Real Estate 557.7 512.6 494.1 506.5 511.2
Consumer 989.8 758.9 662.1 617.5 505.9
Other 632.1 625.5 642.1 453.5 392.0
Lease Financing 267.8 202.3 159.9 138.4 135.2
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Total Domestic $10,555.4 9,501.8 8,203.9 7,269.7 6,662.4
International 382.0 404.2 386.7 353.3 273.5
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Total Loans and Leases $10,937.4 $9,906.0 $8,590.6 $7,623.0 $6,935.9
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
Average Loans and Leases $10,332.1 $9,136.0 $8,316.1 $7,297.1 $6,452.9
- ------------------------------------------------------------------------ --------- -------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
Remaining Maturity of Selected Loans and Leases
December 31, 1996
------------------------------------------------------
One Year One to Over Five
(In Millions) Total or Less Five Years Years
- ------------------------------------------------------------------------ --------- --------- ---------- ---------
Domestic (Excluding Residential Real Estate and Consumer Loans)
Commercial $3,161.4 $2,340.3 $ 644.4 $ 176.7
Commercial Real Estate 557.7 178.2 315.3 64.2
Other 1,021.2 1,005.2 14.3 1.7
Lease Financing 267.8 41.1 67.7 159.0
- ------------------------------------------------------------------------ -------- -------- -------- --------
Total Domestic 5,008.1 3,564.8 1,041.7 401.6
International 382.0 291.9 67.3 22.8
- ------------------------------------------------------------------------ -------- -------- -------- --------
Total Selected Loans and Leases $5,390.1 $3,856.7 $1,109.0 $ 424.4
- ------------------------------------------------------------------------ -------- -------- -------- --------
Interest Rate Sensitivity of Loans and Leases
Fixed Rate $4,033.8 $2,864.6 $ 798.4 $ 370.8
Variable Rate 1,356.3 992.1 310.6 53.6
- ------------------------------------------------------------------------ -------- -------- -------- --------
Total $5,390.1 $3,856.7 $1,109.0 $ 424.4
- ------------------------------------------------------------------------ -------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
11
================================================================================
Average Deposits by Type
(In Millions) 1996 1995 1994 1993 1992
- ------------------------------------------------- --------- --------- --------- --------- --------
Domestic Offices
Demand and Noninterest-Bearing
Individuals, Partnerships and Corporations $ 1,801.8 $ 1,651.1 $ 1,540.4 $ 1,487.5 $1,354.1
Correspondent Banks 115.2 129.8 192.2 201.1 199.6
Other 815.9 966.4 859.9 866.3 322.3
- ------------------------------------------------- --------- --------- --------- --------- --------
Total 2,732.9 2,747.3 2,592.5 2,554.9 1,876.0
- ------------------------------------------------- --------- --------- --------- --------- --------
Time
Savings and Money Market Deposits $ 3,620.7 $ 3,312.4 $ 3,385.7 $ 3,432.1 $3,372.2
Savings Certificates less than $100,000 1,169.6 1,160.8 699.9 668.6 732.6
Savings Certificates $100,000 and more 892.8 839.5 529.7 504.3 638.2
Other Time 549.2 542.7 412.8 404.7 493.9
- ------------------------------------------------- --------- --------- --------- --------- --------
Total 6,232.3 5,855.4 5,028.1 5,009.7 5,236.9
- ------------------------------------------------- --------- --------- --------- --------- --------
Total Domestic Offices $ 8,965.2 $ 8,602.7 $ 7,620.6 $ 7,564.6 $7,112.9
- ------------------------------------------------- --------- ---------- --------- --------- --------
Foreign Offices
Demand $ 347.8 $ 299.1 $ 361.7 $ 65.3 $ 56.2
Time 3,826.2 3,493.4 3,284.8 2,436.4 1,815.6
- ------------------------------------------------- --------- ---------- --------- --------- --------
Total Foreign Offices $ 4,174.0 $ 3,792.5 $ 3,646.5 $ 2,501.7 $1,871.8
- ------------------------------------------------- --------- ---------- --------- --------- ---------
Total Deposits $13,139.2 $12,395.2 $11,267.1 $10,066.3 $8,984.7
- ------------------------------------------------- --------- --------- --------- --------- --------
=======================================================================================================================
Average Rates Paid on Time Deposits by Type
1996 1995 1994 1993 1992
- ------------------------------------------------- --------- --------- --------- --------- --------
Time Deposits
Savings and Money Market Deposits 3.16% 3.29% 2.52% 2.30% 2.94%
Savings Certificates less than $100,000 5.85 6.08 4.77 4.61 5.46
Savings Certificates $100,000 and more 5.67 5.95 4.45 3.91 4.68
Other Time 5.44 5.81 4.50 3.88 5.15
- ------------------------------------------------- --------- --------- --------- --------- --------
Total Domestic Offices 4.23 4.46 3.20 2.89 3.71
- ------------------------------------------------- --------- --------- --------- --------- --------
Total Foreign Offices Time 4.82 5.21 4.18 3.71 5.27
- ------------------------------------------------- --------- --------- --------- --------- --------
Total Time Deposits 4.45% 4.74% 3.58% 3.16% 4.11%
- ------------------------------------------------- --------- --------- --------- --------- --------
=======================================================================================================================
Remaining Maturity of Time Deposits $100,000 and more
December 31, 1996 December 31, 1995
--------------------------------- -------------------------------------
Domestic Offices Domestic Offices
---------------------- -------------------------
Certificates Other Foreign Certificates Other Foreign
(In Millions) of Deposit Time Offices of Deposit Time Offices
- --------------------------------------- ------------- ----- -------- -------------- ----- --------
3 Months or Less $ 738.6 $ 5.7 $3,466.1 $ 612.1 $ 3.4 $3,193.3
Over 3 through 6 Months 277.5 2.2 30.4 233.8 1.6 23.8
Over 6 through 12 Months 223.1 4.7 8.2 152.2 5.0 13.0
Over 12 Months 205.7 5.4 5.0 268.5 5.9 1.9
- --------------------------------------- ------------- ----- -------- -------------- ----- --------
Total $1,444.9 $18.0 $3,509.7 $1,266.6 $15.9 $3,232.0
- --------------------------------------- ------------- ----- -------- -------------- ----- --------
==============================================================================================================================
12
===============================================================================
Purchased Funds
Federal Funds Purchased
(Overnight Borrowings)
($ in Millions) 1996 1995 1994
- ------------------------------- -------- -------- --------
Balance on December 31 $ 653.0 $2,300.1 $ 972.0
Highest Month-End Balance 2,715.2 3,620.1 1,595.9
Year-Average Balance 1,842.2 1,564.0 1,350.7
-Average Rate 5.31% 5.83% 4.11%
Average Rate at Year-End 6.03 5.17 4.26
- ------------------------------- -------- -------- --------
Securities Sold under Agreements to Repurchase
($ in Millions) 1996 1995 1994
- ------------------------------- -------- -------- --------
Balance on December 31 $ 966.1 $1,858.7 $2,216.9
Highest Month-End Balance 2,922.2 2,283.0 2,777.1
Year-Average Balance 1,973.3 1,769.7 1,444.3
-Average Rate 5.24% 5.80% 4.28%
Average Rate at Year-End 5.69 5.41 5.08
- ------------------------------- -------- -------- --------
Other Borrowings
(Includes Treasury Tax and Loan Demand Notes and Term Federal Funds Purchased)
($ in Millions) 1996 1995 1994
- ------------------------------- -------- -------- --------
Balance on December 31 $3,142.1 $ 875.9 $1,077.9
Highest Month-End Balance 4,953.6 3,415.9 3,116.1
Year-Average Balance 1,274.1 1,034.5 1,007.5
-Average Rate 5.07% 5.38% 3.57%
Average Rate at Year-End 5.82 3.61 4.71
- ------------------------------- -------- -------- --------
Total Purchased Funds
($ in Millions) 1996 1995 1994
- ------------------------------- -------- -------- --------
Balance on December 31 $4,761.2 $5,034.7 $4,266.8
Year-Average Balance 5,089.6 4,368.2 3,802.5
-Average Rate 5.22% 5.71% 4.03%
- ------------------------------- -------- -------- --------
===============================================================================
Commercial Paper
($ in Millions) 1996 1995 1994
- ------------------------------- -------- -------- --------
Balance on December 31 $149.0 $146.7 $123.8
Highest Month-End Balance 153.0 154.4 172.3
Year-Average Balance 143.7 146.0 138.1
-Average Rate 5.40% 5.87% 4.31%
Average Rate at Year-End 5.65 5.80 5.73
- ------------------------------- -------- -------- --------
===============================================================================
===============================================================================
13
Changes in Net Interest Income
1996/95 1995/94
--------------------------------------------------------
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
Money Market Assets
Federal Funds Sold and Resell Agreements $ 7.1 $ (1.1) $ 6.0 $ (2.0) $ 3.4 $ 1.4
Time Deposits with Banks 2.8 (10.0) (7.2) (23.5) 17.8 (5.7)
Other 2.0 (.1) 1.9 (7.1) 3.0 (4.1)
Securities
U.S. Government 27.3 (.1) 27.2 (31.8) 28.4 (3.4)
Obligations of States and Political Subdivisions (2.0) (4.0) (6.0) (3.3) (2.7) (6.0)
Federal Agency (6.5) (23.9) (30.4) 112.4 32.2 144.6
Other (7.5) (.8) (8.3) (.9) 3.3 2.4
Trading Account (3.2) - (3.2) - (.5) (.5)
Loans and Leases 80.8 (17.3) 63.5 56.9 73.9 130.8
- ------------------------------------------------------------ ------ ------- ----- ------ ------ ------
Total $100.8 $(57.3) $43.5 $100.7 $158.8 $259.5
- ------------------------------------------------------------ ------ ------- ----- ------ ------ ------
Increase (Decrease) In Interest Expense
Deposits
Savings and Money Market Deposits $ 9.7 $ (4.5) $ 5.2 $ (2.4) $ 26.2 $ 23.8
Savings Certificates 3.6 (5.1) (1.5) 46.5 17.2 63.7
Other Time .4 (2.0) (1.6) 7.5 5.4 12.9
Foreign Offices Time 16.1 (13.7) 2.4 10.8 34.1 44.9
Federal Funds Purchased 14.7 (8.0) 6.7 12.4 23.3 35.7
Repurchase Agreements 10.7 (9.9) .8 18.9 21.8 40.7
Commercial Paper (.1) (.7) (.8) .5 2.2 2.7
Other Borrowings 12.1 (3.2) 8.9 1.4 18.2 19.6
Senior Notes (6.8) (2.5) (9.3) (23.3) 13.2 (10.1)
Notes Payable 6.8 (.8) 6.0 (1.7) .1 (1.6)
- ------------------------------------------------------------ ------ ------- ----- ------ ------ ------
Total $67.2 $(50.4) $16.8 $ 70.6 $161.7 $232.3
- ------------------------------------------------------------ ------ ------- ----- ------ ------ ------
Increase (Decrease) In Net Interest Income $33.6 $ (6.9) $26.7 $ 30.1 $ (2.9) $ 27.2
- ------------------------------------------------------------ ------ ------- ----- ------ ------ ------
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 25 titled "International Operations" on page 60 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1996, which is incorporated herein by reference.
Selected Average Assets and Liabilities Attributable to International Operations
(In Millions) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------ -------- -------- -------- -------- --------
Total Assets $2,365.5 $2,282.0 $2,820.5 $2,328.8 $2,033.0
- ------------------------------------------------------------------ -------- -------- -------- -------- --------
Time Deposits with Banks 1,699.3 1,643.7 2,063.1 1,956.7 1,618.6
Other Money Market Assets .1 .1 .4 .9 38.8
Loans 380.5 344.3 445.5 279.9 287.6
Customers' Acceptance Liability 1.1 1.9 3.0 4.8 3.8
Foreign Investments 23.4 14.3 21.6 29.8 31.4
- ------------------------------------------------------------------ -------- -------- -------- -------- --------
Total Liabilities $4,551.2 $4,163.5 $4,089.4 $2,715.0 $2,125.3
- ------------------------------------------------------------------ -------- -------- -------- -------- --------
Deposits 4,435.7 3,992.2 4,010.6 2,706.2 2,099.0
Liability on Acceptances 1.1 1.9 3.0 4.8 3.8
- ------------------------------------------------------------------ -------- -------- -------- -------- --------
- -------------------------------------------------------------------------------------------------------------------------------
14
================================================================================
Percent of International Related Average Assets and Liabilities to Total
Consolidated Average Assets
1996 1995 1994 1993 1992
- ------------------------------------ ----- ----- ----- ----- -----
Assets 11% 12% 16% 15% 15%
- ------------------------------------ ----- ----- ----- ----- -----
Liabilities 22 21 23 17 16
- ------------------------------------ ----- ----- ----- ----- -----
=======================================================================================
Reserve for Credit Losses Relating to International Operations
(In Millions) 1996 1995 1994 1993 1992
- ------------------------------------ ----- ----- ----- ----- -----
Balance at Beginning of Year $3.1 $4.6 $6.7 $5.3 $ 6.9
Charge-Offs (.2) (.7) -- (.6) (6.0)
Recoveries .5 .5 -- .1 .4
Provision for Credit Losses (.2) (1.3) (2.1) 1.9 4.0
- ------------------------------------ ----- ----- ----- ----- -----
Balance at End of Year $3.2 $3.1 $4.6 $6.7 $ 5.3
- ------------------------------------ ----- ----- ----- ----- -----
The Securities and Exchange Commission requires the disclosure of the
reserve for credit losses that is applicable to international operations. The
above table has been prepared in compliance with this disclosure requirement and
is used in determining international operating performance. The amounts shown in
the table should not be construed as being the only amounts that are available
for international loan charge-offs, since the entire reserve for credit losses
is available to absorb losses on both domestic and international loans. In
addition, these amounts are not intended to be indicative of future charge-off
trends.
===============================================================================
Distribution of International Loans and Deposits by Type
December 31
------------------------------------------------
Loans 1996 1995 1994 1993 1992
- ------------------------------------ ------ ------ ------ ------ ------
Commercial $226.6 $259.9 $233.8 $157.9 $122.3
Foreign Governments and Official 118.3 103.7 72.8 47.1 26.4
Institutions
Banks 22.8 37.3 77.0 145.9 121.9
Other 14.3 3.3 3.1 2.4 2.9
- ------------------------------------ ------ ------ ------ ------ ------
Total $382.0 $404.2 $386.7 $353.3 $273.5
- ------------------------------------ ------ ------ ------ ------ ------
December 31
--------------------------------------
Deposits 1996 1995 1994
- ------------------------------------ -------- -------- --------
Commercial $2,855.4 $2,557.2 $2,817.2
Foreign Governments and Official
Institutions 708.6 749.5 803.8
Banks 350.7 415.7 485.2
Other Time 276.2 224.7 182.4
Other Demand 10.7 7.8 8.4
- ------------------------------------ -------- -------- --------
Total $4,201.6 $3,954.9 $4,297.0
- ------------------------------------ -------- -------- --------
=======================================================================================
15
- --------------------------------------------------------------------------------
CREDIT RISK MANAGEMENT
Overview
The Credit Policy function reports to the Corporation's Chief Financial
Officer. Credit Policy provides a system of checks and balances for Northern
Trust's diverse credit-related activities by establishing and monitoring all
credit-related policies and practices and ensuring their uniform application.
These activities are designed to ensure that credit exposure is diversified on
an industry and client basis, thus lessening the overall credit risk.
Individual credit authority for commercial loans and within Personal
Financial Services is limited to specified amounts and maturities. Credit
decisions involving commitment exposure in excess of the specified individual
limits are submitted to the appropriate Credit Approval Committee (Committee).
Each Committee is chaired by the executive in charge of the area and has a
Credit Policy officer as a voting participant. Each Committee's credit approval
authority is specified, based on commitment levels, credit ratings and
maturities. Credits involving commitment exposure in excess of these group
credit limits require, dependent upon the internal credit rating, the approval
of the Senior Credit Committee, the head of Credit Policy or the business unit
head.
Credit Policy established the Counterparty Risk Management Committee in
order to manage counterparty risk more effectively. This committee has sole
credit authority for exposure to all foreign banks, certain domestic banks which
Credit Policy deems to be counterparties and which do not have commercial credit
relationships within the Corporation, and other organizations which Credit
Policy deems to be counterparties.
Under the auspices of Credit Policy, country exposure limits are reviewed
and approved on a country-by-country basis.
As part of the Northern Trust's ongoing credit granting process, internal
credit ratings are assigned to each client and credit before credit is extended,
based on creditworthiness. Credit Policy performs at least annually a review of
selected significant credit exposures to identify at the earliest possible
stages clients who might be facing financial difficulties. Internal credit
ratings are also reviewed during this process. Above average risk loans, which
will vary from time to time, receive special attention by both lending officers
and Credit Policy. This approach allows management to take remedial action in an
effort to deal with potential problems.
An integral part of the Credit Policy function is a monthly formal review
of all past due and potential problem loans to determine which credits, if any,
need to be placed on nonaccrual status or charged off. The provision is reviewed
quarterly to determine the amount necessary to maintain an adequate reserve for
credit losses.
Management of credit risk is reviewed by various bank regulatory agencies.
Independent auditors also perform a review of credit-related procedures, the
loan portfolio and other extensions of credit, and the reserve for credit losses
as part of their examination of the consolidated financial statements.
Allocation of the Reserve for Credit Losses
The reserve for credit losses is established and maintained on an overall
basis and in practice is not specifically allocated to specific loans or
segments of the portfolio. Thus, the reserve is available to absorb credit
losses from all loans and leases. Bank disclosure guidelines issued by the
Securities and Exchange Commission request management to furnish a breakdown of
the reserve for credit losses by loan category and provide the percentage of
loans in each category to total loans.
Prior to 1994, the allocation of the reserve represented an estimate of the
amount that was necessary to provide for potential losses related to specific
nonperforming loans only. Beginning in 1994, the methodology was revised to
allocate the reserve for credit losses associated with all loans, leases and
commitments based on historical loss experience, internal credit ratings and
specific amounts designated for certain above average risk loans. Other factors
taken into consideration are changes in economic or business conditions, changes
in the nature or volume of the loan portfolio including trends in and the
severity of past due and classified loans. This allocation method should not be
interpreted as an indication of expected losses within the next year or any
specified time period.
- --------------------------------------------------------------------------------
16
As required by the Securities and Exchange Commission, the following tables
break down the reserve for credit losses:
Reserve for Credit Losses
(In Millions) 1996 1995 1994
- --------------------------------------- ------ ------ ------
Allocated Reserve
Residential Real Estate $ 7.0 $ 6.0 $ 5.0
Commercial 72.0 85.0 86.0
Commercial Real Estate 5.0 7.0 12.0
Consumer 6.0 8.0 6.0
Other - - -
Lease Financing 3.0 3.0 3.0
International 2.0 3.0 3.0
Unallocated Reserve 53.3 35.1 29.8
- --------------------------------------- ------ ------ ------
Total Reserve $148.3 $147.1 $144.8
- --------------------------------------- ------ ------ ------
At December 31, 1993, $.2 million of the reserve was allocated based on an
estimate of the amount that was necessary to provide for potential losses
related to specific nonperforming loans only, while $145.3 million remained
unallocated of the total $145.5 million reserve balance. At December 31, 1992,
$11.0 million was so allocated, while $134.5 million remained unallocated of the
total $145.5 million reserve balance.
- --------------------------------------------------------------------------------
Loan and lease categories as a percent of total loans and leases as of
December 31, 1992 through 1996, are presented below.
Loan and Lease Category to Total Loans
and Leases
1996 1995 1994 1993 1992
- --------------------------------------- ---- ---- ---- ---- ----
Loan and Lease Category
Residential Real Estate 42% 39% 38% 38% 34%
Commercial 29 32 31 32 35
Commercial Real Estate 5 5 6 6 7
Consumer 9 8 8 8 7
Other 9 10 11 9 11
Lease Financing 2 2 2 2 2
International 4 4 4 5 4
- --------------------------------------- ---- ---- ---- ---- ----
Total 100% 100% 100% 100% 100%
- --------------------------------------- ---- ---- ---- ---- ----
- --------------------------------------------------------------------------------
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, 1996:
1996
Annual Report
Notes to Consolidated Financial Statements Page(s)
- ---------------------------------------------------------------- -------------
1. Accounting Policies
F. Interest Risk Management Instruments..................... 40
G. Loans and Leases......................................... 41
H. Reserve for Credit Losses................................ 41
L. Other Real Estate Owned.................................. 41
5. Loans and Leases............................................ 44
6. Reserve for Credit Losses................................... 45
18. Contingent Liabilities...................................... 52
20. Off-Balance Sheet Financial Instruments..................... 54-57
- ----------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ----------------------------------------------------------------
Asset Quality and Credit Risk Management........................ 27-30
- ---------------------------------------------------------------- -------------
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
For the discussion of interest rate sensitivity, see the section entitled
"Interest Rate Risk Management" on page 30 of Management's Discussion and
Analysis of Financial Condition and Results of Operations of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1996, which is
incorporated herein by reference.
19
- --------------------------------------------------------------------------------
The following unaudited Consolidated Balance Sheet and Consolidated
Statement of Income for The Northern Trust Company were prepared in accordance
with generally accepted accounting principles and are provided here for
informational purposes. These consolidated financial statements should be read
in conjunction with the footnotes accompanying the consolidated financial
statements, included in the Corporation's Annual Report to Stockholders for the
year ended December 31, 1996, and incorporated herein by reference on page 24 of
this report.
The Northern Trust Company
Consolidated Balance Sheet (unaudited)
December 31
-------------------------
(In Millions) 1996 1995
- ---------------------------------------------- --------- ---------
Assets
Cash and Due from Banks $ 1,090.4 $ 1,139.3
Federal Funds Sold and Securities Purchased
under Agreements to Resell 1,224.9 168.2
Time Deposits with Banks 2,059.7 1,567.4
Other Interest-Bearing 248.0 131.4
Securities
Available for Sale 3,983.9 4,274.2
Held to Maturity (Fair Value-$436.1 in
1996 and $322.5 in 1995) 416.9 315.5
Trading account -- 82.4
- ---------------------------------------------- --------- ---------
Total Securities 4,400.8 4,672.1
- ---------------------------------------------- --------- ---------
Loans
Commercial and Other 5,396.7 4,947.0
Residential Mortgages 2,589.5 1,713.5
- ---------------------------------------------- --------- ---------
Total Loans and Leases (Net of unearned
income-$106.6 in 1996 and $82.4 in 1995) 7,986.2 6,660.5
- ---------------------------------------------- --------- ---------
Reserve for Credit Losses (120.9) (114.1)
Buildings and Equipment 211.3 197.1
Customers' Acceptance Liability 42.3 32.8
Trust Security Settlement Receivables 362.3 327.1
Other Assets 621.9 448.7
- ---------------------------------------------- --------- ---------
Total Assets $18,126.9 $15,230.5
- ---------------------------------------------- --------- ---------
Liabilities
Deposits
Demand and Other Noninterest-Bearing $ 3,010.5 $ 2,320.5
Savings and Money Market Deposits 2,568.6 1,852.0
Savings Certificates 1,299.5 805.3
Other Time 335.0 135.4
Foreign Offices--Demand 411.1 459.8
--Time 3,518.6 3,268.3
- ---------------------------------------------- --------- ---------
Total Deposits 11,143.3 8,841.3
- ---------------------------------------------- --------- ---------
Federal Funds Purchased 759.6 2,314.7
Securities Sold under Agreements to Repurchase 883.4 1,680.7
Other Borrowings 3,028.9 808.9
Senior Notes 305.0 15.0
Notes Payable 333.9 284.3
Liability on Acceptances 42.3 32.8
Other Liabilities 527.5 387.8
- ---------------------------------------------- --------- ---------
Total Liabilities 17,023.9 14,365.5
- ---------------------------------------------- --------- ---------
Stockholder's Equity
Capital Stock--Par Value $60 213.8 198.0
Surplus 245.3 198.0
Undivided Profits 642.6 468.2
Net Unrealized Gain on Securities Available
for Sale 1.3 0.8
- ---------------------------------------------- --------- ---------
Total Stockholder's Equity 1,103.0 865.0
- ---------------------------------------------- --------- ---------
Total Liabilities and Stockholder's Equity $18,126.9 $15,230.5
- ---------------------------------------------- --------- ---------
- --------------------------------------------------------------------------------
20
- ------------------------------------------------------------------------------------------------------------------------------
The Northern Trust Companys
Consolidated Statement of Income (unaudited)
For the Year Ended
December 31
--------------------------------
(In Millions) 1996 1995 1994
- ----------------------------------------------------------------------- ------ ------ ------
Interest Income
Loans and Leases $489.3 $406.6 $328.4
Securities
- Available for Sale 303.7 275.7 164.9
- Held to Maturity 26.1 26.2 28.5
- Trading Account .1 3.3 3.7
- ----------------------------------------------------------------------- ------ ------ ------
Total Securities 329.9 305.2 197.1
- ----------------------------------------------------------------------- ------ ------ ------
Time Deposits with Banks 84.8 92.1 97.8
Federal Funds Sold and Securities Purchased under Agreements to Resell
and Other 36.7 17.4 18.2
- ----------------------------------------------------------------------- ------ ------ ------
Total Interest Income 940.7 821.3 641.5
- ----------------------------------------------------------------------- ------ ------ ------
Interest Expense
Deposits 373.6 317.0 225.5
Federal Funds Purchased 99.0 94.9 57.4
Securities Sold under Agreements to Repurchase 99.1 94.4 57.2
Other Borrowings 60.9 51.7 33.9
Senior Notes 14.4 23.5 33.6
Notes Payable 19.5 17.0 15.6
- ----------------------------------------------------------------------- ------ ------ ------
Total Interest Expense 666.5 598.5 423.2
- ----------------------------------------------------------------------- ------ ------ ------
Net Interest Income 274.2 222.8 218.3
Provision for Credit Losses 7.4 4.8 4.9
- ----------------------------------------------------------------------- ------ ------ ------
Net Interest Income after Provision for Credit Losses 266.8 218.0 213.4
- ----------------------------------------------------------------------- ------ ------ ------
Noninterest Income
Trust Fees 397.8 348.3 326.7
Treasury Management Fees 54.2 48.3 44.7
Foreign Exchange Trading Profits 58.7 55.1 35.9
Security Commissions and Trading Income .9 .1 (.4)
Other Operating Income 36.8 33.3 63.1
Investment Security Gains (Losses) .4 .6 (.1)
- ----------------------------------------------------------------------- ------ ------ ------
Total Noninterest Income 548.8 485.7 469.9
- ----------------------------------------------------------------------- ------ ------ ------
Income before Noninterest Expenses 815.6 703.7 683.3
- ----------------------------------------------------------------------- ------ ------ ------
Noninterest Expenses
Salaries 258.3 240.7 229.1
Pension and Other Employee Benefits 52.3 58.6 55.7
Occupancy Expense 45.9 40.2 39.2
Equipment Expense 45.3 39.7 48.6
Other Operating Expenses 131.3 108.9 124.1
- ----------------------------------------------------------------------- ------ ------ ------
Total Noninterest Expenses 533.1 488.1 496.7
- ----------------------------------------------------------------------- ------ ------ ------
Income before Income Taxes 282.5 215.6 186.6
Provision for Income Taxes 90.5 67.7 56.5
- ----------------------------------------------------------------------- ------ ------ ------
Net Income $192.0 $147.9 $130.1
- ----------------------------------------------------------------------- ------ ------ ------
Dividends Paid to the Corporation 80.0 89.0 48.0
- ----------------------------------------------------------------------- ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------------
21
Supplemental Item--Executive Officers of the Registrant
WILLIAM A. OSBORN
Mr. Osborn became Chairman of the Board of the Corporation and the Bank in
October 1995, and Chief Executive Officer of the Corporation and the Bank in
June 1995. He held the title of President of the Corporation and the Bank from
January 1994 through September 1995 and Chief Operating Officer from January
1994 through June 1995. He was a Senior Executive Vice President of the
Corporation and the Bank from November 1992 through 1993 and prior to that time
had served as an Executive Vice President of the Bank since 1987, and of the
Corporation since 1989. Mr. Osborn, 49, began his career with the Bank in 1970.
BARRY G. HASTINGS
Mr. Hastings became President of the Corporation and the Bank in October
1995, and Chief Operating Officer of the Corporation and the Bank in June 1995.
He held the title of Vice Chairman of the Corporation and the Bank from January
1994 through June 1995. He was a Senior Executive Vice President of the
Corporation and the Bank from November 1992 through 1993 and prior to that time
had served as an Executive Vice President of the Bank since 1987, and of the
Corporation since 1990. Mr. Hastings, 49, began his career with the Corporation
in 1974.
DAVID L. EDDY
Mr. Eddy became a Senior Vice President of the Corporation and the Bank and
Treasurer of the Corporation in 1986. Mr. Eddy, 60, joined the Bank in 1960.
JAMES J. MITCHELL
Mr. Mitchell was appointed an Executive Vice President of the Bank in
December 1987 and of the Corporation in October 1994, and is currently head of
the Worldwide Operations and Technology business unit. Mr. Mitchell, 54, joined
the Bank in 1964.
SHEILA A. PENROSE
Ms. Penrose became an Executive Vice President of the Bank in November 1993
and of the Corporation in November 1994, and is currently head of the Corporate
& Institutional Services business unit. From 1986 until 1993, she had been
Senior Vice President of the Bank. Ms. Penrose, 51, began her career with the
Corporation in 1977.
PERRY R. PERO
Mr. Pero is Chief Financial Officer of the Corporation and the Bank and
Cashier of the Bank. Mr. Pero is also head of the Risk Management Unit and
Chairman of the Corporate Asset and Liability Policy Committee. He became a
Senior Executive Vice President of the Corporation and the Bank in 1992 after
serving as an Executive Vice President of the Corporation and the Bank since
1987. Mr. Pero, 57, joined the Bank in 1964.
PETER L. ROSSITER
Mr. Rossiter was appointed General Counsel and Secretary of the Corporation
and the Bank in April 1993. He joined the Corporation and the Bank in 1992 as an
Executive Vice President and Associate General Counsel. Mr. Rossiter, 48, had
been a partner in the law firm of Schiff Hardin & Waite from 1979 to 1992.
HARRY W. SHORT
Mr. Short was appointed Senior Vice President and Controller of the
Corporation and the Bank in October 1994. He joined the Corporation and the Bank
in January 1990 and served as Senior Vice President and General Auditor. Mr.
Short, 48, had been a partner in the accounting firm of KPMG Peat Marwick from
1982 to 1990.
22
JAMES M. SNYDER
Mr. Snyder was appointed Executive Vice President of the Corporation and
the Bank in November 1996 and is currently the Chief Investment Officer. He had
been a Senior Vice President of the Bank from 1991 to 1996. Mr. Snyder, 50,
joined the Bank in 1969.
MARK STEVENS
Mr. Stevens was appointed an Executive Vice President of the Corporation
and the Bank in February 1996, and at that time became head of the Personal
Financial Services business unit. He served as Chief Executive Officer of
Northern Trust Bank of Florida N.A., from 1987 to 1996. Mr. Stevens, 49, joined
the Corporation in 1979.
WILLIAM S. TRUKENBROD
Mr. Trukenbrod was appointed an Executive Vice President of the Corporation
and the Bank in February 1994, and is currently Chairman of the Credit Policy
Committee. Previously, he served as head of the U.S. Corporate Group of
Commercial Banking from 1987 to 1992. He had been a Senior Vice President of the
Bank since 1980 and of the Corporation since 1992. Mr. Trukenbrod, 57, joined
the Bank in 1962.
There is no family relationship between any of the above executive officers
and directors.
The positions of Chairman of the Board, Chief Executive Officer, President
and Vice Chairman are elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of
stockholders. The other officers are appointed annually by the Board. Officers
continue to hold office until their successors are duly elected or until their
death, resignation or removal by the Board.
Item 2-Properties
The executive offices of the Corporation and the Bank are located at 50
South LaSalle Street in the financial district of Chicago. This Bank-owned
building is occupied by various divisions of Northern Trust's business units.
Financial services are provided by the Bank at this location. Adjacent to this
building are two office buildings in which the Bank leases approximately 332,000
square feet of space principally for staff divisions of the business units. The
Bank also leases approximately 112,000 square feet of a building at 125 South
Wacker Drive in Chicago for computer facilities, banking operations and personal
banking services. Financial services are also provided by the Bank at fourteen
other Chicago metropolitan area locations, five of which are owned and nine of
which are leased. The Bank's trust and banking operations are located in a
465,000 square foot facility at 801 South Canal Street in Chicago. The building
is leased by the Corporation under terms that qualify as a capital lease. Space
for the Bank's London Branch, Edge Act subsidiary and The Northern Trust
Company, Canada are leased.
The Corporation's other subsidiaries operate from 49 locations, 10 of which
are owned and 39 of which are leased. Detailed information regarding the
addresses of all Northern Trust's locations can be found on pages 74 and 75 in
the Corporation's Annual Report to Stockholders for the year ended December 31,
1996, which is incorporated herein by reference.
The facilities which are owned or leased are suitable and adequate for
business needs. For additional information relating to properties and lease
commitments, refer to Note 8 titled "Buildings and Equipment" and Note 9 titled
"Lease Commitments" on pages 45 and 46 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1996, which information is
incorporated herein by reference.
Item 3-Legal Proceedings
The information called for by this item is incorporated herein by reference
to Note 18 titled "Contingent Liabilities" on page 52 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1996.
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 70 and 71 of the Corporation's Annual Report
to Stockholders for the year ended December 31, 1996.
Information regarding dividend restrictions of the Corporation's banking
subsidiaries is incorporated herein by reference to Note 14 titled "Restrictions
on Subsidiary Dividends and Loans or Advances" on page 49 of the Corporation's
Annual Report to Stockholders for the year ended December 31, 1996.
Item 6--Selected Financial Data
The information called for by this item is incorporated herein by reference
to the table titled "Summary of Selected Consolidated Financial Data" on page 18
of the Corporation's Annual Report to Stockholders for the year ended December
31, 1996.
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 18 through 35 of the Corporation's Annual Report to
Stockholders for the year ended December 31, 1996.
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, 1996, are incorporated herein by reference.
1996
Annual Report
For Northern Trust Corporation and Subsidiaries: Page(s)
- ----------------------------------------------------------------------------------- --------------
Consolidated Balance Sheet--December 31, 1996 and 1995............................ 36
Consolidated Statement of Income--Years Ended December 31, 1996, 1995 and 1994.... 37
Consolidated Statement of Changes in Stockholders' Equity--Years Ended December
31, 1996, 1995 and 1994........................................................... 38
Consolidated Statement of Cash Flows--Years Ended December 31, 1996, 1995 and
1994.............................................................................. 39
- ----------------------------------------------------------------------------------- --------------
For Northern Trust Corporation (Corporation Only)
- ----------------------------------------------------------------------------------- --------------
Condensed Balance Sheet--December 31, 1996 and 1995............................... 62
Condensed Statement of Income--Years Ended December 31, 1996, 1995 and 1994....... 62
Consolidated Statement of Changes in Stockholders' Equity--Years Ended December
31, 1996, 1995 and 1994........................................................... 38
Condensed Statement of Cash Flows--Years Ended December 31, 1996, 1995 and 1994... 63
- ----------------------------------------------------------------------------------- --------------
Notes to Consolidated Financial Statements........................................ 40-63
- ----------------------------------------------------------------------------------- --------------
Report of Independent Public Accountants.......................................... 64
- ----------------------------------------------------------------------------------- --------------
The section titled "Quarterly Financial Data" on pages 70 and 71 of the
Corporation's Annual Report to Stockholders for the year ended December 31,
1996, 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 1997 Notice and Proxy
Statement filed on March 10, 1997 in connection with the solicitation of proxies
for the Annual Meeting of Stockholders to be held April 15, 1997. The
information called for by Item 10 relating to Executive Officers is set forth in
Part I of this Annual Report on Form 10-K.
Item 11-Executive Compensation
The information called for by this item is incorporated herein by reference
to pages 8 and 9 and pages 10 through 17 of the Corporation's definitive 1997
Notice and Proxy Statement filed in connection with the solicitation of proxies
for the Annual Meeting of Stockholders to be held April 15, 1997.
Item 12-Security Ownership of Certain Beneficial Owners and Management
The information called for by this item is incorporated herein by reference
to pages 6 and 7 of the Corporation's definitive 1997 Notice and Proxy Statement
filed in connection with the solicitation of proxies for the Annual Meeting of
Stockholders to be held April 15, 1997.
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 1997 Notice and Proxy Statement filed
in connection with the solicitation of proxies for the Annual Meeting of
Stockholders to be held April 15, 1997.
25
- --------------------------------------------------------------------------------
PART IV
Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Item 14(a)(1) and (2)--
Northern Trust Corporation and Subsidiaries List of Financial Statements
and Financial Statement Schedules
The following financial information is set forth in Item 1 for
informational purposes only:
Financial Information of The Northern Trust Company (Bank Only):
Unaudited Consolidated Balance Sheet--December 31, 1996 and 1995.
Unaudited Consolidated Statement of Income--Years Ended December
31, 1996, 1995 and 1994.
The following consolidated financial statements of the Corporation and its
subsidiaries are incorporated by reference into Item 8 from the Corporation's
Annual Report to Stockholders for the year ended December 31, 1996:
Consolidated Financial Statements of Northern Trust Corporation and
Subsidiaries:
Consolidated Balance Sheet--December 31, 1996 and 1995.
Consolidated Statement of Income--Years Ended December 31, 1996,
1995 and 1994.
Consolidated Statement of Changes in Stockholders' Equity--Years
Ended December 31, 1996, 1995 and 1994.
Consolidated Statement of Cash Flows--Years Ended December 31,
1996, 1995 and 1994.
The following financial information is incorporated by reference into Item
8 from the Corporation's Annual Report to Stockholders for the year ended
December 31, 1996:
Financial Statements of Northern Trust Corporation (Corporation):
Condensed Balance Sheet--December 31, 1996 and 1995.
Condensed Statement of Income--Years Ended December 31, 1996, 1995
and 1994.
Consolidated Statement of Changes in Stockholders' Equity--Years
Ended December 31, 1996, 1995 and 1994.
Condensed Statement of Cash Flows--Years Ended December 31, 1996,
1995 and 1994.
The Notes to Consolidated Financial Statements as of December 31, 1996,
incorporated by reference into Item 8 from the Corporation's Annual Report to
Stockholders for the year ended December 31, 1996, pertain to the Bank only
information, consolidated financial statements and Corporation only information
listed above.
The Report of Independent Public Accountants incorporated by reference into
Item 8 from the Corporation's Annual Report to Stockholders for the year ended
December 31, 1996 pertains to the consolidated financial statements and
Corporation only information listed above.
Financial statement schedules have been omitted for the reason that they
are not required or are not applicable.
Item 14(a)3--Exhibits
The exhibits listed on the Exhibit Index beginning on page 29 of this
Form 10-K are filed herewith or are incorporated herein by reference to other
filings.
Item 14(b)--Reports on Form 8-K
In a report on Form 8-K dated October 16, 1996, Northern Trust incorporated
by reference in Item 5 its October 15, 1996 press release, reporting on its
earnings for the third quarter and nine months of 1996. The press release, with
summary financial information, was filed pursuant to Item 7 of the Form 8-K.
- --------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------
In a report on Form 8-K dated November 19, 1996, Northern Trust
incorporated by reference in Item 5, its November 19, 1996 press release,
reporting its Board of Directors had declared a 2-for-1 split of the common
stock of the Corporation, to be effected December 9, 1996 by means of a 100%
stock distribution. The Corporation also announced the declaration of a
quarterly cash dividend on shares of its common stock outstanding after the
split in the amount of 18 cents per share. The press release also reported that
the Board of Directors had increased the Corporation's common stock buyback
authorization by approximately 2.1 million shares, thus allowing the purchase in
the future of up to an aggregate of 2.5 million shares of the Corporation's
common stock (5 million shares post-split). The press release exhibit was filed
pursuant to Item 7 of the Form 8-K.
- --------------------------------------------------------------------------------
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-K
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 14, 1997 Northern Trust Corporation
(Registrant)
By William A. Osborn
-------------------------------
William A. Osborn
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Form 10-K Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
Signature Title
--------- -----
William A. Osborn
- ---------------------------- Chairman of the Board,
William A. Osborn Chief Executive Officer and Director
Perry R. Pero
- ---------------------------- Senior Executive Vice President
Perry R. Pero and Chief Financial Officer
Harry W. Short
- ---------------------------- Senior Vice President and Controller
Harry W. Short (Chief Accounting Officer)
Dolores E. Cross Director
Robert S. Hamada Director
Barry G. Hastings Director
Robert A. Helman Director
Arthur L. Kelly Director
Robert D. Krebs Director
William G. Mitchell Director
Edward J. Mooney Director
Harold B. Smith Director
William D. Smithburg Director
Bide L. Thomas Director
By: Peter L. Rossiter
----------------------------
Peter L. Rossiter
Attorney-in-Fact
Date: March 14, 1997
28
EXHIBIT INDEX
The following Exhibits are filed herewith or are incorporated herein
by reference.
Exhibit Incorporated
By Reference to
Exhibit of Same Name
Exhibit in Prior Filing*
Number Description or Filed Herewith
- ------- ------------------------------------------------- -------------------
(3) Articles of Incorporation and By-laws
(i) Amendment to Restated Certificate of
Incorporation of Northern Trust
Corporation.................................. Filed Herewith
(ii) Restated Certificate of Incorporation
of Northern Trust Corporation as amended
to date...................................... Filed Herewith
(iii) Amendment to By-laws of the Corporation
and By-laws as amended....................... (9)
(4) Instruments Defining the Rights of Security Holders
(i) Form of The Northern Trust Company's Global
Senior Bank Note (Fixed Rate)................ (1)
(ii) Form of The Northern Trust Company's Global
Senior Bank Note (Floating Rate)............. (1)
(iii) Form of The Northern Trust Company's Global
Subordinated Medium-Term Bank Note
(Fixed Rate)................................. (1)
(iv) Form of The Northern Trust Company's Global
Subordinated Medium-Term Bank Note
(Floating Rate).............................. (1)
(v) Junior Subordinated Indenture, dated as of
January 1, 1997, between Northern Trust
Corporation and The First National Bank of
Chicago, as Debenture Trustee................ (12)
(10) Material Contracts
(i) Northern Trust Corporation Amended Incentive
Stock Plan, as amended May 20, 1986 **....... (2)
(1) Amendment dated November 1, 1996......... (11)
(ii) Long-Term Performance Stock Plan of Northern
Trust Corporation, as amended April 19,
1988 **...................................... (3)
(iii) 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)................................ (3)
(iv) Restated Northern Trust Employee Stock Ownership
Plan, dated January 1, 1989 as amended to
date......................................... (11)
(v) Amended Trust Agreement between The Northern
Trust Company and Citizens and Southern Trust
Company (Georgia), N.A., (predecessor of
NationsBank) dated January 26, 1989............ (11)
(vi) 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................................... (4)
29
- --------------------------------------------------------------------------------
(vii) Guaranty Agreement of Registrant with
respect to the 8.23% Notes of the ESOP
Trust, dated January 26, 1989................. (4)
(viii) Share Acquisition Agreement between
Registrant and the ESOP Trust, dated
January 26, 1989.............................. (4)
(ix) Implementation Agreement dated June 26, 1996
between the Registrant, The Northern Trust
Company, the ESOP Trust and NationsBank
(South) N.A. as Trustee....................... (10)
(x) Term Loan Agreement between the ESOP Trust
and the Registrant dated June 28, 1996........ (10)
(xi) Restated Trust Agreement dated June 18, 1996,
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**..................................... (11)
(xii) Supplemental Employee Stock Ownership Plan for
Employees of The Northern Trust Company as
amended and restated as of April 30, 1996**... (11)
(xiii) Supplemental Thrift-Incentive Plan for
Employees of The Northern Trust Company as
amended and restated as of April 30, 1996**... (11)
(xiv) Supplemental Pension Plan for Employees of
The Northern Trust Company as amended and
restated as of April 30, 1996**............... (11)
(xv) Rights Agreement, dated as of October 17, 1989,
between Northern Trust Corporation and Harris
Trust & Savings Bank.......................... (5)
(xvi) Amendments effective September 30, 1996 to
the Northern Trust Employee Stock Ownership
Plan for certain former employees of First
Chicago NBD Corporation....................... Filed Herewith
(xvii) 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.......................... (6)
(1) First Amendment to Agreement of Lease
dated August 15, 1986..................... (8)
(2) Second Amendment to Agreement of Lease
dated August 6, 1987...................... (8)
(3) Third Amendment to Agreement of Lease
dated May 20, 1988........................ (8)
(4) Fourth Amendment to Agreement of Lease
dated May 1, 1990......................... (8)
(5) Fifth Amendment to Agreement of Lease
dated January 12, 1995.................... (8)
(6) Sixth Amendment to Agreement of Lease
dated November 30, 1995................... (8)
(xviii) 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.................................... (6)
(1) First Amendment to Office Lease dated
October 20, 1987.......................... Filed Herewith
(xix) Amended 1992 Incentive Stock Plan**........... (7)
(1) Amendment dated November 1, 1996.......... (11)
(xx) Northern Trust Corporation (1996) Management
Performance Plan**............................ (9)
(xxi) Northern Trust Corporation (1996) Annual
Performance Plan**............................ (9)
(xxii) Form of Employment Security Agreement dated
March 1, 1996 entered into between Northern
Trust Corporation and each of 7 executive
officers - as amended**....................... (10)
(xxiii) Form of Employment Security Agreement dated
May 21, 1996 entered into between Northern
Trust Corporation and each of 30 officers**... (10)
- --------------------------------------------------------------------------------
30
- --------------------------------------------------------------------------------
(xxiv) Form of Employment Security Agreement
dated May 21, 1996 entered into between
Northern Trust Corporation and each of
14 officers**................................. (10)
(xxv) Amended and Restated Trust Agreement of
NTC Capital I, dated as of January 16,
1997, among Northern Trust Corporation,
as Depositor, The First National Bank of
Chicago, as Property Trustee, First
Chicago Delaware, Inc., as Delaware
Trustee, and the Administrative Trustees
named therein................................. (12)
(xxvi) Guarantee Agreement, dated as of January
16, 1997, relating to NTC Capital I, by
and between Northern Trust Corporation, as
Guarantor, and The First National Bank of
Chicago, as Guarantee Trustee................. (12)
(11) Computation of Per Share Earnings..................... Filed Herewith
(13) 1996 Annual Report to Stockholders.................... Filed Herewith
(21) Subsidiaries of the Registrant........................ Filed Herewith
(23) Consent of Independent Public Accountants............. Filed Herewith
(24) Powers of Attorney.................................... Filed Herewith
(27) Financial Data Schedule............................... Filed Herewith
- --------------------------------------------------------------------------------
31
- --------------------------------------------------------------------------------
*Prior Filings (File No. 0-5965, except as noted)
(1) Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
(2) Quarterly Report on Form 10-Q for the quarter ended September 30, 1986
(3) Annual Report on Form 10-K for the year ended December 31, 1988
(4) Form 8-K dated January 26, 1989
(5) Form 8-A dated October 30, 1989
(6) Annual Report on Form 10-K for the year ended December 31, 1990
(7) Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
(8) Annual Report on Form 10-K for the year ended December 31, 1995
(9) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
(10) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996
(11) Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
(12) Form 8-K dated January 16, 1997
** Denotes management contract or compensatory plan or arrangement
Upon written request to Peter L. Rossiter, Secretary, Northern Trust
Corporation, 50 South LaSalle Street, Chicago, Illinois 60675, copies of
exhibits listed above are available to Northern Trust Corporation stockholders
by specifically identifying each exhibit desired in the request.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Corporation hereby
agrees to furnish the Commission, upon request, any instrument defining the
rights of holders of long-term debt of the Corporation not filed as an exhibit
herein. No such instrument authorizes long-term debt securities in excess of 10%
of the total assets of the Corporation and its subsidiaries on a consolidated
basis.
- --------------------------------------------------------------------------------
32