-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bth+6lj7qg5DalBVcr5Ls31H2qTXOL7HZJtJCuzW6oacNlL0tsW7i5LBTejeyBtc 9CY4c/UUof/B1HDTG7YhKw== 0000950131-96-002204.txt : 19960515 0000950131-96-002204.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950131-96-002204 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHERN TRUST CORP CENTRAL INDEX KEY: 0000073124 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 362723087 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05965 FILM NUMBER: 96562889 BUSINESS ADDRESS: STREET 1: 50 S LA SALLE ST CITY: CHICAGO STATE: IL ZIP: 60675 BUSINESS PHONE: 3126306000 FORMER COMPANY: FORMER CONFORMED NAME: NORTRUST CORP DATE OF NAME CHANGE: 19780525 10-Q 1 FORM 10-Q =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 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 ------------------------ 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 [_] 56,648,044 Shares - $1.66 2/3 Par Value (Shares of Common Stock Outstanding on March 31, 1996) ===============================================================================
PART I - FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION March 31 December 31 March 31 ------------ ------------ ------------ ($ In Millions) 1996 1995 1995 - ---------------------------------------------------------------------------- ------------ ------------ ------------ Assets Cash and Due from Banks $ 1,125.7 $ 1,308.9 $ 1,180.8 Money Market Assets Federal Funds Sold and Securities Purchased under Agreements to Resell 118.8 162.1 176.3 Time Deposits with Banks 1,828.9 1,567.6 1,767.7 Other 54.4 54.5 14.3 --------------------------------------------------------------------------- ------------- ------------- ------------- Total 2,002.1 1,784.2 1,958.3 --------------------------------------------------------------------------- ------------ ------------- ------------- Securities (Fair value $6,110.5 at March 1996, $5,787.8 at December 1995 and $5,523.3 at March 1995) 6,087.3 5,760.3 5,495.1 Loans and Leases (Net of unearned income of $89.6 at March 1996, $89.6 at December 1995, and $71.2 at March 1995) 10,025.6 9,906.0 8,875.7 Reserve for Credit Losses (147.2) (147.1) (145.8) Buildings and Equipment 287.9 281.5 280.8 Customers' Acceptance Liability 28.9 35.8 52.6 Trust Security Settlement Receivables 215.8 327.1 232.2 Other Assets 675.6 676.8 806.4 --------------------------------------------------------------------------- ------------- ------------- ------------- Total Assets $ 20,301.7 $ 19,933.5 $ 18,736.1 --------------------------------------------------------------------------- ------------- ------------- ------------ Liabilities Deposits Demand and Other Noninterest-Bearing $ 2,609.8 $ 2,853.1 $ 2,475.1 Savings and Money Market Deposits 3,598.4 3,385.3 3,050.1 Savings Certificates 2,077.9 2,158.8 1,974.6 Other Time 451.2 384.3 334.9 Foreign Offices - Demand 309.2 459.8 264.5 - Time 3,053.9 3,246.9 3,510.7 --------------------------------------------------------------------------- ------------- ------------- ------------- Total Deposits 12,100.4 12,488.2 11,609.9 Federal Funds Purchased 2,715.2 2,300.1 1,471.1 Securities Sold Under Agreements to Repurchase 1,911.5 1,858.7 2,283.0 Commercial Paper 144.3 146.7 134.4 Other Borrowings 914.8 875.9 623.9 Senior Notes 305.0 17.0 392.0 Notes Payable 336.1 334.6 244.8 Liability on Acceptances 28.9 35.8 52.6 Other Liabilities 376.9 423.9 576.3 --------------------------------------------------------------------------- ------------- ------------- ------------- Total Liabilities 18,833.1 18,480.9 17,388.0 --------------------------------------------------------------------------- ------------ ------------- ------------ Stockholders' Equity Preferred Stock 120.0 170.0 170.0 Common Stock - $1.66 2/3 Par Value 95.0 93.6 93.3 March 1996 December 1995 March 1995 --------------------------------------------------------------------------- Shares authorized 140,000,000 140,000,000 140,000,000 Shares issued 56,979,579 56,158,064 55,994,352 Shares outstanding 56,648,044 55,664,412 55,980,309 Capital Surplus 332.7 306.1 306.7 Retained Earnings 971.7 928.8 810.7 Net Unrealized Gain (Loss) on Securities (3.0) 2.6 (9.2) Common Stock Issuable - Performance Plan 10.4 14.7 16.7 Deferred Compensation - ESOP and Other (40.3) (39.4) (39.6) Treasury Stock - (at cost, 331,535 shares at March 1996, 493,652 shares at December 1995, and 14,043 shares at March 1995) (17.9) (23.8) (.5) --------------------------------------------------------------------------- ------------ ------------- ------------ Total Stockholders' Equity 1,468.6 1,452.6 1,348.1 --------------------------------------------------------------------------- ------------ ------------ ------------- Total Liabilities and Stockholders' Equity $ 20,301.7 $ 19,933.5 $ 18,736.1 --------------------------------------------------------------------------- ------------ ------------ ------------
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CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION First Quarter Ended March 31 ------------------------ ($ In Millions Except Per Share Information) 1996 1995 - -------------------------------------------------------------------------- ----------- ----------- Interest Income Money Market Assets Federal Funds Sold and Securities Purchased under Agreements to Resell $ 3.8 $ 3.5 Time Deposits with Banks 22.8 26.7 Other .8 .2 - -------------------------------------------------------------------------- ----------- ----------- Total 27.4 30.4 - -------------------------------------------------------------------------- ----------- ----------- Securities 93.6 85.1 Loans and Leases 163.9 145.7 - -------------------------------------------------------------------------- ----------- ----------- Total Interest Income 284.9 261.2 - -------------------------------------------------------------------------- ----------- ----------- Interest Expense Deposits - Savings and Money Market Deposits 28.1 26.6 - Savings Certificates 30.9 24.5 - Other Time 8.4 6.4 - Foreign Offices 44.1 50.6 Federal Funds Purchased 28.7 16.1 Securities Sold under Agreements to Repurchase 26.1 24.1 Commercial Paper 1.9 2.1 Other Borrowings 12.8 10.5 Senior Notes 4.1 6.9 Notes Payable 6.4 4.9 - -------------------------------------------------------------------------- ----------- ----------- Total Interest Expense 191.5 172.7 - -------------------------------------------------------------------------- ----------- ----------- Net Interest Income 93.4 88.5 Provision for Credit Losses 5.0 1.5 - -------------------------------------------------------------------------- ----------- ----------- Net Interest Income after Provision for Credit Losses 88.4 87.0 - -------------------------------------------------------------------------- ----------- ----------- Noninterest Income Trust Fees 143.9 120.8 Security Commissions and Trading Income 6.3 5.9 Other Operating Income 37.2 34.8 Investment Security Gains .3 .1 - -------------------------------------------------------------------------- ----------- ----------- Total Noninterest Income 187.7 161.6 - -------------------------------------------------------------------------- ----------- ----------- Income before Noninterest Expenses 276.1 248.6 - -------------------------------------------------------------------------- ----------- ----------- Noninterest Expenses Salaries 87.7 82.5 Pension and Other Employee Benefits 20.4 21.5 Occupancy Expense 15.8 14.2 Equipment Expense 13.6 12.6 Other Operating Expenses 46.5 46.5 - -------------------------------------------------------------------------- ----------- ----------- Total Noninterest Expenses 184.0 177.3 - -------------------------------------------------------------------------- ----------- ----------- Income before Income Taxes 92.1 71.3 Provision for Income Taxes 30.6 22.0 - -------------------------------------------------------------------------- ----------- ----------- Net Income $ 61.5 $ 49.3 - -------------------------------------------------------------------------- ----------- ----------- Net Income Applicable to Common Stock $ 60.2 $ 47.2 - -------------------------------------------------------------------------- ----------- ----------- Net Income Per Common Share - Primary $ 1.05 $ .86 - Fully Diluted 1.04 .85 - -------------------------------------------------------------------------- ----------- ----------- Average Number of Common Shares Outstanding - Primary 57,490,937 55,168,319 - Fully Diluted 57,922,410 56,394,815 - -------------------------------------------------------------------------- ----------- -----------
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NORTHERN TRUST CORPORATION First Quarter Ended March 31 -------------------- (In Millions) 1996 1995 - -------------------------------------------------------- --------- --------- Preferred Stock Balance at January 1 $ 170.0 $ 170.0 Conversion of Preferred Stock, Series E (50.0) - - -------------------------------------------------------- --------- --------- Balance at March 31 120.0 170.0 - -------------------------------------------------------- --------- --------- Common Stock Balance at January 1 93.6 90.6 Stock Issued in Acquisitions - 2.7 Conversion of Preferred Stock, Series E 1.4 - - -------------------------------------------------------- --------- --------- Balance at March 31 95.0 93.3 - -------------------------------------------------------- --------- --------- Capital Surplus Balance at January 1 306.1 302.2 Stock Issued - Incentive Plan and Awards (2.6) (2.4) Stock Issued in Acquisitions - 6.9 Conversion of Preferred Stock, Series E 29.2 - - -------------------------------------------------------- --------- --------- Balance at March 31 332.7 306.7 - -------------------------------------------------------- --------- --------- Retained Earnings Balance at January 1 928.8 762.7 Net Income 61.5 49.3 Dividend Declared on Common Stock (17.6) (14.1) Dividends Declared on Preferred Stock (1.0) (2.3) Pooled Affiliates - 15.1 - -------------------------------------------------------- --------- --------- Balance at March 31 971.7 810.7 - -------------------------------------------------------- --------- --------- Net Unrealized Gain (Loss) on Securities Balance at January 1 2.6 (15.8) Unrealized Gain (Loss), net (5.6) 6.6 - -------------------------------------------------------- --------- --------- Balance at March 31 (3.0) (9.2) - -------------------------------------------------------- --------- --------- Common Stock Issuable - Performance Plan Balance at January 1 14.7 17.9 Stock Issuable, net of Stock Issued (4.3) (1.2) - -------------------------------------------------------- --------- --------- Balance at March 31 10.4 16.7 - -------------------------------------------------------- --------- --------- Deferred Compensation - ESOP and Other Balance at January 1 (39.4) (38.8) Compensation Deferred (1.8) (1.5) Compensation Amortized .9 .7 - -------------------------------------------------------- --------- --------- Balance at March 31 (40.3) (39.6) - -------------------------------------------------------- --------- --------- Treasury Stock Balance at January 1 (23.8) (8.1) Stock Options and Awards 17.2 10.4 Stock Purchased (30.5) (2.8) Conversion of Preferred Stock, Series E 19.2 - - -------------------------------------------------------- --------- --------- Balance at March 31 (17.9) (.5) - -------------------------------------------------------- --------- --------- Total Stockholders' Equity at March 31 $1,468.6 $1,348.1 - -------------------------------------------------------- --------- ---------
4 CONSOLIDATED STATEMENT OF CASH FLOWS Northern Trust Corporation
First Quarter Ended March 31 -------------------------- (In Millions) 1996 1995 - --------------------------------------------------------------------------------- ----------- ----------- Cash Flows from Operating Activities: Net Income $ 61.5 $ 49.3 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses 5.0 1.5 Depreciation on Buildings and Equipment 11.8 10.8 Increase in Interest Receivable (2.7) (18.5) Increase (Decrease) in Interest Payable (.7) 5.6 Amortization and Accretion of Securities and Unearned Income (29.7) (45.6) Amortization of Software, Goodwill and Other Intangibles 11.0 9.1 Net (Increase) Decrease in Trading Account Securities 82.0 (53.9) Other Noncash, net (22.9) 57.6 - --------------------------------------------------------------------------------- ---------- ----------- Net Cash Flows from Operating Activities 115.3 15.9 - --------------------------------------------------------------------------------- ---------- ----------- Cash Flows from Investing Activities: Net Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell 43.3 613.8 Net (Increase) Decrease in Time Deposits with Banks (261.3) 97.0 Net (Increase) Decrease in Other Money Market Assets .1 (4.8) Purchases of Securities--Held to Maturity (62.7) (179.4) Proceeds from Maturity and Redemption of Securities--Held to Maturity 108.5 238.9 Purchases of Securities--Available for Sale (7,198.0) (3,724.4) Proceeds from Sale, Maturity and Redemption of Securities--Available for Sale 6,754.9 3,404.4 Net Increase in Loans and Leases (125.4) (183.9) Purchases of Buildings and Equipment (16.7) (12.3) Net Decrease in Trust Security Settlement Receivables 111.3 73.5 Other, net (13.2) .4 - --------------------------------------------------------------------------------- ---------- ----------- Net Cash Flows from Investing Activities (659.2) 323.2 - --------------------------------------------------------------------------------- ---------- ----------- Cash Flows from Financing Activities: Net Decrease in Deposits (387.7) (303.9) Net Increase in Federal Funds Purchased 415.1 499.1 Net Increase in Securities Sold under Agreement to Repurchase 52.8 66.1 Net Increase (Decrease) in Commercial Paper (2.4) 10.6 Net Increase (Decrease) in Short-Term Other Borrowings 135.3 (262.0) Proceeds from Term Federal Funds Purchased 902.4 437.9 Repayments of Term Federal Funds Purchased (998.8) (629.9) Proceeds from Senior Notes 700.0 -- Repayments of Senior Notes (412.0) (155.0) Treasury Stock Purchased (29.2) (1.9) Net Proceeds from Stock Options 2.1 1.1 Cash Dividends Paid on Common and Preferred Stock (18.4) (16.3) Other, net 1.5 3.4 - --------------------------------------------------------------------------------- ---------- ----------- Net Cash Flows from Financing Activities 360.7 (350.8) - --------------------------------------------------------------------------------- ---------- ----------- Decrease in Cash and Due from Banks (183.2) (11.7) Cash and Due from Banks at Beginning of Year 1,308.9 1,192.5 - --------------------------------------------------------------------------------- ---------- ----------- Cash and Due from Banks at March 31 $ 1,125.7 $ 1,180.8 - --------------------------------------------------------------------------------- ---------- ----------- Schedule of Noncash Investing and Financing Activities: Conversion of Preferred Stock, Series E to Common Stock $ 49.7 $ -- Acquisition of Affiliate for Stock -- 24.7 Supplemental Disclosures of Cash Flow Information: Interest Paid on Deposits and Short- and Long-Term Borrowings $ 192.2 $ 166.7 Income Taxes Received (1.9) (5.3) - --------------------------------------------------------------------------------- ---------- -----------
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION - The consolidated financial statements include the accounts of Northern Trust Corporation and its subsidiaries ("Northern Trust"), all of which are wholly owned. Significant intercompany balances and transactions have been eliminated. The consolidated financial statements as of March 31, 1996 and 1995 have not been audited by independent public accountants. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. For a description of Northern Trust's significant accounting principles, refer to the Notes to Consolidated Financial Statements in the 1995 Annual Report to Stockholders. 2. SECURITIES - The following table summarizes the book and fair values of securities.
March 31, 1996 December 31, 1995 March 31, 1995 ------------------------------------------------------------------------- Book Fair Book Fair Book Fair (In Millions) Value Value Value Value Value Value - --------------------------------------------------------------------------------------------------------- Held to Maturity U.S. Government $ 93.4 $ 93.3 $ 116.1 $ 116.3 $ 117.8 $ 117.6 Obligations of States and Political Subdivisions 348.9 372.2 366.9 394.0 445.8 474.8 Federal Agency 18.2 18.2 22.2 22.4 22.4 21.8 Other 29.4 29.4 29.9 29.9 29.3 29.3 - --------------------------------------------------------------------------------------------------------- Subtotal 489.9 513.1 535.1 562.6 615.3 643.5 - --------------------------------------------------------------------------------------------------------- Available for Sale U.S. Government 2,160.5 2,160.5 1,667.7 1,667.7 854.0 854.0 Obligations of States and Political Subdivisions 73.2 73.2 70.2 70.2 - - Federal Agency 3,167.6 3,167.6 3,152.8 3,152.8 3,619.1 3,619.1 Preferred Stock 112.4 112.4 147.8 147.8 196.4 196.4 Other 76.8 76.8 97.8 97.8 152.4 152.4 - --------------------------------------------------------------------------------------------------------- Subtotal 5,590.5 5,590.5 5,136.3 5,136.3 4,821.9 4,821.9 - --------------------------------------------------------------------------------------------------------- Trading Account 6.9 6.9 88.9 88.9 57.9 57.9 - --------------------------------------------------------------------------------------------------------- Total Securities $6,087.3 $6,110.5 $5,760.3 $5,787.8 $5,495.1 $5,523.3 - --------------------------------------------------------------------------------------------------------- Reconciliation of Book Values to Fair Values of Securities Held to Maturity March 31, 1996 - --------------------------------------------------------------------------------------------------------- Gross Unrealized Book ---------------- Fair (In Millions) Value Gains Losses Value - --------------------------------------------------------------------------------------------------------- Held to Maturity U.S. Government $ 93.4 $ - $.1 $ 93.3 Obligations of States and Political Subdivisions 348.9 23.5 .2 372.2 Federal Agency 18.2 .2 .2 18.2 Other 29.4 - - 29.4 - --------------------------------------------------------------------------------------------------------- Total $489.9 $23.7 $.5 $513.1 - ---------------------------------------------------------------------------------------------------------
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Reconciliation of Amortized Cost to Fair Values of Securities Available for Sale March 31, 1996 - ---------------------------------------------------------------------------------- Gross Unrealized Amortized ----------------- Fair (In Millions) Cost Gains Losses Value - ---------------------------------------------------------------------------------- Available for Sale U.S. Government $2,162.4 $ 2.3 $ 4.2 $2,160.5 Obligations of States and Political Subdivisions 72.3 1.9 1.0 73.2 Federal Agency 3,167.1 4.4 3.9 3,167.6 Preferred Stock 112.7 - .3 112.4 Other 77.8 .8 1.8 76.8 - ---------------------------------------------------------------------------------- Total $5,592.3 $ 9.4 $ 11.2 $5,590.5 - ----------------------------------------------------------------------------------
Unrealized gains and losses on off-balance sheet financial instruments used to hedge available for sale securities totaled $3.3 million and $6.3 million, respectively, as of March 31, 1996. Unrealized gains on these hedges are reported as other assets in the consolidated balance sheet; unrealized losses are reported as other liabilities. As of March 31, 1996, stockholders' equity included a charge of $3.0 million, net of tax, to recognize the depreciation on securities available for sale and the related hedges. 3. PLEDGED ASSETS - Securities and loans pledged to secure public and trust deposits, repurchase agreements and for other purposes as required or permitted by law were $4.4 billion on March 31, 1996, $3.9 billion on December 31, 1995 and $3.7 billion on March 31, 1995. 4. CONTINGENT LIABILITIES - Standby letters of credit outstanding were $1.1 billion on March 31, 1996, $1.0 billion on December 31, 1995 and $833.7 million on March 31, 1995. 5. LOANS AND LEASES - Amounts outstanding in selected loan categories are shown below:
March 31 December 31 March 31 --------------------------------- (In Millions) 1996 1995 1995 - -------------------------------------------------------------- Domestic Commercial $ 3,052.1 $3,202.1 $2,990.3 Residential Real Estate 4,048.1 3,896.4 3,429.5 Commercial Real Estate 537.0 512.6 505.6 Broker 383.3 304.0 169.9 Consumer 748.1 758.9 633.5 Other 560.7 625.5 614.8 Lease Financing 198.9 202.3 154.6 - -------------------------------------------------------------- Total Domestic 9,528.2 9,501.8 8,498.2 International 497.4 404.2 377.5 - -------------------------------------------------------------- Total Loans and Leases $10,025.6 $9,906.0 $8,875.7 - --------------------------------------------------------------
7 At March 31, 1996, other domestic and international loans include $612.3 million of overnight trust-related advances in connection with next day security settlements, compared with $810.4 million at December 31, 1995 and $732.9 million at March 31, 1995. At March 31, 1996, nonperforming assets totaled $32.1 million. Included in this amount were loans with a recorded investment of $27.6 million which were also classified as impaired. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans totaling $16.0 million had no portion of the reserve for credit losses allocated to them, while $11.6 million had an allocated reserve of $3.8 million. For the first quarter of 1996, the total recorded investment in impaired loans averaged $24.4 million. Total interest income recognized on impaired loans for the quarter ended March 31, 1996 was $53 thousand, most of which was recognized using the cash-basis method of accounting. At March 31, 1995, nonperforming assets totaled $25.4 million and included $21.0 million of impaired loans. $16.6 million of these impaired loans had no reserve allocation while $4.4 million had an allocated reserve of $1.1 million. Impaired loans for the first quarter of 1995 averaged $26.5 million with $148 thousand of interest income recognized, principally on the cash-basis method. 6. RESERVE FOR CREDIT LOSSES - Changes in the reserve for credit losses were as follows:
Three Months Ended March 31 ------------------------------ (In Millions) 1996 1995 - ---------------------------------------------------------------- Balance at Beginning of Period $147.1 $144.8 Charge-Offs (5.7) (2.7) Recoveries 0.8 1.1 - ---------------------------------------------------------------- Net Charge-Offs (4.9) (1.6) - ---------------------------------------------------------------- Provision for Credit Losses 5.0 1.5 Reserve Related to Acquisition - 1.1 - ---------------------------------------------------------------- Balance at End of Period $147.2 $145.8 - ----------------------------------------------------------------
8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER EARNINGS HIGHLIGHTS Net income for the first quarter totaled a record $61.5 million, an increase of 25% from the $49.3 million reported in the first quarter of 1995. Net income per common share on a fully diluted basis increased 22% to $1.04 from $.85 in 1995. This earnings performance produced an annualized return on average common equity (ROE) of 18.35% versus 16.84% reported last year, and an annualized return on average assets (ROA) of 1.19% versus 1.09% in 1995. The quarter's performance reflects the leverage of a 12% increase in total revenues, driven by record levels of trust fees, coupled with a modest 4% increase in operating expenses. NONINTEREST INCOME Noninterest income increased 16% and totaled $187.7 million for the quarter, accounting for 65% of total taxable equivalent revenue. Trust fees, which represented 77% of noninterest income and 50% of total taxable equivalent revenue, grew 19% or $23.1 million over the like period of 1995 reaching $143.9 million. Fees generated by businesses acquired after the first quarter of 1995 accounted for $6.9 million of the trust fee growth. Exclusive of these fees, trust fees increased 13% compared to the first quarter of last year. Trust assets under administration at March 31, 1996 totaled $641.2 billion compared to $519.9 billion a year ago. Trust fees from Corporate and Institutional Services (C&IS) increased $14.6 million to $72.8 million. Fees generated by RCB International, Inc. (RCB), an October 31, 1995 acquisition, accounted for $6.0 million of the trust fee growth. Exclusive of the RCB contribution, C&IS trust fees increased $8.6 million or 15% from the year ago quarter. The increase in fees reflects substantial new business and strong growth across all product lines, particularly custody, securities lending, retirement services and investment management. Custody fees increased $2.7 million or 10% and totaled $30.2 million for the quarter. The growth, in both domestic and global custody, was driven by increased transaction-based fees and new business. Domestic securities lending fees, up 30% versus last year, reflect a 25% increase in the volume of securities loaned as well as a modest increase in the spread earned from the investment of the cash collateral. International securities lending fees increased 48% during the quarter, driven by a 79% increase in the volume of securities loaned, partially offset by narrowing spreads on the investment of the cash collateral. Fees from retirement services generated by Hazlehurst & Associates, Inc. increased 22%, principally from new business. Investment management fees, primarily related to institutional funds and enhanced cash products, increased 61% driven by new business and growth in customized products tailored to client needs. C&IS trust assets under administration grew 24% or $108.1 billion over last year and now total $567.1 billion. C&IS assets under the management of Northern Trust total $70.3 billion, up 39% from a year ago. Trust fees from Personal Financial Services (PFS) grew 14% from the prior year level of $62.6 million and totaled $71.1 million for the first quarter. PFS trust fee growth resulted primarily 9 from new business and higher market values of the assets administered. The principal contributors to this fee growth were the Wealth Management Group and PFS offices in Chicago, Florida, Arizona and Texas. The increase in fees also reflects the contribution of $.9 million in fees from Beach Bank, a March 31, 1995 acquisition. During the first quarter of 1996, new offices were opened in Bonita Springs and Delray Beach, bringing to 21 the total number of offices in the high-growth Florida market. At March 31, 1996, Northern Trust's network of PFS offices totaled 52 locations throughout Illinois, Florida, California, Arizona and Texas. Total personal trust assets under administration increased $13.2 billion from the prior year and totaled $74.1 billion at March 31, 1996, with $44.2 billion under management. Security commissions and trading income totaled $6.3 million compared with $5.9 million reported in the first quarter of 1995. The increase resulted primarily from a higher volume of trading activity by individual investors. Other operating income totaled $37.2 million in the quarter, compared to $34.8 million in the like quarter of 1995. The principal items included in other operating income are foreign exchange trading profits and treasury management fees. Foreign exchange trading profits of $12.5 million increased 12% from the year ago quarter. Foreign exchange trading profits, generated in both Chicago and London, continue to benefit from the increase in cross-border investment activities of Master Trust/Master Custody clients, although they are also impacted by market volatility. The fee component of treasury management revenues rose 5% to $13.0 million compared to the prior year. Total treasury management revenues, including both fees and earnings on compensating deposit balances, were $20.5 million, representing a 6% increase from the first quarter of 1995. This improvement resulted from new business growth in all treasury management products, particularly electronic services. The year to year comparison of treasury management revenues was also impacted by a $.7 million decrease in the amount of FDIC insurance premiums that were previously passed through to clients in 1995. Other operating income in the first quarter also benefited from higher levels of the trust-related overnight advances on which fees are charged. NET INTEREST INCOME Net interest income for the first quarter totaled a record $93.4 million, 5% higher than the $88.5 million reported in the first quarter of 1995. Net interest income is defined as the total of interest income and amortized fees on earning assets, less interest expense on deposits and borrowed funds, adjusted for the impact of off-balance sheet hedging activity. When net interest income is adjusted to a fully taxable equivalent (FTE) basis, yields on taxable, nontaxable and partially taxable assets are comparable, although the adjustment to a FTE basis has no impact on net income. Net interest income on a FTE basis for the first quarter was $102.0 million, up 4% from the $98.1 million reported in 1995. The increase reflects the positive impact of 1995 acquisitions and higher levels of earning assets, offset in part by a decline in the net interest margin to 2.21% from 2.43% reported in the first quarter of 1995. Earning assets for the first quarter averaged $18.6 billion, up 13% from the $16.4 billion average for the first quarter of 1995. The $2.2 billion growth in average earning assets reflects a 15% or 10 $1.2 billion increase in average loans, and a $1.0 billion or 17% growth in average security holdings. Money market assets totaled $2.1 billion on average for the quarter, down 2% from the like period of 1995. The overall loan growth was concentrated in the domestic portfolio as international loans were essentially unchanged from the prior year level. Approximately one-half of the domestic growth was centered in residential mortgage loans, which increased to $3.9 billion on average and comprised 40% of the total average loan portfolio. Commercial and industrial loans grew $220 million to average $3.1 billion during the first quarter of 1996. Securities for the quarter averaged $6.7 billion, up 17% from the $5.7 billion reported last year, due primarily to a $1.1 billion increase in short-term U.S. Government securities. The growth in average earning assets was funded primarily by increased levels of interest-bearing deposits, federal funds purchased, repurchase agreements, and noninterest-related funds. Total interest-bearing deposits averaged $9.9 billion, up $528 million from the first quarter of 1995. This growth came principally from savings certificates (up $393 million), savings and money market deposits (up $314 million), and other time deposits (up $155 million), offset by a decline in foreign office time deposits of $334 million, concentrated primarily in the London Branch. Noninterest-related funds increased $272 million and averaged $2.8 billion due in large part to growth in stockholders' equity. Stockholders' equity increased $150 million or 11% and averaged $1.46 billion due primarily to growth in retained earnings. The remaining increase in average noninterest-related funds came from higher levels of demand deposit accounts resulting from acquisitions and growth from new and existing relationships. The net interest margin decreased to 2.21% compared with 2.43% last year. The flat yield curve experienced throughout much of the first quarter of 1996 narrowed spreads between returns on short-term assets and rates paid on retail deposits and various short-term funding sources. PROVISION FOR CREDIT LOSSES The provision for credit losses of $5.0 million compares to $1.5 million in the first quarter of 1995. For a discussion of the provision and reserve for credit losses, refer to the Asset Quality section on pages 13 through 15. NONINTEREST EXPENSES Noninterest expenses totaled $184.0 million for the quarter, up $6.7 million or 4% from $177.3 million in the first quarter of 1995. Operating expenses of the three businesses acquired in 1995 accounted for approximately $8.6 million of total expenses in the quarter, while the reduction in FDIC insurance premiums that began in the second half of 1995 lowered expenses in the first quarter of 1996 by $4.0 million. Northern Trust continues to invest in technology and in the expansion of its network of personal trust and banking offices. The incremental costs of these strategic programs in the first quarter have been largely offset by savings obtained through Northern Trust's stringent expense control initiatives. 11 Salaries and benefits, which represent 59% of total noninterest expenses, increased a modest 4% compared to the year ago quarter to $108.1 million. The principal items contributing to the change were merit increases, incentive compensation, and staff additions resulting from 1995 acquisitions and to support Northern Trust's growing retirement services activities. These increases were partially offset by a decline in staff levels in other areas of Northern Trust and cost savings from changes in several benefit plans effective January 1, 1996. Staff on a full-time equivalent basis at March 31, 1996 totaled 6,536 which is essentially unchanged from year-end 1995, but down 197 staff from March 31, 1995 (exclusive of 179 employees added through acquisitions). Net occupancy expense totaled $15.8 million, up 11% or $1.6 million from $14.2 million in the first quarter of 1995, due in part to acquisitions and new offices. The principal components of the increase were higher rent, real estate taxes and utility costs, and amortization and depreciation of leasehold improvements and buildings, offset in part by lower levels of lease operating costs. Equipment expense, which includes depreciation, rental, and maintenance costs, totaled $13.6 million, up $1.0 million or 8% from the first quarter of 1995. The principal components of the increase were higher levels of depreciation primarily related to personal computers and computer hardware, and higher rental costs associated with computer equipment and data communication lines. Other operating expenses totaled $46.5 million, unchanged from the prior year level. The reduction in FDIC insurance premiums which took effect in the second half of 1995 was offset by the addition of professional service fees paid to RCB's network of investment managers, and higher levels of software amortization, contract data processing costs, transaction-based depository fees, and amortization expense of goodwill and other intangibles. The components of other operating expenses were as follows:
Three Months Ended March 31 --------------------------- (In Millions) 1996 1995 --------- --------- Business Development $ 6.0 $ 5.9 Purchased Professional Services 16.8 14.0 Telecommunications 2.7 2.6 Postage and Supplies 5.8 5.5 FDIC Premium -- 4.0 Software Amortization 8.6 7.4 Goodwill and Other Intangibles Amortization 2.4 1.7 Other Expense 4.2 5.4 ----------- --------- Total Other Operating Expenses $ 46.5 $ 46.5 =========== =========
12 PROVISION FOR INCOME TAXES The provision for income taxes was $30.6 million for the first quarter compared with $22.0 million in the year ago quarter. The higher tax provision in 1996 resulted from the growth in taxable earnings for both federal and state income tax purposes and a decline in tax-exempt income from the prior year. The effective tax rate was 33% for 1996 versus 31% in 1995. BALANCE SHEET In January, 1996, the Corporation issued 1,198,372 shares of common stock upon conversion of its $50 million stated value Series E convertible preferred stock, which on January 5, 1996 had been called for redemption. The conversion has no impact on fully diluted net income per common share since the shares issued upon conversion were already reflected in the Corporation's fully diluted shares. Total assets as of March 31, 1996 were $20.3 billion and averaged $20.9 billion for the first quarter, up 14% from last year's average of $18.4 billion. Due to increased lending activity, in addition to the Beach Bank and Tanglewood Bank acquisitions, loans and leases totaled $10.0 billion at March 31, 1996, and averaged $9.8 billion for the first quarter. This compares with $8.9 billion in total loans at March 31, 1995 and $8.5 billion on average for the first quarter of last year. Driven primarily by continued strong earnings growth, the conversion of the Series E convertible preferred stock and stock issued in connection with the March 31, 1995 acquisition of Beach Bank, common stockholders' equity increased 16% and averaged $1.32 billion for the first quarter, versus $1.14 billion last year. Total stockholders' equity for the quarter also increased and averaged $1.46 billion compared with $1.31 billion last year. During the quarter, the Corporation purchased 566,306 of its own shares at a total cost of $30.5 million pursuant to the 4 million share buyback program authorized by the Board of Directors in 1994. At March 31, 1996, an additional 1.7 million shares remain to be purchased under this program. Northern Trust's risk-based capital ratios remained strong at 9.1% for tier 1 and 12.7% for total capital at March 31, 1996. These capital ratios are well above the minimum regulatory requirements of 4% for tier 1 and 8% for total risk-based capital ratios. The leverage ratio (tier 1 capital to first quarter average assets) of 6.1% at March 31, 1996, also exceeded the regulatory requirement of 3%. ASSET QUALITY Nonperforming assets consist of nonaccrual loans, restructured loans and other real estate owned (OREO). Nonperforming assets at March 31, 1996 totaled $32.1 million, compared with $33.7 million at December 31, 1995 and $25.4 million at March 31, 1995. Domestic nonaccrual loans and leases, consisting primarily of commercial loans, totaled $27.9 million, or .29% of total domestic loans and leases at March 31, 1996. Included in this total are commercial real estate loans of $16.3 million. At December 31, 1995 and March 31, 1995, domestic nonaccrual loans totaled $29.0 million and $19.7 million, respectively. 13 The following Nonperforming Asset table presents the outstanding amounts of nonaccrual loans and leases, restructured loans and OREO. Also shown are loans that have interest or principal payments that are delinquent 90 days or more and are still accruing interest. The balance in this category at any quarter end can fluctuate widely based on the timing of cash collections, renegotiations and renewals. Nonperforming Assets and 90 Day Past Due Loans and Leases
March 31 December 31 March 31 (In Millions) 1996 1995 1995 - ------------------------------------------------------------------------------------------------------------------ Nonaccrual Loans and Leases Domestic $27.9 $29.0 $19.7 International - .2 1.3 - ------------------------------------------------------------------------------------------------------------------ Total Nonaccrual Loans and Leases 27.9 29.2 21.0 Restructured Loans 2.7 2.7 2.8 OREO 1.5 1.8 1.6 - ------------------------------------------------------------------------------------------------------------------ Total Nonperforming Assets $32.1 $33.7 $25.4 - ------------------------------------------------------------------------------------------------------------------ Total 90 Day Past Due Loans (still accruing) $36.9 $22.0 $11.6 - ------------------------------------------------------------------------------------------------------------------
PROVISION AND RESERVE FOR CREDIT LOSSES. The provision for credit losses is the charge against current earnings that is determined by management through a disciplined credit review process as the amount needed to maintain a reserve that is sufficient to absorb credit losses inherent in Northern Trust's loan and lease portfolios and other credit undertakings. While the largest portion of this reserve is intended to cover loan and lease losses, it is considered a general reserve that is available to cover all credit-related exposures. The 1996 first quarter provision for credit losses was $5.0 million, compared with $1.5 million in the first quarter of 1995. Net charge-offs totaled $4.9 million in the first quarter of 1996, versus net charge-offs of $1.6 million last year. The reserve for credit losses was $147.2 million or 1.47% of outstanding loans at March 31, 1996. This compares with $147.1 million or 1.49% of outstanding loans at December 31, 1995 and $145.8 million or 1.64% of outstanding loans at March 31, 1995. The lower reserve to outstanding loans ratio at March 31, 1996 is attributable to loan growth, a significant portion of which is in low-risk residential mortgage lending. The overall credit quality of the domestic portfolio has remained good as evidenced by the low level of nonperforming loans and relatively moderate level of net charge-offs. Management's assessment of the current U.S. economy and the financial condition of certain clients facing financial difficulties together with the types of loans creating portfolio growth were primary factors impacting management's decision to maintain the reserve for credit losses at $147.2 million at March 31, 1996, essentially unchanged from December 31, 1995 and slightly higher 14 than March 31, 1995. Although difficult to predict, management presently expects that the provision for credit losses for the balance of 1996 will be somewhat above the very low level experienced in the comparable period of 1995. Northern Trust continues to monitor closely several credits, but the overall quality of its loan portfolio remains sound and the reserve for credit losses is adequate to cover credit-related uncertainties as they exist today. Established credit review procedures ensure that close attention is given to commercial real estate-related loans and other commercial loans, as well as other credit exposures that might be adversely affected by significant increases in interest rates or unexpected downturns in segments of the economies of the United States or other countries. 15 The following schedule should be read in conjunction with the Net Interest Income section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
CONSOLIDATED ANALYSIS OF NET INTEREST INCOME NORTHERN TRUST CORPORATION First Quarter ---------------------------------------------------------------------------- (Interest and rate on a taxable equivalent basis) 1996 1995 ------------------------------------ ------------------------------------- ($ in Millions) Interest Volume Rate Interest Volume Rate - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Average Earning Assets Money Market Assets Federal Funds Sold and Repurchase Agreements $ 3.8 $ 267.1 5.66 % $ 3.5 $ 233.6 5.99 % Time Deposits with Banks 22.8 1,745.3 5.26 26.7 1,856.4 5.83 Other .8 53.5 6.06 .2 14.1 6.26 - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Total Money Market Assets 27.4 2,065.9 5.33 30.4 2,104.1 5.85 - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Securities U.S. Government 29.6 2,084.5 5.71 13.0 992.4 5.32 Obligations of States and Political Subdivision 10.5 422.1 9.99 12.5 453.0 11.04 Federal Agency 57.2 3,956.5 5.81 61.7 3,878.3 6.45 Other 3.9 262.3 6.02 6.0 382.2 6.35 Trading Account .2 9.5 7.25 .5 26.4 8.23 - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Total Securities 101.4 6,734.9 6.05 93.7 5,732.3 6.62 - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Loans and Leases 164.7 9,777.3 6.78 146.7 8,535.9 6.97 - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Total Earning Assets $ 293.5 $ 18,578.1 6.35 % $ 270.8 $ 16,372.3 6.71 % - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Average Source of Funds Deposits Savings and Money Market Deposits $ 28.1 $ 3,577.7 3.16 % $ 26.6 $ 3,263.1 3.31 % Savings Certificates 30.9 2,110.1 5.89 24.5 1,717.5 5.79 Other Time 8.4 611.4 5.53 6.4 456.6 5.67 Foreign Offices Time 44.1 3,577.4 4.96 50.6 3,911.9 5.24 - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Total Deposits 111.5 9,876.6 4.54 108.1 9,349.1 4.69 Federal Funds Purchased 28.7 2,143.3 5.39 16.1 1,122.6 5.81 Repurchase Agreements 26.1 1,977.1 5.31 24.1 1,697.0 5.77 Commercial Paper 1.9 143.8 5.45 2.1 143.8 5.84 Other Borrowings 12.8 978.2 5.25 10.5 807.8 5.25 Senior Notes 4.1 314.4 5.25 6.9 469.6 5.92 Notes Payable 6.4 334.8 7.68 4.9 244.8 8.13 - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Total Interest-Related Funds 191.5 15,768.2 4.88 172.7 13,834.7 5.06 - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Interest Rate Spread - - 1.47 % - - 1.65 % - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Noninterest-Related Funds - 2,809.9 - - 2,537.6 - - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Total Source of Funds $ 191.5 $ 18,578.1 4.14 % $ 172.7 $ 16,372.3 4.28 % - -------------------------------------------------- -------- ----------- ------ --------- ----------- ----- Net Interest Income/Margin $ 102.0 - 2.21 % $ 98.1 - 2.43 % - -------------------------------------------------- -------- ----------- ------ --------- ----------- -----
ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE First Quarter 1996/95 ------------------------------ Change Due To -------------------- (In Millions) Volume Rate Total - --------------------------------------------------------------------------- ------ -------- -------- Earning Assets $ 34.3 $ (11.6) $ 22.7 Interest-Related Funds 25.4 (6.6) 18.8 - --------------------------------------------------------------------------- -------- --------- --------- Net Interest Income $ 8.9 $ (5.0) $ 3.9 - --------------------------------------------------------------------------- -------- --------- ---------
16 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securities Holders The annual meeting of stockholders of Northern Trust Corporation was held on April 16, 1996 for the purposes of electing fourteen Directors to hold office until the next annual meeting of stockholders. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's nominees. All of management's nominees for Directors as listed in the proxy statement were elected by the following votes set forth below. There were no broker non-votes for any candidate.
Candidates "FOR" "WITHHELD" ----------------------- ---------- ---------- Dolores E. Cross 51,209,909 162,420 Robert S. Hamada 51,236,472 162,420 Barry G. Hastings 51,325,451 162,420 Robert A. Helman 51,234,438 162,420 Arthur L. Kelly 51,229,042 162,420 Ardis Krainik 50,672,814 162,420 Robert D. Krebs 51,234,518 162,420 Frederick A. Krehbiel 50,753,093 162,420 William G. Mitchell 50,735,163 162,420 Edward J. Mooney 51,226,140 162,420 William A. Osborn 51,248,198 162,420 Harold B. Smith 51,235,715 162,420 William D. Smithburg 51,186,113 162,420 Bide L. Thomas 51,208,166 162,420
17 Item 6. Exhibits and Reports on Form 8-K (a.) Exhibits -------- Exhibit (3) Amendment to By-laws of the Corporation and By-laws as amended. Exhibit (10) Material Contracts: (i) Northern Trust Corporation (1996) Annual Performance Plan. (ii) Northern Trust Corporation (1996) Management Performance Plan. Exhibit (11) Computation of Per Share Earnings. Exhibit (27) Financial Data Schedule. Exhibit (99) Remarks delivered by William A. Osborn at the Annual Meeting of Stockholders of Northern Trust Corporation held on April 16, 1996. (b.) Reports on Form 8-K ------------------- In a report on Form 8-K dated January 5, 1996, Northern Trust incorporated by reference in Item 5 its January 5, 1996 press release, reporting on its announced call for redemption on January 26, 1996 all of its outstanding 6.25% Series E Preferred Stock Depository Shares. In a report on Form 8-K dated January 16, 1996, Northern Trust incorporated by reference in Item 5 its January 16, 1996 press release, reporting on its earnings for the fourth quarter of 1995 and for its 1995 fiscal year. The press release, with summary financial information, was filed pursuant to Item 7. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTHERN TRUST CORPORATION -------------------------- (Registrant) Date: May 14, 1996 By: PERRY R. PERO ------------------------------- PERRY R. PERO Senior Executive Vice President and Chief Financial Officer Date: May 14, 1996 By: HARRY W. SHORT ------------------------------------ HARRY W. SHORT Senior Vice President and Controller (Chief Accounting Officer) 19 EX-3 2 AMENDED BY-LAWS Exhibit Number (3) Board of Directors To 3/31/96 Form 10-Q Resolution 4/16/96 - ------------------------------------------------------------------------ Northern Trust Corporation FURTHER RESOLVED, that Articles IV, V, VI, VII and VIII of the By-Laws of the Corporation are hereby amended to read in their entirety as follows: ARTICLE IV THE AUDIT COMMITTEE SECTION 4.1. Functions. An Audit Committee shall be appointed each year by the Board of Directors. The Committee shall perform the following functions for the Corporation and its subsidiaries on a consolidated basis and for such individual banking subsidiaries as the Board shall direct: (a) Reviewing with management and the independent public accountant the reports issued with respect to the annual financial statements, the internal control structure and procedures for financial reporting and compliance with laws and regulations and the basis for such reports. (b) Reviewing with management and the independent public accountant the scope of services required by the annual audit, significant accounting policies, and audit conclusions regarding significant accounting estimates. (c) Reviewing with management and the independent public accountant their assessments of the adequacy of internal controls, and the resolution of identified material weaknesses and reportable conditions in internal controls over financial reporting, including the prevention or detection of management override or compromise of the internal control system. (d) Reviewing with management and the independent public account compliance with those laws and regulations with respect to which management and the independent public accountant are required to report. (e) Discussing with management the selection and termination of the independent public accountant and any significant disagreements between the independent public accountant and management. (f) Reviewing the internal audit program and results of examinations. (g) Reviewing the program of the Chief Compliance Officer and the compliance function generally. (h) Reviewing the results of regulatory examinations. Board of Directors Resolution -2- 4/16/96 - -------------------------------------------------------------------------------- Northern Trust Corporation (i) Reviewing such other matters as the Committee deems appropriate. SECTION 4.2. Composition. The Committee shall consist of no less than four Directors. All of the members of the Committee shall, in the judgment of the Board of Directors, be independent of management of the Corporation and its subsidiaries and shall meet other applicable regulatory requirements. SECTION 4.3. Procedures. The Committee shall be appointed annually at the organization meeting of the Board of Directors and at the same time a Chairman shall be appointed. The Committee shall meet upon the call of the Chairman or any member of the Committee, and a majority of the Committee's members shall constitute a quorum. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another qualified member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. SECTION 4.4. Counsel. The Committee may, in order to assist it in the performance of its functions, engage counsel of its choosing without the approval of the engagement by the Board of Directors or management and may direct the proper officers of the Corporation to pay the reasonable fees and expenses of any such counsel. ARTICLE V THE CORPORATE GOVERNANCE COMMITTEE SECTION 5.1. The Corporate Governance Committee. A Corporate Governance Committee and its Chairman shall be appointed each year by the Board of Directors to review and advise the Board of Directors with respect to the structure and functioning of the Board and its interaction with the Corporation's management and stockholders; review and advise the Board of Directors with respect to the structure and membership of its Committees; and to receive recommendations for, and to review, study and evaluate the qualifications of all candidates for senior management succession and for nomination to the Board of Directors. The Committee shall report to the Board its conclusions with respect to such candidates and its recommendations for nominees for election or reelection or appointment to fill vacancies in the Board and as officers of the Corporation. The Committee shall consist of no less than four Directors, a majority of whom shall constitute a quorum, and shall meet upon the call of its Chairman or any member of the Committee. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Board of Directors Resolution -3- 4/16/96 - -------------------------------------------------------------------------------- Northern Trust Corporation ARTICLE VI THE COMPENSATION AND BENEFITS COMMITTEE SECTION 6.1. The Compensation and Benefits Committee. A Compensation and Benefits Committee and its Chairman shall be appointed each year by the Board of Directors to study, review and make recommendations to the Board with respect to the salary policy for the Corporation, the compensation of senior officers and the development of and amendment to incentive and benefit plans. The Committee shall consist of no less than three Directors, none of whom shall be an active officer of the Corporation. The Committee shall meet upon the call of the Chairman or any member of the Committee, and a majority of the Committee's members shall constitute a quorum. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE VII THE BUSINESS RISK COMMITTEE SECTION 7.1. The Business Risk Committee. A Business Risk Committee and its Chairman shall be appointed to review with management risks inherent in the businesses of the Corporation and its subsidiaries involving the extension of credit, the management of assets and liabilities, the provision of fiduciary investment services and the control processes with respect to these risks, including matters related to credit risk, market risk, liquidity risk and fiduciary investment and credit risk and such other related matters as may from time to time be deemed appropriate by the Committee. The Committee shall consist of no less than four Directors, a majority of whom shall not be active officers of the Corporation. The Committee shall meet upon the call of the Chairman or any member of the Committee, and a majority of the Committee's members shall constitute a quorum. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE VIII THE BUSINESS STRATEGY COMMITTEE SECTION 8.1. The Business Strategy Committee. A Business Strategy Committee and its Chairman shall be appointed each year by the Board of Directors to review the policies, strategies and performance of the various business units of the Corporation and such other related matters as may from time to time be deemed appropriate by the Committee. The Committee shall consist of no less than four Directors, a majority of whom shall not be active officers of the Corporation. Board of Directors Resolution -4- 4/16/96 - -------------------------------------------------------------------------------- Northern Trust Corporation The Committee shall meet upon the call of the Chairman or any member of the Committee, and a majority of the Committee's members shall constitute a quorum. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Exhibit Number (3) To 3/31/96 Form 10-Q By-laws of Northern Trust Corporation Chicago, Illinois As Effective April 16, 1996
Table of Contents Article I--The Stockholders SECTION 1.1 --ANNUAL MEETING.............................................. 1 SECTION 1.2 --SPECIAL MEETINGS............................................ 1 SECTION 1.3 --NOTICE OF MEETINGS.......................................... 1 SECTION 1.4 --FIXING DATE OF RECORD....................................... 1 SECTION 1.5 --INSPECTORS OF ELECTION...................................... 2 SECTION 1.6 --QUORUM...................................................... 3 SECTION 1.7 --CUMULATIVE VOTING RIGHTS.................................... 3 SECTION 1.8 --PROXIES..................................................... 3 SECTION 1.9 --VOTING BY BALLOT............................................ 3 SECTION 1.10 --VOTING LISTS................................................ 3 SECTION 1.11 --PLACE OF MEETING............................................ 3 SECTION 1.12 --VOTING OF SHARES OF CERTAIN HOLDERS......................... 4 Article II--The Board of Directors SECTION 2.1 --GENERAL POWERS.............................................. 4 SECTION 2.2 --NUMBER, TENURE AND QUALIFICATIONS........................... 4 SECTION 2.3 --REGULAR MEETINGS............................................ 4 SECTION 2.4 --SPECIAL MEETINGS; NOTICE.................................... 4 SECTION 2.5 --TIME OF NOTICE.............................................. 5 SECTION 2.6 --QUORUM...................................................... 5 SECTION 2.7 --MANNER OF ACTING............................................ 5 SECTION 2.8 --DIRECTORS' COMPENSATION..................................... 5 SECTION 2.9 --VACANCIES................................................... 5 SECTION 2.10 --CONSENT IN LIEU OF MEETING.................................. 6 Article III--The Executive Committee SECTION 3.1 --NUMBER, TENURE, AND QUORUM.................................. 6 SECTION 3.2 --POWERS...................................................... 6 SECTION 3.3 --MEETINGS.................................................... 6 SECTION 3.4 --RECORDS AND REPORTS......................................... 6 Article IV--The Audit Committee SECTION 4.1 --FUNCTIONS................................................... 7 SECTION 4.2 --COMPOSITION................................................. 7 SECTION 4.3 --PROCEDURES.................................................. 7 SECTION 4.4 --COUNSEL..................................................... 7 Article V--The Corporate Governance Committee SECTION 5.1 --THE CORPORATE GOVERNANCE COMMITTEE.......................... 8 Article VI--The Compensation and Benefits Committee SECTION 6.1 --THE COMPENSATION AND BENEFITS COMMITTEE................................................... 8 Article VII--The Business Risk Committee SECTION 7.1 --THE BUSINESS RISK COMMITTEE................................. 8 Article VIII--The Business Strategy Committee SECTION 8.1 --THE BUSINESS STRATEGY COMMITTEE............................. 9
i Article IX--The Officers SECTION 9.1 --NUMBER AND TERM OF OFFICE................................... 9 SECTION 9.2 --REMOVAL..................................................... 9 SECTION 9.3 --THE CHAIRMAN OF THE BOARD................................... 9 SECTION 9.4 --THE PRESIDENT............................................... 9 SECTION 9.5 --THE CHIEF EXECUTIVE OFFICER................................. 10 SECTION 9.6 --THE VICE CHAIRMEN........................................... 10 SECTION 9.7 --THE EXECUTIVE VICE PRESIDENTS............................... 10 SECTION 9.8 --THE VICE PRESIDENTS......................................... 10 SECTION 9.9 --THE TREASURER............................................... 10 SECTION 9.10 --THE SECRETARY............................................... 11 SECTION 9.11 --ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.............. 11 SECTION 9.12 --SALARIES.................................................... 11 Article X--Contracts, Loans, Checks and Deposits SECTION 10.1 --CONTRACTS................................................... 11 SECTION 10.2 --LOANS....................................................... 11 SECTION 10.3 --CHECKS, DRAFTS, ETC......................................... 11 SECTION 10.4 --DEPOSITS.................................................... 11 SECTION 10.5 --POWER TO EXECUTE PROXIES.................................... 12 Article XI--Certificates for Shares and Their Transfer SECTION 11.1 --CERTIFICATES FOR SHARES..................................... 12 SECTION 11.2 --TRANSFERS OF SHARES......................................... 12 Article XII--Fiscal Year SECTION 12.1 --FISCAL YEAR................................................. 12 Article XIII--SEAL SECTION 13.1 --SEAL........................................................ 12 Article XIV--Waiver of Notice SECTION 14.1 --WAIVER OF NOTICE............................................ 13 Article XV--Indemnification SECTION 15.1 --INDEMNIFICATION REQUEST..................................... 13 SECTION 15.2 --DETERMINATION OF INDEMNIFICATION REQUEST.................... 13 SECTION 15.3 --PRESUMPTION OF ENTITLEMENT; CONCLUSIVE EFFECT OF FINDINGS OF FACT AND LAW; OTHER PROCEDURES.............................. 13 SECTION 15.4 --COOPERATION AND EXPENSES.................................... 14 SECTION 15.5 --SELECTION OF INDEPENDENT COUNSEL............................ 14 SECTION 15.6 --TIME FOR DETERMINATION...................................... 14 SECTION 15.7 --FAILURE TO MAKE DETERMINATION; REMEDIES FOR ENFORCEMENT..... 15 SECTION 15.8 --APPEAL OF ADVERSE DETERMINATION............................. 15 SECTION 15.9 --BURDEN OF PROOF............................................. 15 SECTION 15.10 --DEFINITION OF "DISINTERESTED DIRECTOR"...................... 15 SECTION 15.11 --DEFINITION OF "CHANGE OF CONTROL"........................... 15 SECTION 15.12 --ADVANCEMENT OF EXPENSES..................................... 16 SECTION 15.13 --PERSONAL LIABILITY OF DIRECTORS............................. 16 Article XVI--Amendments SECTION 16.1 --AMENDMENTS.................................................. 16
ii By-laws of The Northern Trust Corporation Chicago, Illinois ARTICLE I THE STOCKHOLDERS SECTION 1.1 Annual Meeting. There shall be an annual meeting of the stockholders on the third Tuesday in April of each year at ten-thirty o'clock A.M., or at such other date or time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, for the election of Directors and for the transaction of such other business as may come before the meeting. SECTION 1.2 Special Meetings. A special meeting of the stockholders may be called at any time by the Board of Directors, the Chairman of the Board, the President, or a Vice Chairman, and shall be called upon request in writing from the holders of at least one-third of the issued and outstanding shares of capital stock of the Corporation entitled to vote at such meeting specifying the purpose or purposes for which such meeting shall be called. SECTION 1.3 Notice of Meetings. Unless a different manner of giving notice is prescribed by statute, written or printed notice stating the place, day, and hour of the meeting, and in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not more than 50 days nor less than 10 days (or less than 20 days if a merger or consolidation of the Corporation,or a sale, lease or exchange of all or substantially all of the Corporation's property or assets, is to be acted upon at the meeting) before the date of the meeting either personally or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid addressed to the stockholder at the stockholder's address as it appears on the records of the Corporation. SECTION 1.4. Fixing Date of Record. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days (or less than 20 days if a merger or consolidation of the Corporation, or a sale, lease or exchange of all or substantially all of the Corporation's property or assets, is to be acted upon at the meeting) before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the next day preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to an adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 1 ARTICLE (b) In order that the Corporation may determine the stockholders I entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Restated Certificate of Incorporation of the Corporation or by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered in the manner required by law to the Corporation at its registered office in the State of Delaware or at its principal place of business or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the Corporation's stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand delivery or by certified or registered mail, return receipt requested. If no record has been fixed by the Board of Directors and prior action by the Board of Directors is required by the Restated Certificate of Incorporation or by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (d) Only those who shall be stockholders of record on the record date so fixed as aforesaid shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding the transfer of any stock on the books of the Corporation after the applicable record date. SECTION 1.5. Inspectors of Election. The Board of Directors or the Executive Committee of the Board of Directors of the Corporation shall appoint, in advance, one or more inspectors to act at each meeting of the stockholders of the Corporation. If no inspector has been appointed or one or more have been appointed but are unable or fail to act, the presiding officer of any meeting of the stockholders shall appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain the number of shares of stock of the Corporation outstanding and entitled to vote at the meeting and the voting power of each share; determine and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies and ballots; count all votes and ballots and report the results; and do such other acts as are required by law or are proper to conduct the election and voting with impartiality and fairness to all the stockholders. Each report of an inspector shall be in writing and signed by him or her or a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. The inspector or inspectors may appoint or retain other persons or entities to assist in performing their duties. 2 ARTICLE SECTION 1.6. Quorum. A majority of the outstanding I shares of capital stock entitled to vote at the meeting, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. In the absence of a quorum, a meeting may be adjourned from time to time without notice to the stockholders except as otherwise required by law. SECTION 1.7. Cumulative Voting Rights. At all elections of Directors of the Corporation, each stockholder entitled generally to vote for the election of Directors shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) the stockholder would be entitled to cast for the election of Directors with respect to the stockholder's shares of stock multiplied by the number of Directors to be elected, and the stockholder may cast all of such votes for a single Director or may distribute them among the number to be voted for, or for any two or more of them as the stockholder may see fit. SECTION 1.8. Proxies. At all meetings of stockholders, a stockholder entitled to vote may vote either in person or by proxy executed in writing by the stockholder or by the stockholder's duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. SECTION 1.9. Voting by Ballot. Voting in any election for Directors shall be by ballot. SECTION 1.10. Voting Lists. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 1.11. Place of Meeting. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or any special meeting called by the Board of Directors. If no designation is made, or if a special meeting is otherwise called, the place of meeting shall be the principal office of the Corporation in the City of Chicago. 3 ARTICLE SECTION 1.12. Voting of Shares of Certain Holders. I Shares of capital stock of the Corporation standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares of capital stock of the Corporation standing in the name of a deceased person, a minor ward or an incompetent person, may be voted by his or her administrator, executor, court appointed guardian or conservator, either in person or by proxy without a transfer of such shares into the name of such administrator, executor, court appointed guardian or conservator. Shares of capital stock of the Corporation standing in the name of a trustee may be voted by the trustees, either in person or by proxy. Shares of capital stock of the Corporation standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into the receiver's name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Shares of its own capital stock belonging to this Corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but shares of its own stock held by it in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time. ARTICLE II THE BOARD OF DIRECTORS SECTION 2.1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors. SECTION 2.2. Number, Tenure and Qualifications. The Board of Directors of the Corporation shall consist of such number of Directors, not less than 5 nor more than 25, as shall be fixed from time to time by the Board of Directors. Each Director shall hold office until the next annual meeting of stockholders or until a successor is elected. SECTION 2.3. Regular Meetings. A regular meeting of the Board of Directors shall be held at least once each quarter at such place, date and hour as the Board may appoint. Notice of each regular meeting, unless waived, shall be given in the same manner as is provided for notice of a special meeting. SECTION 2.4. Special Meetings; Notice. A special meeting of the Board of Directors may be called by or at the request of the Chairman of the Board, the President, a Vice Chairman, or any two Directors. The person or persons calling or requesting such meeting may fix the place, date and hour thereof. Notice of the place, date, and hour of each special meeting, unless waived, shall be given to a Director in person, by mail, by telegram or cable, by telephone or wireless, or by any other means that reasonably may be expected to provide similar 4 ARTICLE notice. Except in emergency situations as described II below, notice by any means shall be given at least two days prior to the meeting. For purposes of dealing with an emergency situation (as conclusively determined by the officer or Directors calling the meeting), notice may be given in person, by telegram or cable, by telephone or wireless, or by any other means that reasonably may be expected to provide similar notice, not less than two hours prior to the meeting. Such notice may be given by the Secretary or by the officer or Directors calling the meeting. SECTION 2.5. Time of Notice. If notice to a Director is given: (a) in person, such notice shall be deemed to have been given when delivered; (b) by mail, such notice shall be deemed to have been given when deposited in the United States mail, postage prepaid, addressed to the Director at such address as appears on the records of the Corporation for such Director; (c) by telegram, cable or other similar means (not including mail) that provide written notice, such notice shall be deemed to have been given when delivered to any transmission company, with charges prepaid, addressed to the Director at such address as appears on the records of the Corporation for such Director; or (d) by telephone, wireless or other means of voice transmission, such notice shall be deemed to have been given when transmitted to such number or call designation as appears on the records of the Corporation for such Director. Any meeting of the Board of Directors shall be a legal meeting without any notice having been given if all the Directors are present at the meeting, and no notice of a meeting shall be required to be given to any Director who attends such meetings. SECTION 2.6. Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, provided that if less than a majority of the Directors are present at said meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. SECTION 2.7. Manner of Acting. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, except on additions, amendments, repeal or any changes whatsoever in the By-laws or the adoption of new By-laws, when the affirmative votes of at least a majority of the members of the Board shall be necessary for the adoption of such changes. A director may participate in a meeting of the Board of Directors or any committee thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meetings. SECTION 2.8. Directors' Compensation. The Directors shall receive such compensation as may be fixed by the Board for services to the Corporation. SECTION 2.9. Vacancies. If vacancies occur in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any Director or Directors, or otherwise, or if any new Directorship is created by any increase in the authorized number of Directors, a majority of the surviving or remaining Directors then in office, though less than a quorum, may choose a successor or successors, or fill the newly created Directorship, and the Directors so chosen shall hold office until the next annual meeting of stockholders or until their successors are elected. 5 ARTICLE SECTION 2.10. Consent in Lieu of Meeting. Unless II otherwise restricted by the Restated Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee thereof, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee. ARTICLE III THE EXECUTIVE COMMITTEE SECTION 3.1. Number, Tenure and Quorum. The Directors shall each year appoint no less than five Directors, one of whom shall be the Chairman of the Board and one of whom shall be the President if the President is designated the Chief Executive Officer, who shall constitute and be called the Executive Committee. Each Director so appointed shall act as a member of the Committee until another is appointed and acts in the Director's place. The Chairman of the Board shall preside at meetings of the Committee. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. In the absence or inability to act of the Chairman of the Board, or upon the request of the Chairman, the President, if the President is a member of the Committee, or a member elected by the Committee shall preside at meetings of the Committee. A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business. SECTION 3.2. Powers. The Executive Committee may, while the Board of Directors is not in session, exercise all or any of the powers of the Board of Directors; except that the Executive Committee shall not have the power or authority of the Board of Directors in reference to amending the Restated Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation, or declaring a dividend or authorizing the issuance of stock. SECTION 3.3. Meetings. Meetings of the Executive Committee shall be held at the office of the Corporation, or elsewhere, and at such time as they may appoint, but the Committee shall at all times be subject to the call of the Chairman of the Board or any member of the Committee. SECTION 3.4. Records and Reports. The Executive Committee, through the Secretary or any Assistant Secretary, shall keep books of separate minutes and report all its action at every regular meeting of the Board of Directors, or as often as may be required by the Board. 6 ARTICLE IV THE AUDIT COMMITTEE SECTION 4.1. Functions. An Audit Committee shall be appointed each year by the Board of Directors. The Committee shall perform the following functions for the Corporation and its subsidiaries on a consolidated basis and for such individual banking subsidiaries as the Board shall direct: (a) Reviewing with management and the independent public accountant the reports issued with respect to the annual financial statements, the internal control structure and procedures for financial reporting and compliance with laws and regulations and the basis for such reports. (b) Reviewing with management and the independent public accountant the scope of services required by the annual audit, significant accounting policies, and audit conclusions regarding significant accounting estimates. (c) Reviewing with management and the independent public accountant their assessments of the adequacy of internal controls, and the resolution of identified material weaknesses and reportable conditions in internal controls over financial reporting, including the prevention or detection of management override or compromise of the internal control system. (d) Reviewing with management and the independent public accountant compliance with those laws and regulations with respect to which management and the independent public accountant are required to report. (e) Discussing with management the selection and termination of the independent public accountant and any significant disagreements between the independent public accountant and management. (f) Reviewing the internal audit program and results of examinations. (g) Reviewing the program of the Chief Compliance Officer and the compliance function generally. (h) Reviewing the results of regulatory examinations. (i) Reviewing such other matters as the Committee deems appropriate. SECTION 4.2. Composition. The Committee shall consist of no less than four Directors. All of the members of the Committee shall, in the judgement of the Board of Directors, be independent of management of the Corporation and its subsidiaries and shall meet other applicable regulatory requirements. SECTION 4.3. Procedures. The Committee shall be appointed annually at the organization meeting of the Board of Directors and at the same time a Chairman shall be appointed. The Committee shall meet upon the call of the Chairman or any member of the Committee and a majority of the Committee's members shall constitute a quorum. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another qualified member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. SECTION 4.4. Counsel. The Committee may, in order to assist it in the performance of its functions, engage counsel of its choosing without the approval of the engagement by the Board of Directors or management and may direct the proper officers of the Corporation to pay the reasonable fees and expenses of any such counsel. 7 ARTICLE V THE CORPORATE GOVERNANCE COMMITTEE SECTION 5.1. The Corporate Governance Committee. A Corporate Governance Committee and its Chairman shall be appointed each year by the Board of Directors to review and advise the Board of Directors with respect to the structure and functioning of the Board and its interaction with the Corporation's management and stockholders; review and advise the Board of Directors with respect to the structure and membership of its Committee; and to receive recommendations for, and to review, study and evaluate the qualifications of all candidates for senior management succession and for nomination to the Board of Directors or its Committees. The Committee shall report to the Board its conclusions with respect to such candidates and its recommendations for nominees for election or reelection or appointment to fill vacancies in the Board and as officers of the Corporation. The Committee shall consist of no less than four Directors, a majority of whom shall constitute a quorum, and shall meet upon the call of the Chairman or any member of the Committee. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE VI THE COMPENSATION AND BENEFITS COMMITTEE SECTION 6.1. The Compensation and Benefits Committee. A Compensation and Benefits Committee and its Chairman shall be appointed each year by the Board of Directors to study, review and make recommendations to the Board with respect to the salary policy for the Corporation, the compensation of senior officers, and the development of and amendment to incentive and benefit plans. The Committee shall consist of no less than three Directors, none of whom shall be an active officer of the Corporation. The Committee shall meet upon the call of the Chairman or any member of the Committee, and a majority of the Committee's members shall constitute a quorum. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE VII THE BUSINESS RISK COMMITTEE SECTION 7.1. The Business Risk Committee. A Business Risk Committee and its Chairman shall be appointed to review with management risks inherent in the businesses of the Corporation and its subsidiaries involving the extension of credit, the management of assets and liabilities, the provision of fiduciary investment services and the control processes with respect to these risks, including matters related to credit risk, market risk, liquidity risk and fiduciary investment and credit risk and such other related matters as may from time to time be deemed appropriate by the Committee. The Committee shall consist of no less than four Directors, a majority of whom shall not be active officers of the Corporation. The Committee shall meet upon the call of the Chairman or any member of the Committee, and a majority of the Committee's members shall constitute a quorum. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. 8 ARTICLE VIII THE BUSINESS STRATEGY COMMITTEE SECTION 8.1. The Business Strategy Committee. A Business Strategy Committee and its Chairman shall be appointed each year by the Board of Directors to review the policies, strategies and performance of the various business units of the Corporation and such other related matters as may from time to time be deemed appropriate by the Committee. The Committee shall consist of no less than four Directors, a majority of whom shall not be active officers of the Corporation. The Committee shall meet upon the call of the Chairman or any member of the Committee, and a majority of the Committee's members shall constitute a quorum. In the absence or disqualification of a member of the Committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. ARTICLE IX THE OFFICERS SECTION 9.1. Number and Term of Office. The officers of the Corporation shall be a Chairman of the Board and a President, one of whom shall be designated Chief Executive Officer by the Board of Directors, and may also include one or more Vice Chairmen, one or more Executive Vice Presidents (any of whom may be designated a Senior Executive Vice President), such additional Vice Presidents with such designations, if any, as may be determined by the Board of Directors, a Secretary, and a Treasurer and one or more Assistant Secretaries and Assistant Treasurers as may be determined by the Board of Directors, and such other officers as may from time to time be appointed by the Board of Directors. Any two or more offices may be held by the same person. The Chairman of the Board, the President and the Vice Chairmen shall be elected from among the Directors; the other officers may be appointed by the Board of Directors. The officers of the Corporation shall be elected or appointed annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of stockholders. Vacancies or new offices may be filled at any time. Each officer shall hold office until a successor shall have been duly elected or appointed or until his or her death or until he or she shall resign or shall have been removed by the Board of Directors. SECTION 9.2. Removal. An officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation would be served thereby. SECTION 9.3. The Chairman of the Board. The Chairman of the Board shall have such powers as are vested in him or her by the Board of Directors, by law or by these By-laws. The Chairman shall preside at the meetings of the stockholders, of the Board of Directors, and of the Executive Committee. SECTION 9.4. The President. The President shall have the powers and duties vested in him or her by the Board of Directors, by law or by these By-laws. In the absence or inability to act of the Chairman of the Board, or upon the request of the Chairman of the Board, the President shall preside at meetings of the stockholders and of the Board of Directors and shall have and exercise all of the powers and duties of the Chairman of the Board. 9 ARTICLE SECTION 9.5. The Chief Executive Officer. The IX Chief Executive Officer of the Corporation shall have, subject to the supervision and direction of the Board of Directors or of the Executive Committee, general supervision of the business, property and affairs of the Corporation and the powers vested in him or her by the Board of Directors, by law or by these By-laws or which usually attach or pertain to such office. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the Corporation or a different mode of execution is expressly prescribed by the Board of Directors, the Chief Executive Officer may execute for the Corporation any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized, and the Chief Executive Officer may (without previous authorization by the Board of Directors) execute such contracts and other instruments as the conduct of the Corporation's business in its ordinary course requires. SECTION 9.6. The Vice Chairmen. A Vice Chairman shall have such powers as are vested in him or her by the Board of Directors, by law or by these By-laws. In the absence or inability to act of the Chairman of the Board and the President, or upon request of the Chairman of the Board, or in his or her absence upon request of the President, a Vice Chairman (or in the event there be more than one Vice Chairman, the Vice Chairmen in the order designated, or in the absence of any designation, then in the order of their election) shall preside at meetings of stockholders and of the Board of Directors and shall have and exercise all their powers and duties. SECTION 9.7. The Executive Vice Presidents. In the absence of the Chairman of the Board, the President and the Vice Chairmen or in the event of their inability or refusal to act, the Executive Vice President (or in the event there be more than one Executive Vice President, the Executive Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chairman of the Board, of the President, and of the Vice Chairmen and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board, the President and the Vice Chairmen. Any Executive Vice President may sign, with the Secretary or any Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, a Vice Chairman, the Board of Directors, or these By-laws. SECTION 9.8. The Vice Presidents. The Vice Presidents shall perform such duties as may be assigned to them from time to time by the Chairman of the Board, the President, the Vice Chairmen, or the Board of Directors, or these By-laws. Any Vice President may sign, with the Secretary or an Assistant Secretary, certificates for shares of the Corporation. SECTION 9.9. The Treasurer. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors shall determine. The Treasurer shall (a) have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Article X of these By-laws; (b) in general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the President, a Vice Chairman, the Board of Directors, or these By-laws. 10 ARTICLE SECTION 9.10. The Secretary. The Secretary shall IX have the custody of the corporate seal and the Secretary or any Assistant Secretary shall affix the same to all instruments or papers requiring the seal of the Corporation. The Secretary, or in his or her absence, any Assistant Secretary, shall see that proper notices are sent of the meetings of the stockholders, the Board of Directors and the Executive Committee, and shall see that all proper notices are given, as required by these By-laws. The Secretary or any Assistant Secretary shall keep the minutes of all meetings of stockholders and Directors and all committees which may request their services. SECTION 9.11. Assistant Treasurers and Assistant Secretaries. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries as thereunto authorized by the Board of Directors may sign with the Chairman of the Board, the President, a Vice Chairman, or an Executive Vice President certificates for shares of the Corporation, the issue of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers and Assistant Secretaries, in general, shall perform such duties as shall be assigned to them by the Treasurer or the Secretary, respectively, or by the Chairman of the Board, the President, a Vice Chairman, the Board of Directors, or these By-laws. SECTION 9.12. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that the officer is also a director of the Corporation. ARTICLE X CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 10.1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. SECTION 10.2. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. SECTION 10.3. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 10.4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board of Directors may select. 11 ARTICLE SECTION 10.5. Power to Execute Proxies. The Chairman X of the Board, the President, a Vice Chairman, or any Executive Vice President may execute proxies on behalf of the Corporation with respect to the voting of any shares of stock owned by the Corporation. ARTICLE XI CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 11.1. Certificates for Shares. Certificates representing shares of the Corporation shall be in such form as may be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, the President, a Vice Chairman, an Executive Vice President or a Vice President and by the Secretary or an Assistant Secretary and shall be sealed with the seal of the Corporation. The seal may be a facsimile. If a stock certificate is countersigned (i) by a transfer agent other than the Corporation or its employee, or (ii) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificates shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. SECTION 11.2. Transfers of Shares. Transfers of shares of the Corporation shall be made only on the books of the Corporation by the holder of record thereof or by the holder's legal representative, who shall furnish proper evidence of authority to transfer, or by the holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. ARTICLE XII FISCAL YEAR SECTION 12.1. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January in each year and end on the last day of December in each year. ARTICLE XIII SEAL SECTION 13.1. Seal. The Board of Directors shall provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the Corporation. 12 ARTICLE XIV WAIVER OF NOTICE SECTION 14.1. Waiver of Notice. Whenever any notice whatever is required to be given under the provisions of these By-laws or under the provisions of the Restated Certificate of Incorporation or under the provisions of the General Corporation Law of Delaware, waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of any person at a meeting for which any notice whatever is required to be given under the provisions of these By-laws, the Restated Certificate of Incorporation or the General Corporation Law of Delaware shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE XV INDEMNIFICATION SECTION 15.1. Indemnification Request. A director, officer or other person (the "Indemnitee") who seeks indemnification (other than advancement of expenses pursuant to Section 15.12 hereof), in respect of amounts paid or owing as expenses, judgments, fines, or in settlement, shall submit a written request for indemnification (the "Indemnification Request") to the Board of Directors of the Corporation by delivering or mailing the same, registered or certified mail, to the Board of Directors c/o the Secretary of the Corporation at the Corporation's principal executive offices. If mailed, the Indemnification Request shall be deemed made 48 hours after depositing the same in the United States mail addressed as aforesaid. SECTION 15.2. Determination of Indemnification Request. The determination of the Indemnitee's entitlement to indemnification as set forth in the Indemnification Request shall be made in the specific case, at the expense of the Corporation, as set forth in paragraph 5 of Article Eighth of the Restated Certificate of Incorporation. However, in the event a Change of Control (as hereinafter defined) shall have occurred, such determination shall be made by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee. SECTION 15.3. Presumption of Entitlement; Conclusive Effect of Findings of Fact and Law; Other Procedures. The termination with respect to the Indemnitee of any action, suit or proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself adversely affect the right of the Indemnitee to indemnification or create a presumption that the Indemnitee did not meet the standard of conduct required by Article Eighth of the Restated Certificate of Incorporation for indemnification. If the Indemnitee is a person referred to in paragraphs 1, 2 or 3 Article Eighth of the Restated Certificate of Incorporation, the Indemnitee shall be presumed to have met the required standard of conduct but only to the extent not contrary to any final findings of fact or law made in any action, suit or proceeding to which the Indemnitee is or was a party and for which indemnification is requested. The person, persons or entity making the determination of the Indemnitee's entitlement to indemnification shall be entitled to rely upon all such findings of fact and law made known to such person, persons or entity. Such person, persons or entity may consider such other matters as they or it deem appropriate, shall not be required to receive or hear evidence, oral presentations, briefs or other submission, shall not be required to hold hearings, and shall not otherwise be subject to any rules of evidence or procedure applicable to judicial or other proceedings. 13 ARTICLE SECTION 15.4. Cooperation and Expenses. The XV Indemnitee shall cooperate with the person, persons or entity making the determination with respect to the Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys' fees and disbursements) reasonably incurred by the Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Corporation irrespective of the determination as to the Indemnitee's entitlement to indemnification. SECTION 15.5. Selection of Independent Counsel. If a determination of the Indemnitee's entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected as provided in this Section 15.5. If a Change of Control shall not have occurred, Independent Counsel shall be selected by a majority vote of a quorum of the Board of Directors consisting of Disinterested Directors. If a Change of Control shall have occurred, or if a quorum shall decline or fail to select Independent Counsel within five business days after having directed, pursuant to paragraph 5(b) of Article Eighth of the Restated Certificate of Incorporation, the determination of the Indemnitee's entitlement to indemnification to be submitted to Independent Counsel, then Independent Counsel shall be selected by the law firm regularly or most frequently engaged by the Corporation during the preceding three years for representation or counseling in connection with general corporate matters. In any event, Independent Counsel shall be selected from among those Chicago, Illinois, or Delaware law firms having a significant and continuous practice in the field of corporate law but excluding any firm that: (i) has, within the preceding three years represented the Corporation, the Indemnitee or affiliates of either in any significant matter; (ii) has, within the preceding three years, represented any other party in any significant judicial or other proceeding against or in opposition to the Corporation, the Indemnitee or any affiliate of either; (iii) had any involvement of any significant nature in or with respect to the claim for which indemnification is requested; or (iv) has any other material conflict of interest in being engaged as Independent Counsel. SECTION 15.6. Time for Determination. The determination of the Indemnitee's entitlement to indemnification shall be made within 60 days after such Indemnitee shall have submitted all such additional information, if any, as shall have been reasonably requested during the 30-day period following the initial submission of the Indemnification Request to the Board of Directors pursuant to Section 15.1 hereof. The foregoing notwithstanding, in the event that the claim with respect to which indemnification is requested is the subject of a judicial, government or other proceeding, the Board of Directors, stockholders or Independent Counsel, as the case may be, may defer their determination until 60 days after any such proceeding shall have been finally adjudicated or terminated (by settlement or otherwise) and all periods for appeal, rehearing or reinstitution of such proceeding (whether in a different forum or otherwise) have expired. 14 ARTICLE SECTION 15.7. Failure To Make Determination; XV Remedies For Enforcement. If a determination of the Indemnitee's entitlement to indemnification shall not be made within the period specified in these By-laws, unless due to a material failure of the Indemnitee to comply with his or her obligations under Section 15.4 hereof, then the Indemnitee shall be entitled to indemnification to the extent and in the manner set forth in the Indemnification Request. The Indemnitee may only enforce his or her rights to indemnification, whether pursuant to a determination that the Indemnitee is entitled to indemnification or pursuant to this Section 15.7, in any judicial proceeding brought, at the election of the Indemnitee, in any court having jurisdiction within the State of Delaware, the State of Illinois, or the state in which the Corporation shall then have its principal executive offices. The Indemnitee shall be entitled to all expenses actually and reasonably incurred by him or her in connection with the successful enforcement of the Indemnitee's right to indemnification. SECTION 15.8. Appeal of Adverse Determination. In the event that a determination shall be made that the Indemnitee is not entitled to indemnification, in whole or in part, the Indemnitee may only institute an action in any court having jurisdiction within the State of Delaware, the State of Illinois, or the state in which the Corporation shall have its principal executive offices to establish the Indemnitee's right to indemnification. Any such proceeding shall be conducted in all respects as a de novo determination on the merits and any such prior determination made pursuant to these By-laws that the Indemnitee is not entitled to indemnification shall not constitute a presumption that the Indemnitee is not entitled to indemnification. SECTION 15.9. Burden of Proof. In any judicial proceeding regarding the Indemnitee's right or entitlement to indemnification or advancement of expenses, the Corporation shall have the burden of proving that any Indemnitee who is a person referred to in paragraphs 1, 2 or 3 of Article Eighth of the Restated Certificate of Incorporation is not entitled to indemnification or advancement of expenses as the case may be, subject, however, to principles of res judicata and collateral estoppel relating to prior judicial proceedings to which the Indemnitee is or was a party. In cases in which the Indemnitee is not a person referred to in paragraphs 1, 2 or 3 of Article Eighth of the Restated Certificate of Incorporation, the Indemnitee shall have the burden of proving he or she is entitled to indemnification or the advancement of expenses. SECTION 15.10. Definition of "Disinterested Director." A Disinterested Director shall mean any director who (i) was not a party to the claim or proceeding with respect to which indemnification is requested; (ii) has not submitted an Indemnification Request or a request for advancement of expenses on his or her own behalf that has not been finally resolved; or (iii) does not have any direct and material financial or other personal interest in the determination of the Indemnification Request. SECTION 15.11. Definition of "Change of Control." A Change of Control shall be deemed to have occurred on the earliest of: (a) The receipt by the Corporation of a Schedule 13D or other statement filed under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), indicating that any entity, person, or group has acquired beneficial ownership, as that term is defined in Rule 13d-3 under the Exchange Act, of more than 30% of the outstanding capital stock of the Corporation entitled to vote for the election of directors ("voting stock"); 15 EX-10.(I) 3 ANNUAL PERFORMANCE PLAN Exhibit Number (10)(i) To 3/31/96 Form 10-Q NORTHERN TRUST CORPORATION ANNUAL PERFORMANCE PLAN 1996 I. PURPOSE OF PLAN --------------- The purpose of the Annual Performance Plan (the "Plan") is to promote the achievement of superior financial and operating performance of the Northern Trust Corporation and its subsidiaries (hereinafter referred to as the "Corporation"), and further the objective of delivering unrivaled service quality to its clients and partners through the awarding of cash incentive payments to selected officers. II. PLAN YEAR --------- The Plan is effective from January 1, 1996 to December 31, 1996. III. ELIGIBILITY AND PARTICIPATION ----------------------------- Eligibility to participate in the Plan is restricted to officers with the title of Vice President and above and who are not eligible for participation in a Specialized Incentive Plan. Plan participation is reviewed each year, and participation in one year does not automatically indicate participation in subsequent Plan years. Participation in the Plan is based upon recommendation from the respective Business Unit Head. IV. AWARD FUNDING AND DETERMINATION ------------------------------- At the beginning of the Plan year, the Compensation and Benefits Committee of the Board of Directors of the Corporation will determine a Corporate Earnings Target and profit plan funding for awards under the Annual Performance Plan. The allocation of the plan award funding to each respective Business Unit will be based on the salaries of the eligible officers within the Business Unit. Within each Business Unit, one-half of the available funding for awards under the Plan will be based on the Corporation's financial achievement versus the Corporate Earnings Target. The other half of the award funding is based on the financial achievement of the Business Unit versus the Business Unit's earnings target. For staff support personnel, the available funding for awards will be based entirely on the financial achievement of the Corporation versus the Corporate Earnings Target. The formula determining the pool level funding based on Corporate and Business Unit performance is described in Attachment I. V. INDIVIDUAL AWARD DETERMINATION ------------------------------ Individual participant awards will be discretionary. They will be determined by Business Unit Management based on an assessment of individual performance, relative to performance expectations, contribution, competitive level of total compensation, and available award pool funding. VI. PAYMENT OF AWARDS Awards will be paid in cash as soon as practicable following the completion of the Plan year. Awards payable because of a Change in Control of the Corporation pursuant to Paragraph VIII(h) shall be paid in cash as soon as practicable following such Change in Control. VII. ADMINISTRATION The Plan shall be administered by the Management Committee of the Corporation (the "Committee"). Subject to the provisions of the Plan, the Committee shall be authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The determinations of the Committee in the effective administration of the Plan, as described herein, shall be final and conclusive. The Board of Directors of the Corporation, by written resolution, may amend, suspend, or terminate any or all provisions of the Plan at any time. VIII. OTHER PROVISIONS The following miscellaneous provisions are applicable to the Plan: (a) Awards paid under the provisions of the Plan are considered pensionable earnings when paid. (b) Termination of employment by a participant during the Plan year, either voluntary or involuntary with case, and for reasons other than death, disability, or retirement shall result in immediate exclusion from the Plan. (c) Except in the event of the death of a participant, the rights and interests of a participant under the Plan shall not be assigned, encumbered, or transferred. (d) No employee or other person shall have any claim or right to be granted an award under the Plan. Neither the Plan, nor any action taken thereunder, shall be construed as giving any employee or other person any right to be retained in the employ of the Corporation. (e) The Corporation shall have the right to deduct from all payments made under the Plan any taxes required by law to be withheld with respect to such payment. (f) All questions pertaining to the validity, construction and administration of the Plan and any award hereunder shall be determined in conformity with the laws of the State of Illinois. 2 (g) Each participant shall designate a beneficiary (the "Designated Beneficiary") to receive the award, if any, allocated to a participant, in the event of such participant's death. If no Designated Beneficiary survives the participant, it shall be the surviving spouse of the participant or, if there is no surviving spouse, it shall be the participant's estate. (h) Notwithstanding any other terms contained herein, in the event of a Change in Control of the Corporation, discretionary awards shall be paid to participants in accordance with the last sentence of Section VI of this Plan and as if the Corporation and Business Units had achieved the respective earnings targets, as described in Section IV. For purposes of this paragraph, a "Change in Control" of the Corporation shall be deemed to occur on the earliest of: (i) The receipt by the Corporation of a Schedule 13D or other statement filed under Section 13(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), indicating that any entity, person, or group has acquired beneficial ownership, as that term is defined in Rule 13d-3 under the Exchange Act, or more than 30% of the outstanding capital stock of the Corporation entitled to vote for the election of directors ("voting stock"); (ii) The commencement by an entity, person or group (other than the Corporation or a subsidiary of the Corporation) of a tender offer or an exchange offer for more than 20% of the outstanding voting stock of the Corporation. (iii) The effective time of (A) a merger or consolidation of the Corporation with one or more other corporations as a result of which the holders of the outstanding voting stock of the Corporation immediately prior to such merger or consolidation hold less than 60% of the voting stock of the surviving or resulting corporation, or (B) a transfer of substantially all of the property of the Corporation other than to an entity of which the Corporation owns at least 80% of the voting stock; or (iv) The election of the Board of Directors of the Corporation, without the recommendation or approval of the incumbent Board of Directors of the Corporation, or the lesser of (A) three directors or (B) directors constituting a majority of the number of directors of the Corporation then in office. 3 EX-10.(II) 4 MANAGEMENT PERFORMANCE PLAN Exhibit Number (10)(ii) To 3/31/96 Form ID-Q NORTHERN TRUST CORPORATION MANAGEMENT PERFORMANCE PLAN 1996 I. Purpose of Plan --------------- The purpose of the Annual Performance Plan (the "Plan") is to promote the achievement of superior financial and operating performance of the Northern Trust Corporation and its subsidiaries (hereinafter referred to as the "Corporation"), and further the objective of delivering unrivaled service quality to its clients and partners through the awarding of cash incentive payments to selected officers. II. Plan Year --------- The Plan is effective from January 1, 1996 to December 31, 1996. III. Eligibility and Participation ----------------------------- Eligibility to participate in the Plan is restricted to selected executive officers and subject to approval by the Compensation and Benefits Committee of the Board of Directors (the "Committee"). IV. Participant Target Awards ------------------------- At the beginning of the Plan year, the Committee shall determine individual target awards. The target award will be described as a percent of the annual base salary earned during the Plan year. V. Award Determination ------------------- The Committee establishes a Corporate Earnings Target for the Plan at the beginning of the Plan year. The available funding for participant awards will be based on (a) the aggregate of participants' target award amounts and (b) the Corporation's financial achievement versus the Corporate Earnings Target. The amount of the award funding will either increase or decrease as calculated by the formula detailed in Attachment I. VI. Payment of Awards ----------------- Awards will be paid in cash as soon as practicable following the completion of the Plan year. Any award amount that, with all other compensation paid or to be paid for that year to the participant, exceeds the level of tax deductible compensation to the Corporation, as determined under Section 162(m) of the Internal Revenue Code, will be deferred and paid in the year following the participant's retirement or at which time the amount is no longer subject to such restrictions. Deferred award balances will be adjusted with an interest factor as shall be determined at the time of the deferral by the Committee. VII. Administration -------------- The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall be authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The determinations of the Committee in the effective administration of the Plan, as described herein, shall be final and conclusive. The Board of Directors of the Corporation, by written resolution, may amend, suspend, or terminate any or all provisions of the Plan at any time. VIII. Miscellaneous Provisions ------------------------ The following miscellaneous provisions are applicable to the Plan: (a) In the event of a participant's death, disability or retirement, awards shall be prorated to the date of the event, and paid as described in Section VI. (b) Termination of employment by a participant during the Plan year, for reasons other than death, disability, or retirement shall result in immediate exclusion from the Plan unless the Compensation and Benefits Committee decides otherwise in its sole discretion. (c) Except in the event of the death of a participant, the rights and interests of a participant under the Plan shall not be assigned, encumbered, or transferred. (d) No employee or other person shall have any claim or right to be granted an award under the Plan. Neither the Plan, nor any action taken thereunder, shall be construed as giving any employee or other person any right to be retained in the employ of the Corporation. (e) The Corporation shall have the right to deduct from all payments made under the Plan any taxes required by law to be withheld with respect to such payment. (f) All questions pertaining to the validity, construction and administration of the Plan and any award hereunder shall be determined in conformity with the laws of the State of Illinois. (g) Each participant shall designate a beneficiary (the "Designated Beneficiary") to receive the award, if any, allocated to a participant, in the event of such participant's death. If no Designated Beneficiary survives the participant, it shall be the surviving spouse of the participant or, if there is no surviving spouse, it shall be the participant's estate. 2 EX-11 5 COMPUTATION OF PER SHARE EARNINGS
EXHIBIT NUMBER (11) TO 3/31/96 FORM 10-Q NORTHERN TRUST CORPORATION COMPUTATION OF PER SHARE EARNINGS First Quarter Ended March 31 ------------------------------------------ 1996 1995 ------------ ------------- Computations Required by - ------------------------ Regulation S-K - -------------- Primary Earnings Per Share - -------------------------- Net Income Applicable to Common Shares $60,245,569 $47,181,699 ============ ============ Weighted Average Number of Common and Common Equivalent Shares Outstanding Common Shares 56,258,183 54,250,684 Dilutive Effect of Common Equivalent Shares (A) Stock Options 924,273 586,299 Long Term Performance Stock Plan 263,698 323,123 Other 44,783 8,213 ------------ ------------ 57,490,937 55,168,319 ============ ============ Net Income Per Common and Common Equivalent Share $1.05 $0.86 ============ ============ (A) Determined by application of the treasury stock method.
EXHIBIT NUMBER (11) TO 3/31/96 FORM 10-Q NORTHERN TRUST CORPORATION COMPUTATION OF PER SHARE EARNINGS First Quarter Ended March 31 ------------------------------------------ 1996 1995 ------------ ------------ Computations Required by - ------------------------ Regulation S-K - -------------- Fully Diluted Earnings Per Share - -------------------------------- Net Income Applicable to Common Shares $60,245,569 $47,181,699 Add Back: Dividend on Series E Convertible Preferred Stock 14,756 777,147 ------------ ------------ $60,260,325 $47,958,846 ============ ============ Weighted Average Number of Common and Common Equivalent Shares Outstanding Common Shares 56,258,183 54,250,684 Dilutive Effect of Common Equivalent Shares (A) Stock Options 962,193 604,437 Long Term Performance Stock Plan 270,220 326,028 Other 47,860 8,846 Other Potentially Dilutive Securities Equivalent Shares Assuming Conversion of Series E Convertible Preferred Stock 383,954 1,204,820 ------------ ------------ 57,922,410 56,394,815 ============ ============ Net Income Per Common and Common Equivalent Share $1.04 $0.85 ============ ============ (A) Determined by application of the treasury stock method.
EX-27 6 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the Consolidated Balance Sheet and the Consolidated Statement of Income and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1,125,674 1,828,937 118,779 6,924 5,590,435 489,905 513,095 10,025,613 147,239 20,301,720 12,100,479 5,985,835 405,780 341,066 94,966 0 120,000 1,253,594 20,301,720 163,896 93,487 27,552 284,935 111,486 191,547 93,388 5,000 272 184,044 92,056 92,056 0 0 61,541 1.05 1.04 2.21 27,877 36,916 2,712 0 147,131 5,691 799 147,239 110,180 2,729 34,330
EX-99 7 WILLIAM A. OSBORN ANNUAL MEETING REMARKS Exhibit Number (99) To 3/31/96 Form 10-Q WILLIAM A. OSBORN Chairman Northern Trust Corporation Annual Meeting Remarks April 16, 1996 While the votes are being counted, let me give you my perspective on the state of the business at Northern Trust. Through 106 years of providing outstanding services to clients worldwide, Northern Trust has built leading market positions in two core businesses. We now enjoy a diverse and profitable business mix that is unmatched in the industry. This morning I'll share with you how we strengthened our market positioning over the past year and how we are poised to seize growth opportunities. But first I'll take a few minutes to review our 1995 and first quarter 1996 financial performance. In 1995, solid revenue growth, combined with a successful effort to control expenses, produced net income of $220 million - a 21% increase. Total revenues increased 7%, led by trust fees which grew 11% during the year. Trust fee growth was driven by new business and acquisitions as well as favorable equity and bond market performance. Trust assets increased 23% to $614 billion at year end. Our focus on controlling expenses resulted in a very modest 1% rate of expense growth for the year. This allowed our revenue growth to have a direct impact on bottom line profitability. Early in 1995, we made the commitment to remove $50 million from our expense base over three years. We achieved the first $15 million of reductions in 1995. As a result, we were able to absorb over $10 million of additional expenses from three acquisitions last year and still keep total expenses essentially flat throughout the year. The remaining $35 million of our $50 million expense reduction initiative is reflected in our 1996 profit plan, which means that we expect to fulfill our commitment one year earlier than originally anticipated. But we don't view 1996 as the end of our job of controlling expenses. Expense management is an integral component of our strategic business planning. Expenses will continue to grow, but only to support profitable revenue growth opportunities. Measured against our financial benchmarks, our performance in 1995 was strong. Earnings per share increased 17%, well above our minimum target of 10%. Return on equity was 17.6%, only a bit short of our minimum 18% goal. And with a 151% productivity ratio of revenue to noninterest expense, we met our 150% goal in 1995 for the first time. Momentum built throughout the year in 1995. Beginning with results in the third quarter we were meeting all of our financial targets, including the 18% ROE goal. This momentum has carried over into 1996. First quarter results released just yesterday were very strong with net income up 25% to a record $61.5 million. Trust fees grew 19% in the quarter, fueling total revenue growth of 12%. Trust fees now account for one-half of total revenues, and fees in total represent two-thirds of revenues. This fee-based revenue stream is a characteristic of Northern that differentiates us from most other financial institutions. Expense growth remained in check, increasing just 4% over last year. We handily exceeded all our financial targets in the first quarter. Earnings per share were up a very strong 22%. The ROE increased for the fifth consecutive quarter to 18.4%. And our 157% productivity ratio set an all-time high. We view these goals as minimums, and we feel that exceeding them over the long term would mean truly superior performance. These last few slides speak for themselves. Your company is producing very strong financial results. Now a few comments on the condition of our businesses and opportunities for continued growth. 2 We compete as a top-tier provider in both our personal and our corporate & institutional markets. As a result of our highly focused business strategy and investment in these core businesses, Northern today is competitively positioned to capture a significant share of the growth in our markets. In our corporate & institutional business we offer a full array of custody, investment, participant recordkeeping and consulting services for retirement and other asset pools. Northern is one of the top providers in the highly concentrated securities custody market. In the past year a number of players have exited the business for reasons such as lack of scale and strategic focus. This has presented increased opportunity for Northern to grow its business. Northern is winning business with our scale, our commitment to this market, a relationship focus that brings clients innovative solutions, and a technological capability that we feel is second to none. Our record new business in the first quarter demonstrates our success. With the debut in 1995 of our Passport information delivery system, Northern re-established itself as an industry leader in technological capability and innovation. We incorporated many state-of-the-art design features into Passport, and our systems overall have been built using the most current technological thinking. Our technology is perceived as the newest and best, and has set the standard in the industry. We now enjoy operational, service quality, expense and product development advantages. In 1996 we will roll out products to help clients measure and monitor the risk in their investment portfolios. Risk management is a hot topic for our clients, and they are very enthusiastic about this development. We will be the first to offer these products in the market. 3 Our acquisition in 1994 of Hazlehurst & Associates, a benefits consulting and recordkeeping firm, strengthened Northern's position as a leading provider of retirement services. Demographic trends in the United States point to continued strong growth of retirement assets. We have experienced significant growth at Hazlehurst already as we pursue a fully integrated retirement services strategy. And the increasing trend by clients to outsource the administration of their retirement plans will also benefit Northern. Internationally, we have an attractive and expanding client base in 20 countries across Asia, Europe, the Middle East and Canada. Northern's strong credit ratings and our long-standing reputation for risk management position us favorably for growth in several key markets, perhaps most of all internationally. In 1995 we opened our office in Hong Kong to serve clients and to expand our securities lending activities. We will open an office in Singapore in mid-1996, pending regulatory approval, to build our market presence and foreign exchange capabilities in the Far East. Our processing network in 67 countries services global custody assets that grew 30% in 1995 to $85 billion. Our wide range of investment management expertise provides yet another avenue for growth. In 1995 assets under management increased 28%, and today Northern manages $114.5 billion of assets for corporate and personal clients. We rank 14th nationally among all investment managers and in the top five for institutional cash. Clients are attracted by our portfolio risk management process for managing cash, which has consistently provided above market returns. Our fixed income performance results have earned Northern a five star rating from Morningstar, placing us in the top 10% of all fixed income funds. We strengthened our investment consulting and equity management capabilities in 1995 with our 4 funds. We strengthened our investment consulting and equity management capabilities in 1995 with our acquisition of RCB International, a leading manager of investment managers with particular expertise in international equities. Personal Financial Services is our other core business. We have a one-of-a-kind strategy of marketing trust, investment management and private banking services to individuals in high growth, affluent markets. The strategy brings together the key elements of people, product range, delivery, marketing and focus. Within each of these Northern enjoys a competitive advantage. Our reputation is outstanding in this business, enabling us to attract and retain professionals of the highest caliber. Our people are very experienced, and they are actively involved and well-known in their communities. The quality and range of product that we offer stands out in the industry. Northern has the capability to manage non-traditional investments such as closely-held businesses. These special skills, and a full range of more traditional banking, investment and fiduciary products, enable us to service clients throughout their lives. We are strategically located where the demographics are very favorable and the demand is strong for our distinguishing "high touch" service style. Our full range of expertise is available on site in each of our locations. Our trust administrators, private bankers and portfolio managers work as a team to ensure total client satisfaction. Service delivery is enhanced by our facilities which are truly first class and consistent with our image as the bank of choice for our target market. 5 We are effective in building referral networks of estate planning attorneys, accountants and financial planners, but our best source of referrals for new business is our satisfied clients. We blend this more traditional avenue of new business development with a unique style of marketing. For example, we host events where we invite clients and prospects to meet and listen to well- known authors, entertainers and political commentators. These forums have proven to be very effective in building client loyalty and attracting new business. And finally, because this core business generates almost half of total corporate revenues, it gets a lot of senior management attention. I spend a significant amount of my time with clients and prospects of both our personal and corporate businesses. Our franchise today spans five states with a total of 53 office locations. We currently administer $74 billion of trust assets for individuals, with $44 billion under investment management. We rank first in Illinois and second in Florida in market share for personal assets managed by banks. Nationwide we rank in the top 10. In 1995 we completed our acquisitions of Tanglewood Bancshares in Texas and Beach One Financial Services in Florida, and we opened an office in Bradenton, Florida. We intend to grow our business by further penetrating our existing markets and by expanding our network of locations. In 1996 we have already opened new offices in Bonita Springs, Delray Beach and Stuart, Florida. We have scheduled office openings in Sun City West and Mesa, Arizona. And in Illinois, we expect to open an office in Barrington, our new facility in Winnetka, and our permanent facility on Chicago's south side. And our plans for expansion go well beyond 1996. 6 Northern manages a dynamic program of investing in the communities that we serve. Several new initiatives were added to the program in 1995. We also announced a five year, $300 million commitment for loans and investments for affordable housing, small business and other initiatives targeted to low- and moderate-income neighborhoods in Chicago and surrounding Cook County. To date we have extended over $50 million of loans and investments under this program. Over the years Northern has received several awards in recognition of our efforts to help build stronger communities. We view all forms of community involvement by the corporation and its employees to be an important part of our strategy. Our core businesses are growing rapidly and require significant investment of capital, but the strength of our earnings generates equity capital in excess of projected needs. We are currently repurchasing common shares to manage our capital position and to enhance shareholder return. In 1995 1.5 million shares were repurchased, and in the first quarter we bought back another 566 thousand shares. We are on pace to complete this year the 1.7 million shares remaining in our current buy-back program. Shareholder returns in 1995 also benefited from a 19% increase in the dividend to $1.24 per share, the ninth consecutive year the dividend has been increased to keep pace with earnings growth. 1995 marked the eighth consecutive year of record earnings for the corporation and 1996 is off to a good start. Our confidence in Northern's strategic opportunities has never been stronger. We are optimistic that we can continue to deliver consistently strong operating performance. 7 -----END PRIVACY-ENHANCED MESSAGE-----