-----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, Amt5sUQy4A61GnCR/9AY8ECV7H+aIVF+B0f53DC3d9K3yKQNM1+gxZKOfB2+Jim8 d2W7RtaByufpAchwAaISBg== 0000950131-02-001946.txt : 20020514 0000950131-02-001946.hdr.sgml : 20020514 ACCESSION NUMBER: 0000950131-02-001946 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 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: 02644923 BUSINESS ADDRESS: STREET 1: 50 S LASALLE 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 d10q.txt 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, 2002 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 No. 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 LaSalle 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 ------ ----- 221,714,158 Shares - $1.66 2/3 Par Value (Shares of Common Stock Outstanding on March 31, 2002) ================================================================================ PART I - FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEET NORTHERN TRUST CORPORATION
March 31 December 31 March 31 ------------- ------------- --------------- ($ In Millions Except Share Information) 2002 2001 2001 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Assets Cash and Due from Banks $ 1,534.8 $ 2,592.3 $ 1,545.3 Federal Funds Sold and Securities Purchased under Agreements to Resell 336.9 3,565.1 293.2 Time Deposits with Banks 7,301.6 6,955.9 3,534.1 Other Interest-Bearing 24.1 25.0 28.3 Securities Available for Sale 8,304.6 5,648.6 12,026.4 Held to Maturity (Fair value - $685.6 at March 2002, $673.1 at December 2001, $629.0 at March 2001) 676.4 663.6 614.7 Trading Account 9.7 18.9 16.8 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Total Securities 8,990.7 6,331.1 12,657.9 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Loans and Leases Commercial and Other 10,345.7 10,552.0 11,013.1 Residential Mortgages 7,499.8 7,427.9 6,855.5 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Total Loans and Leases (Net of unearned income - $388.9 at March 2002, $427.3 at December 2001, $365.1 at March 2001) 17,845.5 17,979.9 17,868.6 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Reserve for Credit Losses (160.3) (161.6) (167.9) Buildings and Equipment 493.7 488.7 466.4 Customers' Acceptance Liability 3.6 9.7 16.5 Trust Security Settlement Receivables 200.8 571.4 458.0 Other Assets 1,390.2 1,307.0 1,497.4 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Total Assets $ 37,961.6 $39,664.5 $38,197.8 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Liabilities Deposits Demand and Other Noninterest-Bearing $ 3,959.3 $ 6,237.4 $ 4,472.3 Savings and Money Market 5,901.2 6,808.5 5,674.5 Savings Certificates 1,940.2 2,024.4 2,326.1 Other Time 331.8 404.6 1,835.1 Foreign Offices-Demand 743.3 872.7 724.6 -Time 9,071.0 8,671.7 8,559.3 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Total Deposits 21,946.8 25,019.3 23,591.9 Federal Funds Purchased 6,616.7 815.5 4,502.6 Securities Sold Under Agreements to Repurchase 1,150.5 1,407.4 892.4 Commercial Paper 129.9 137.7 134.5 Other Borrowings 2,603.7 6,841.2 3,632.6 Senior Notes 450.0 450.0 500.0 Long-Term Debt 766.5 766.8 792.4 Debt - Floating Rate Capital Securities 267.8 267.7 267.7 Liability on Acceptances 3.6 9.7 16.5 Other Liabilities 1,194.4 1,175.7 1,294.6 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Total Liabilities 35,129.9 36,891.0 35,625.2 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Stockholders' Equity Preferred Stock 120.0 120.0 120.0 Common Stock, $1.66 2/3 Par Value; Authorized 560,000,000 shares at March 2002, December 2001 and March 2001; Outstanding 221,714,158 at March 2002, 221,647,260 at December 2001 and 222,636,056 at March 2001 379.8 379.8 379.8 Capital Surplus - - - Retained Earnings 2,600.7 2,520.1 2,287.7 Accumulated Other Comprehensive Income (5.0) (2.4) (13.1) Common Stock Issuable - Stock Incentive Plans 120.1 147.6 138.5 Deferred Compensation (50.7) (58.1) (72.1) Treasury Stock - (at cost, 6,207,366 shares at March 2002, 6,274,264 shares at December 2001, and 5,285,468 shares at March 2001) (333.2) (333.5) (268.2) - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Total Stockholders' Equity 2,831.7 2,773.5 2,572.6 - ----------------------------------------------------------------------------------- ------------- ------------- --------------- Total Liabilities and Stockholders' Equity $ 37,961.6 $39,664.5 $38,197.8 - ----------------------------------------------------------------------------------- ------------- ------------- ---------------
2 CONSOLIDATED STATEMENT OF INCOME NORTHERN TRUST CORPORATION
First Quarter Ended March 31 --------------------------------- ($ In Millions Except Per Share Information) 2002 2001 - ---------------------------------------------------------- ------------------ -------------- Noninterest Income Trust Fees $ 316.4 $ 305.2 Foreign Exchange Trading Profits 24.3 34.9 Treasury Management Fees 23.4 20.1 Security Commissions and Trading Income 9.9 9.6 Other Operating Income 17.7 19.7 Investment Security Gains - - - ---------------------------------------------------------- ------------------ -------------- Total Noninterest Income 391.7 389.5 - ---------------------------------------------------------- ------------------ -------------- Net Interest Income Interest Income 315.0 493.4 Interest Expense 165.8 345.3 - ---------------------------------------------------------- ------------------ -------------- Net Interest Income 149.2 148.1 Provision for Credit Losses 5.0 5.0 - ---------------------------------------------------------- ------------------ -------------- Net Interest Income after Provision for Credit Losses 144.2 143.1 - ---------------------------------------------------------- ------------------ -------------- Noninterest Expenses Compensation 162.4 170.4 Employee Benefits 35.8 33.8 Occupancy Expense 26.0 24.7 Equipment Expense 22.6 21.2 Other Operating Expenses 96.0 91.5 - ---------------------------------------------------------- ------------------ -------------- Total Noninterest Expenses 342.8 341.6 - ---------------------------------------------------------- ------------------ -------------- Income before Income Taxes 193.1 191.0 Provision for Income Taxes 65.5 63.8 - ---------------------------------------------------------- ------------------ -------------- Net Income $ 127.6 $ 127.2 - ---------------------------------------------------------- ------------------ -------------- Net Income Applicable to Common Stock $ 127.1 $ 125.8 - ---------------------------------------------------------- ------------------ -------------- Net Income Per Common Share - Basic $ .58 $ .57 - Diluted .56 .55 - ---------------------------------------------------------- ------------------ -------------- Average Number of Common Shares Outstanding - Basic 220,854,363 221,567,912 - Diluted 227,373,197 229,821,275 - ---------------------------------------------------------- ------------------ --------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NORTHERN TRUST CORPORATION
First Quarter Ended March 31 ----------------------------- ($ In Millions) 2002 2001 - ------------------------------------------------------------------------------------------------- ------------------ ---------- Net Income $127.6 $127.2 Other Comprehensive Income (net of tax) Unrealized Gains (Losses) on Securities Available for Sale: Unrealized Holding Gains (Losses) Arising during the Period (net of tax benefit (provision) of .$8 and $(1.0) million for the quarters ended March 31, 2002 and 2001, respectively. (1.4) 1.5 Less: Reclassification Adjustments for Gains Included in Net Income - - Unrealized Gains (Losses) on Cash Flow Hedge Designations: Cumulative-Effect of Adopting SFAS No. 133 (net of tax benefit of $.1 million) - (.2) Unrealized Gains (Losses) Arising During the Period (net of tax benefit of $.7 million for each of the quarters ended March 31, 2002 and 2001, respectively). (.7) (1.9) Less: Reclassification Adjustments for Losses Included in Net Income (net of tax benefit (provision) of $(.3) million and $.4 million for the quarters ended March 31, 2002 and 2001, respectively). (.5) .7 - ------------------------------------------------------------------------------------------------- ------------------ ---------- Other Comprehensive Income (2.6) .1 - ------------------------------------------------------------------------------------------------- ------------------ ---------- Comprehensive Income $125.0 $127.3 - ------------------------------------------------------------------------------------------------- ------------------ ----------
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NORTHERN TRUST CORPORATION First Quarter Ended March 31 --------------------------------- (In Millions) 2002 2001 - ---------------------------------------------------------------------------------- --------------- ---------------- Preferred Stock Balance at January 1 and March 31 $ 120.0 $ 120.0 - ---------------------------------------------------------------------------------- --------------- ---------------- Common Stock Balance at January 1 and March 31 379.8 379.8 - ---------------------------------------------------------------------------------- --------------- ---------------- Retained Earnings Balance at January 1 2,520.1 2,200.0 Net Income 127.6 127.2 Dividend Declared - Common Stock (37.7) (34.5) Dividends Declared - Preferred Stock (.6) (1.4) Stock Issued - Incentive Plan and Awards (8.7) (3.6) - ---------------------------------------------------------------------------------- --------------- ---------------- Balance at March 31 2,600.7 2,287.7 - ---------------------------------------------------------------------------------- --------------- ---------------- Accumulated Other Comprehensive Income Balance at January 1 (2.4) (13.2) Other Comprehensive Income (2.6) .1 - ---------------------------------------------------------------------------------- --------------------------------- Balance at March 31 (5.0) (13.1) - ---------------------------------------------------------------------------------- --------------- ---------------- Common Stock Issuable - Stock Incentive Plans Balance at January 1 147.6 110.2 Stock Issuable, net of Stock Issued (27.5) 28.3 - ---------------------------------------------------------------------------------- --------------- ---------------- Balance at March 31 120.1 138.5 - ---------------------------------------------------------------------------------- --------------- ---------------- Deferred Compensation - ESOP and Other Balance at January 1 (58.1) (57.9) Compensation Deferred - (19.6) Compensation Amortized 7.4 5.4 - ---------------------------------------------------------------------------------- --------------- ---------------- Balance at March 31 (50.7) (72.1) - ---------------------------------------------------------------------------------- --------------- ---------------- Treasury Stock Balance at January 1 (333.5) (276.7) Stock Options and Awards 46.3 42.9 Stock Purchased (46.0) (34.4) - ---------------------------------------------------------------------------------- --------------- ---------------- Balance at March 31 (333.2) (268.2) - ---------------------------------------------------------------------------------- --------------- ---------------- Total Stockholders' Equity at March 31 $2,831.7 $2,572.6 - ---------------------------------------------------------------------------------- --------------- ----------------
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CONSOLIDATED STATEMENT OF CASH FLOWS NORTHERN TRUST CORPORATION First Quarter Ended March 31 -------------------------------- (In Millions) 2002 2001 - ------------------------------------------------------------------------------------------------ -------------- ---------------- Cash Flows from Operating Activities: Net Income $ 127.6 $ 127.2 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Credit Losses 5.0 5.0 Depreciation on Buildings and Equipment 20.9 20.0 (Increase) Decrease in Interest Receivable (12.1) 36.4 Increase (Decrease) in Interest Payable (2.5) 14.6 Amortization and Accretion of Securities and Unearned Income (61.6) (72.5) Amortization of Computer Software 20.1 18.7 Amortization of Goodwill and Other Intangibles 1.6 4.1 Net (Increase) Decrease in Trading Account Securities 9.2 (3.4) Other Noncash, net (30.7) (35.1) - ------------------------------------------------------------------------------------------------ -------------- ---------------- Net Cash Provided by Operating Activities 77.5 115.0 - ------------------------------------------------------------------------------------------------ -------------- ---------------- Cash Flows from Investing Activities: Net Decrease in Federal Funds Sold and Securities Purchased under Agreements to Resell 3,228.2 256.6 Net (Increase) Decrease in Time Deposits with Banks (345.7) 1,659.7 Net Decrease in Other Interest-Bearing Assets .9 93.0 Purchases of Securities-Held to Maturity (22.0) (27.7) Proceeds from Maturity and Redemption of Securities-Held to Maturity 16.9 40.4 Purchases of Securities-Available for Sale (11,808.5) (27,583.0) Proceeds from Sale, Maturity and Redemption of Securities-Available for Sale 9,170.9 22,276.2 Net Decrease in Loans and Leases 166.3 275.6 Purchases of Buildings and Equipment (25.9) (38.2) Purchases and Development of Computer Software (42.0) (40.3) Net Decrease in Trust Security Settlement Receivables 370.6 157.2 Decrease in Cash Due to Acquisitions - (1.0) Other, net 1.4 16.7 - ------------------------------------------------------------------------------------------------ -------------- ---------------- Net Cash Provided by (Used in) Investing Activities 711.1 (2,914.8) - ------------------------------------------------------------------------------------------------ -------------- ---------------- Cash Flows from Financing Activities: Net Increase (Decrease) in Deposits (3,072.5) 764.0 Net Increase in Federal Funds Purchased 5,801.2 887.6 Net Decrease in Securities Sold under Agreements to Repurchase (256.9) (684.7) Net Decrease in Commercial Paper (7.8) (7.9) Net Increase (Decrease) in Short-Term Other Borrowings (3,967.0) 533.1 Proceeds from Term Federal Funds Purchased 280.5 1,856.0 Repayments of Term Federal Funds Purchased (551.0) (1,386.0) Proceeds from Senior Notes & Long-Term Debt - 154.5 Repayments of Senior Notes & Long-Term Debt (.3) (.2) Treasury Stock Purchased (44.7) (33.3) Net Proceeds from Stock Options 5.6 5.0 Cash Dividends Paid on Common and Preferred Stock (38.3) (36.0) Other, net 5.1 5.2 - ------------------------------------------------------------------------------------------------ -------------- ---------------- Net Cash Provided by (Used In) Financing Activities (1,846.1) 2,057.3 - ------------------------------------------------------------------------------------------------ -------------- ---------------- Decrease in Cash and Due from Banks (1,057.5) (742.5) Cash and Due from Banks at Beginning of Year 2,592.3 2,287.8 - ------------------------------------------------------------------------------------------------ -------------- ---------------- Cash and Due from Banks at End of Year $ 1,534.8 $ 1,545.3 - ------------------------------------------------------------------------------------------------ -------------- ---------------- Schedule of Noncash Investing Activities: Transfer of Securities from Held to Maturity to Available for Sale $ - $ 167.0 Supplemental Disclosures of Cash Flow Information: Interest Paid $ 168.3 $ 330.6 Income Taxes Received 8.6 17.7 - ------------------------------------------------------------------------------------------------ -------------- ----------------
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, 2002 and 2001 have not been audited by the Corporation's 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 policies, refer to Note 1 of the Notes to Consolidated Financial Statements in the 2001 Annual Report to Shareholders. 2. Securities - The following table summarizes the book and fair values of securities.
- ----------------------------------------------------------------------------------------------------------------------- March 31, 2002 December 31, 2001 March 31, 2001 ------------------------------------------------------------------------------------ Book Fair Book Fair Book Fair (In Millions) Value Value Value Value Value Value - ----------------------------------------------------------------------------------------------------------------------- Held to Maturity U.S. Government $ - $ - $ - $ - $ 25.0 $ 25.1 Obligations of States and Political Subdivisions 544.3 557.8 528.9 542.9 469.2 488.4 Federal Agency 4.9 4.9 4.9 4.9 5.6 5.6 Other 127.2 122.9 129.8 125.3 114.9 109.9 - ----------------------------------------------------------------------------------------------------------------------- Subtotal 676.4 685.6 663.6 673.1 614.7 629.0 - ----------------------------------------------------------------------------------------------------------------------- Available for Sale U.S. Government 157.1 157.1 158.9 158.9 164.9 164.9 Obligations of States and Political Subdivisions 30.0 30.0 30.0 30.0 16.5 16.5 Federal Agency 7,844.6 7,844.6 5,188.9 5,188.9 11,569.8 11,569.8 Preferred Stock 82.9 82.9 82.9 82.9 90.8 90.8 Other 190.0 190.0 187.9 187.9 184.4 184.4 - ----------------------------------------------------------------------------------------------------------------------- Subtotal 8,304.6 8,304.6 5,648.6 5,648.6 12,026.4 12,026.4 - ----------------------------------------------------------------------------------------------------------------------- Trading Account 9.7 9.7 18.9 18.9 16.8 16.8 - ----------------------------------------------------------------------------------------------------------------------- Total Securities $8,990.7 $8,999.9 $6,331.1 $6,340.6 $12,657.9 $12,672.2 - -----------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------- Reconciliation of Book Values to Fair Values of Securities Held to Maturity March 31, 2002 - --------------------------------------------------------------------------------------------------- Book Gross Unrealized Fair ----------------------- (In Millions) Value Gains Losses Value - --------------------------------------------------------------------------------------------------- U.S. Government $ - $ - $ - $ - Obligations of States and Political Subdivisions 544.3 13.5 - 557.8 Federal Agency 4.9 .1 .1 4.9 Other 127.2 - 4.3 122.9 - --------------------------------------------------------------------------------------------------- Total $ 676.4 $ 13.6 $ 4.4 $685.6 - --------------------------------------------------------------------------------------------------- Reconciliation of Amortized Cost to Fair Values of Securities Available for Sale March 31, 2002 - --------------------------------------------------------------------------------------------------------- Amortized Gross Unrealized Fair ----------------------- (In Millions) Cost Gains Losses Value - --------------------------------------------------------------------------------------------------------- U.S. Government $ 157.1 $ .1 $ .1 $ 157.1 Obligations of States and Political Subdivisions 30.7 .1 .8 30.0 Federal Agency 7,840.5 5.2 1.1 7,844.6 Preferred Stock 82.9 - - 82.9 Other 190.0 - - 190.0 - --------------------------------------------------------------------------------------------------------- Total $ 8,301.2 $ 5.4 $ 2.0 $8,304.6 - ---------------------------------------------------------------------------------------------------------
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 $11.3 billion on March 31, 2002, $10.5 billion on December 31, 2001 and $11.1 billion on March 31, 2001. Included in the March 31, 2002 pledged assets were securities available for sale of $909.4 million, which were pledged as collateral for repurchase agreement transactions. The secured parties to these transactions have the right to repledge or sell these securities. Northern Trust is permitted to repledge collateral accepted from reverse repurchase agreement transactions. The total fair value of accepted collateral as of March 31, 2002, December 31, 2001 and March 31, 2001 was $288.2 million, $1.6 billion and $269.3 million, respectively. The fair value of repledged collateral as of March 31, 2002, December 31, 2001 and March 31, 2001 was $144.9 million, $1.2 billion and $88.8 million, respectively. Repledged collateral was used in other repurchase agreement transactions. 4. Contingent Liabilities - Standby letters of credit outstanding were $2.5 billion on March 31, 2002, $2.5 billion on December 31, 2001 and $2.1 billion on March 31, 2001. 7 5. Loans and Leases - Amounts outstanding in selected loan categories are shown below. - ------------------------------------------------------------------------------- (In Millions) March 31, 2002 December 31, 2001 March 31, 2001 - ------------------------------------------------------------------------------- Domestic Residential Real Estate $ 7,499.8 $ 7,427.9 $ 6,855.5 Commercial 4,494.0 4,741.6 5,118.3 Broker 89.9 11.8 147.9 Commercial Real Estate 1,088.2 1,025.6 934.0 Personal 2,081.8 2,208.8 2,111.0 Other 778.0 768.6 795.8 Lease Financing 1,179.0 1,202.6 1,030.3 - ------------------------------------------------------------------------------- Total Domestic 17,210.7 17,386.9 16,992.8 International 634.8 593.0 875.8 - ------------------------------------------------------------------------------- Total Loans and Leases $17,845.5 $17,979.9 $17,868.6 - ------------------------------------------------------------------------------- At March 31, 2002, other domestic and international loans included $843.0 million of overnight trust-related advances, primarily in connection with next day security settlements, compared with $812.0 million at December 31, 2001 and $1.0 billion at March 31, 2001. At March 31, 2002, nonperforming loans and leases totaled $117.9 million. Included in this amount were loans with a recorded investment of $116.1 million, which were also classified as impaired. A loan is impaired when, based on current information, 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 $14.6 million had no portion of the reserve for credit losses allocated to them while impaired loans totaling $101.5 million had an allocated reserve of $24.6 million. For the first quarter of 2002, the total recorded investment in impaired loans averaged $112.1 million. There was $29 thousand of interest income recorded on impaired loans for the quarter ended March 31, 2002. At March 31, 2001, nonperforming loans and leases totaled $111.1 million and included $107.7 million of impaired loans. Of these impaired loans, $10.6 million had no portion of the reserve for credit losses allocated to them while $97.1 million had an allocated reserve of $29.0 million. Total recorded investment in impaired loans for the first quarter of 2001 averaged $82.5 million with no interest income recognized on such loans. At March 31, 2002, commercial loans and residential real estate loans totaling $41.4 million were held for sale and were included in other assets in the consolidated balance sheet. 8 6. Reserve for Credit Losses - Changes in the reserve for credit losses were as follows: - ----------------------------------------------------------------------------- Three Months Ended March 31 ---------------------------------------------------------------------------- (In Millions) 2002 2001 - ----------------------------------------------------------------------------- Balance at Beginning of Period $161.6 $162.9 Charge-Offs (6.5) (.7) Recoveries .2 .7 - ----------------------------------------------------------------------------- Net Charge-Offs (6.3) - Provision for Credit Losses 5.0 5.0 - ----------------------------------------------------------------------------- Balance at End of Period $160.3 $167.9 - ----------------------------------------------------------------------------- The reserve for credit losses represents management's estimate of probable inherent losses that have occurred as of the date of the financial statements. The loan and lease portfolio and other credit exposures are regularly reviewed to evaluate the adequacy of the reserve for credit losses. In determining the level of the reserve, Northern Trust evaluates the reserve necessary for specific nonperforming loans and also estimates losses inherent in other credit exposures. The result is a reserve with the following components: Specific Reserve. The amount of specific reserve is determined through a loan-by-loan analysis of nonperforming loans that considers expected future cash flows, the value of collateral and other factors that may impact the borrower's ability to pay. Allocated Inherent Reserve. The amount of the allocated portion of the inherent loss reserve is based on loss factors assigned to Northern Trust's credit exposures, which depend upon internal credit ratings. These loss factors primarily include management's judgment concerning the effect of the business cycle on the creditworthiness of Northern Trust's borrowers as well as historical charge-off experience. Unallocated Inherent Reserve. Management determines the unallocated portion of the inherent reserve based on factors that cannot be associated with a specific credit or loan category. These factors include management's subjective evaluation of local and national economic and business conditions, portfolio concentration and changes in the character and size of the loan portfolio. The unallocated portion of the inherent reserve reflects management's attempt to ensure that the overall reserve appropriately reflects a margin for the imprecision necessarily inherent in estimates of expected credit losses. 9 7. Net Income Per Common Share Computations - The computation of net income per common share is presented in the following table.
- --------------------------------------------------------------------------------------------------- First Quarter Ended March 31 - --------------------------------------------------------------------------------------------------- ($ In Millions Except Per Share Information) 2002 2001 - --------------------------------------------------------------------------------------------------- Basic Net Income Per Common Share Reported Net Income $ 127.6 $ 127.2 Less: Dividends on Preferred Stock (.5) (1.4) Add Back: Goodwill Amortization, After Tax - 2.1 - --------------------------------------------------------------------------------------------------- Adjusted Net Income Applicable to Common Stock $ 127.1 $127.9 Average Number of Common Shares Outstanding 220,854,363 221,567,912 Reported Basic Net Income Per Common Share $ .58 $ .57 Goodwill Amortization, After Tax - .01 Adjusted Basic Net Income Per Common Share $ .58 $ .58 - --------------------------------------------------------------------------------------------------- Diluted Net Income Per Common Share Reported Net Income Applicable to Common Stock $ 127.1 $ 125.8 Add Back: Goodwill Amortization, After Tax - 2.1 Adjusted Net Income Applicable to Common Stock $ 127.1 $ 127.9 Average Number of Common Shares Outstanding 220,854,363 221,567,912 Plus Dilutive Potential Common Shares: Stock Options 4,658,448 6,111,385 Stock Incentive Plans 1,860,386 2,141,978 - --------------------------------------------------------------------------------------------------- Average Common and Potential Common Shares 227,373,197 229,821,275 Reported Diluted Net Income Per Common Share $ .56 $ .55 Goodwill Amortization, After Tax - .01 Adjusted Diluted Net Income Per Common Share $ .56 $ .56 - ---------------------------------------------------------------------------------------------------
8. Accumulated Other Comprehensive Income
- -------------------------------------------------------------------------------------------------------------------------- For the First Quarter Ended March 31, 2002 - -------------------------------------------------------------------------------------------------------------------------- Unrealized Gains Foreign Accumulated (Losses) on Minimum Gains (Losses) Currency Other Securities Pension On Cash Flow Translation Comprehensive (In Millions) Available For Sale Liability Hedge Designations Adjustments Income - -------------------------------------------------------------------------------------------------------------------------- Beginning Balance $ (.1) $(3.6) $ 1.5 $ (.2) $ (2.4) Current-Period Change (1.4) - (1.2) - (2.6) - -------------------------------------------------------------------------------------------------------------------------- Ending Balance $ (1.5) $(3.6) $ .3 $ (.2) $ (5.0) - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- For the First Quarter Ended March 31, 2001 - -------------------------------------------------------------------------------------------------------------------------- Unrealized Gains Foreign Accumulated (Losses) on Minimum Gains (Losses) Currency Other Securities Pension On Cash Flow Translation Comprehensive (In Millions) Available For Sale Liability Hedge Designations Adjustments Income - -------------------------------------------------------------------------------------------------------------------------- Beginning Balance $ (.9) $(12.3) $ - $ - $(13.2) Cumulative-effect of Adopting SFAS 133 - - (.2) - (.2) Current-Period Change 1.5 - (1.2) - .3 - -------------------------------------------------------------------------------------------------------------------------- Ending Balance $ .6 $(12.3) $ (1.4) $ - $(13.1) - --------------------------------------------------------------------------------------------------------------------------
9. The Northern Trust Corporation 2002 Stock Plan - The Board of Directors approved the Northern Trust Corporation 2002 Stock Plan (the "2002 Plan"), which was then subsequently approved by the Corporation's stockholders at the 2002 annual meeting of stockholders. The 2002 Plan is a compensation plan authorizing the grant 10 of stock options, stock appreciation rights, stock awards, performance shares and stock units. An aggregate of 22,000,000 shares of the Corporation's Common Stock has been reserved for issuance under the 2002 Plan. The 2002 Plan replaces the Northern Trust Corporation Amended 1992 Incentive Stock Plan (the "1992 Plan") which expired by its terms on April 30, 2002. No awards may be granted under the 1992 Plan after that date. 10. Accounting Standards Pronouncements - The following accounting standards or disclosures were adopted in the first quarter of 2002. SFAS No. 142, "Goodwill and Other Intangible Assets" supersedes APB Opinion No. 17, "Intangible Assets" and addresses the accounting for goodwill and other intangible assets. As required, Northern Trust applied the provisions of this Statement effective January 1, 2002 to all goodwill and other intangible assets reflected in the consolidated financial statements at that date. Goodwill - The Statement discontinues amortization of goodwill over its estimated useful life and requires a transitional impairment test of goodwill as of January 1, 2002. An annual impairment test of goodwill is also required in the year of adoption and in subsequent years. Impairment losses for goodwill that arise due to the initial application of this Statement, resulting from the transitional impairment test, are to be reported as a change in an accounting principle and any subsequent impairment losses are required to be reported as operating expenses. Management completed the initial goodwill impairment test as of January 1, 2002 and determined that no transitional impairment charge was necessary. Goodwill at both January 1, 2002 and March 31, 2002 totaled $90.1 million. Application of the nonamortization provisions of the Statement will reduce noninterest expense by approximately $10.0 million annually, resulting in an increase in net income of approximately $8.0 million in 2002 compared to 2001. Goodwill amortization in the first quarter of 2001 totaled $2.6 million or $2.1 million after taxes. Intangible Assets Subject to Amortization - Other separately identifiable acquired intangible assets will continue to be amortized over their estimated useful life. At March 31, 2002, acquired intangible assets had a book value of $33.5 million, which was net of accumulated amortization on these assets of $54.2 million. Amortization for the first three months of the year amounted to $1.6 million. Amortization expenses for the years 2002, 2003, 2004, 2005 and 2006 are estimated to be $6.7 million, $6.6 million, $6.6 million, $5.5 million and $5.1 million, respectively. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" supersedes SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30. The Statement addresses the accounting for a segment of a business accounted for as a discontinued operation and the accounting for long-lived assets to be disposed of. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. Northern Trust adopted the requirements of this Statement on January 1, 2002. It is not anticipated that the adoption of SFAS No. 144 will have a material effect on Northern Trust's results of operations. 11 Emerging Issues Task Force Guidance Under Topic D-96, "Accounting for Management Fees Based on a Formula", requires that effective with the quarter ended March 31, 2002, that Northern Trust disclose its accounting policy for revenue recognition under arrangements that contain a performance-based incentive fee that is not finalized until the end of a period of time specified in the contract. Consistent with the prior year, Northern Trust adheres to a policy in which it does not record any incentive fee income until the end of the contract year, thereby eliminating the potential that revenue will be recognized in one quarter and reversed in a future quarter. Therefore, Northern Trust has not recorded any revenue under these incentive fee programs that is at risk due to future performance contingencies. These arrangements often contain similar terms for the payment of performance-based fees to sub-advisors. The accounting for these performance-based expenses match the treatment for the related performance-based revenues. No performance-based incentive fees or expenses were recognized in the quarter ended March 31, 2002. 11. Business Segments - The table on page 18, reflecting the earnings contribution of Northern Trust's business segments for the first quarter ended March 31, 2002, are incorporated by reference. 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER EARNINGS HIGHLIGHTS Net income per common share on a diluted basis increased 2% to $.56 for the first quarter, up from $.55 earned a year ago. Net income totaled $127.6 million, compared to $127.2 million reported for the first quarter of last year. This earnings performance produced an annualized return on average common equity (ROE) of 19.42% versus 21.53% reported for the comparable quarter last year, and an annualized return on average assets (ROA) of 1.37% versus 1.45% in 2001. This performance was achieved as a result of continued aggressive management of expenses, which were flat compared to last year. Revenue growth was also flat, resulting in a productivity ratio of 161%. Noninterest Income Noninterest income totaled $391.7 million for the quarter, accounting for 71% of total taxable equivalent revenue. Trust fees were $316.4 million in the quarter, up 4% compared to $305.2 million in the first quarter of last year and represented 57% of total taxable equivalent revenue. The trust fee growth resulted primarily from new business and was partially offset by weak equity markets. Trust assets under administration totaled $1.72 trillion, an increase of 4% since March 2001, and trust assets under the management of Northern Trust grew modestly to $337.7 billion. Trust fees are based on the market value of assets managed and administered, the volume of transactions, securities lending volume and spreads, and fees for other services rendered. Asset-based trust fees are typically determined on a sliding scale so that as the value of a client portfolio grows in size, Northern Trust receives a smaller percentage of the increasing value as trust fee income. In addition, certain accounts may be on a fixed annual fee. Therefore, market value or other changes in a portfolio's size do not typically have a directly proportionate impact on the level of the fees. In addition, Corporate and Institutional Services (C&IS) trust relationships are increasingly priced to reflect earnings from activities such as custody-related deposits and foreign exchange trading which are not included in trust fees. 13 Noninterest Income (continued) Trust fees from Personal Financial Services (PFS) in the quarter increased 2% and totaled $158.6 million, compared to $156.1 million in the year-ago quarter. The increase in PFS trust fees resulted from new business and was partially offset by weak equity markets. Northern Trust's network of Personal Financial Services offices now totals 82 locations in twelve states, and it is currently estimated that there will be approximately 100 offices operating within as many as fifteen states by the end of 2005. Personal trust assets under administration totaled $173.4 billion at March 31, 2002, compared to $160.0 billion at March 31, 2001 and $166.8 billion at December 31, 2001. Of the total trust assets under administration, $96.2 billion is managed by Northern Trust, compared to $93.3 billion one year ago. At March 31, 2002, 49% of personal trust assets under management were invested in equity securities. Net new recurring PFS trust business sold in the first three months totaled approximately $11 million in annualized fees. Trust fees from C&IS in the quarter increased 6% to $157.8 million, compared to $149.1 million in the year-ago quarter. Driven primarily by growth in institutional money market funds, fees from asset management increased 9% and totaled $48.2 million, compared to $44.2 million in the year-ago quarter. Reflecting strong global business, custody fees increased 3% to $52.4 million. Northern Trust Retirement Consulting, L.L.C. recorded fees of $17.6 million compared to $15.3 million in last year's first quarter. Securities lending fees totaled $28.8 million compared to $29.9 million in last year's first quarter. In the prior year, securities lending spreads benefited from three declines in the federal funds rate during the quarter. C&IS trust assets under administration totaled $1.54 trillion at March 31, 2002, compared to $1.49 trillion at March 31, 2001 and $1.52 trillion at December 31, 2001. Of the C&IS trust assets under administration, $241.5 billion is managed by Northern Trust, down slightly from $243.3 billion at March 31, 2001, but up from $236.1 billion at year-end. At March 31, 2002, approximately 25% of assets under management were invested in equity securities. Trust assets under administration included $470.4 billion of global custody assets, up 13% from a year ago. Net new recurring C&IS trust business sold in the first three months totaled approximately $8 million in annualized fees. Foreign exchange trading profits were $24.3 million for the quarter, compared to $34.9 million in the first quarter of last year. Northern Trust's foreign exchange trading volumes were lower and foreign exchange markets in major currencies continued to lack volatility, resulting in reduced revenues for the quarter. Treasury management revenues, which include both fees and the computed value of compensating deposit balances, totaled $29.8 million, up 4% from last year's first quarter, due to new business and higher transaction volumes from existing clients. The fee portion of these revenues in the quarter was $23.4 million, up 16% from $20.1 million in the comparable quarter last year, partly as a result of more clients electing to pay for services in fees rather than in compensating deposit balances. 14 Noninterest Income (continued) Revenues from security commissions and trading income totaled $9.9 million, up 3% from the prior year, driven primarily by higher commissions on fixed income securities. Other operating income was $17.7 million for the first quarter compared with $19.7 million in the same period of last year. The decrease reflects lower levels of trust deposit-related revenues due to lower interest rates. Net Interest Income Net interest income for the quarter totaled $149.2 million, 1% higher than the $148.1 million reported in the first quarter of 2001. 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 quarter was $160.9 million, down slightly from $162.0 million reported in the first quarter of 2001. Although total average earning assets of $34.0 billion were up 6% from last year's first quarter, the net interest margin declined to 1.92% from 2.05%. The net interest margin was impacted by a $1.8 billion increase in short-term, lower-spread assets and a decline in the value of noninterest-related funds due to lower interest rates. Earning assets for the first quarter averaged $34.0 billion, up $1.8 billion or 6% from last year's first quarter. The growth was driven by a $4.4 billion increase in money market assets, partially offset by a 26% decline in the securities portfolio to $7.3 billion on average. Loans and leases averaged $17.7 billion in the quarter, unchanged from the prior year. Domestic loans increased slightly to average $17.2 billion, while international loans decreased by $258 million from a year ago to average $463 million. Residential mortgages increased $635 million, or 9%, to average $7.5 billion for the quarter and represented 42% of the total loan portfolio. Commercial and industrial loans averaged $4.6 billion, down 9% from a year ago, while personal loans declined 6% to $2.1 billion. 15 Net Interest Income (continued) The funding for earning assets is provided by a diverse mix of funding sources available to Northern Trust. Total interest-related deposits averaged $17.7 billion, down slightly from $17.9 billion in the first quarter of 2001. Foreign office time deposits increased $528 million as a result of increased global custody activity and money market deposits increased $892 million. This growth was offset by a decrease in savings certificates and non-personal time deposits. Other interest-related funds averaged $10.8 billion in the quarter compared to $9.3 billion in last year's first quarter. The increase in other interest-related funds was due primarily to higher levels of overnight federal funds purchased and treasury investment program balances, offset in part by reductions in repurchase agreements and term federal funds purchased. The balances within these classifications vary based on funding requirements and strategies, interest rate levels, changes in the volume of lower cost deposit sources, and the availability of collateral to secure these borrowings. Noninterest-related funds increased 9% to average $5.4 billion due to growth in demand deposits and to a higher level of common stockholders' equity resulting from retained earnings. Provision for Credit Losses The provision for credit losses was $5.0 million in the first quarter, unchanged from the same quarter last year but down from the $45.0 million provision in the fourth quarter of 2001. For a discussion of the provision and reserve for credit losses, refer to the Asset Quality section beginning on page 20. Noninterest Expenses Noninterest expenses totaled $342.8 million for the quarter, virtually unchanged from $341.6 million in the year-ago quarter. Expenses continue to be closely monitored through various initiatives implemented by management to control certain expense categories, including controlling staff levels and limiting staff-related and other discretionary costs. Compensation and employee benefits represented approximately 58% of total operating expenses and totaled $198.2 million, down 3% from $204.2 million in the comparable quarter last year. Staff growth, salary increases and higher benefit costs were more than offset by lower performance-based pay. Staff on a full-time equivalent basis at March 31, 2002 totaled 9,408, a decline of 45 positions since year-end and an increase of 2% since March 31, 2001, after adjusting for the impact of the lockbox joint venture initiated during the third quarter of last year. Net occupancy expense totaled $26.0 million, up 6% from $24.7 million in the first quarter of 2001, due primarily to the opening of new PFS offices and remodeling existing offices over the past twelve months and additional space leased to support growth in other business units. The principal components of the increase in occupancy expense were higher net rental costs, real estate taxes and amortization expense of leasehold improvements. 16 Noninterest Expenses (continued) Equipment expense, comprised of depreciation, rental and maintenance costs, totaled $22.6 million, up 6% from the $21.2 million reported in the first quarter of 2001. The increase was concentrated primarily in depreciation and maintenance of computer hardware and increased costs for data line leases. Other operating expenses in the quarter totaled $96.0 million compared to $91.5 million last year. The increase in other operating expenses reflects increased costs associated with technology investments, operating costs relating to the significant growth in transaction volumes, and payments made to the lockbox joint venture. Previously, the cost of the lockbox operations was primarily included in compensation and employee benefits. Additionally, last year's first quarter benefited from lower stock-related directors compensation due to the decline in the price of Northern Trust Corporation common stock from the previous year-end. These increases were partially offset by initiatives to manage costs that resulted in decreases in various expense categories, including travel, hiring and other discretionary costs. In addition, the adoption of new accounting requirements in 2002 to eliminate goodwill amortization costs reduced expenses by $2.6 million or $2.1 million after-tax. The following table shows the components of other operating expenses. - ------------------------------------------------------------------------------ First Quarter Other Operating Expenses Ended March 31 - ------------------------------------------------------------------------------ (In Millions) 2002 2001 - ------------------------------------------------------------------------------ Business Promotion $ 9.9 $11.5 Outside Services Purchased 40.1 31.4 Telecommunications 3.7 4.8 Postage and Supplies 5.8 7.0 Software Amortization 20.1 18.7 Goodwill Amortization - 2.6 Other Intangibles Amortization 1.6 1.5 Other Expenses 14.8 14.0 - ------------------------------------------------------------------------------ Total Other Operating Expenses $96.0 $91.5 - ------------------------------------------------------------------------------ Provision for Income Taxes The provision for income taxes was $65.5 million for the first quarter compared with $63.8 million in the year-ago quarter. The higher tax provision in 2002 resulted primarily from the growth in taxable earnings for both federal and state income tax purposes. The effective tax rate for the first quarter was 33.9% compared to 33.4% for the first quarter of 2001. 17 BUSINESS SEGMENTS The following table reflects the earnings contribution and average assets of Northern Trust's business segments for the first quarter ended March 31, 2002 and 2001.
Corporate and Institutional Personal Financial Treasury and Total First Quarter Services Services Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------- ($ In Millions) 2002 2001 2002 2001 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------- Noninterest Income Trust Fees $ 157.8 $ 149.1 $ 158.6 $ 156.1 $ - $ - $ 316.4 $ 305.2 Other 56.5 65.2 18.7 18.5 .1 .6 75.3 84.3 Net Interest Income after Provision for Credit Losses* 42.4 46.3 103.7 106.3 9.8 4.4 155.9 157.0 Noninterest Expenses 167.6 167.2 170.8 169.9 4.4 4.5 342.8 341.6 - ------------------------------------------------------------------------------------------------------------------------------- Income before Income Taxes* 89.1 93.4 110.2 111.0 5.5 .5 204.8 204.9 Provision for Income Taxes* 34.5 36.2 42.4 43.0 .3 (1.5) 77.2 77.7 - ------------------------------------------------------------------------------------------------------------------------------- Reported Net Income $ 54.6 $ 57.2 $ 67.8 $ 68.0 $ 5.2 $ 2.0 $ 127.6 $ 127.2 - ------------------------------------------------------------------------------------------------------------------------------- Goodwill, After Taxes - .8 - 1.3 - - - 2.1 - ------------------------------------------------------------------------------------------------------------------------------- Adjusted Net Income $ 54.6 $ 58.0 $ 67.8 $ 69.3 $ 5.2 $ 2.0 $ 127.6 $ 129.3 - ------------------------------------------------------------------------------------------------------------------------------- Percentage Net Income Contribution 43% 45% 53% 53% 4% 2% 100% 100% - ------------------------------------------------------------------------------------------------------------------------------- Average Assets $16,184.1 $18,232.9 $15,014.9 $14,474.9 $ 6,479.2 $2,947.2 $37,678.2 $35,655.0 - -------------------------------------------------------------------------------------------------------------------------------
*Stated on a fully taxable equivalent basis (FTE). Total includes FTE adjustments of $11.7 million for 2002 and $13.9 million for 2001. Note: Certain reclassifications have been made to 2001 financial information to conform to the current year presentation. Corporate and Institutional Services C&IS net income for the quarter totaled $54.6 million, down 4% from $57.2 million reported in 2001. Noninterest income was unchanged from the first quarter of 2001 and totaled $214.3 million. Trust fees increased 6% to $157.8 million in the current quarter compared to $149.1 million in the year-ago quarter, due primarily to a 9% increase in asset management fees, a 3% increase in custody fees and a 15% increase in fees generated by Northern Trust Retirement Consulting, L.L.C. Other noninterest income was $56.5 million, down 13% from $65.2 million in last year's first quarter. The decline reflects a 30% reduction in foreign exchange trading profits due to lower client trading volumes and a lack of volatility in major currencies. Partially offsetting this reduction was a $2.3 million increase in fees for treasury management services due to new business, higher transaction volumes from existing clients and more clients electing to pay for services in fees rather than in compensating deposit balances. Net interest income after the provision for credit losses, stated on a FTE basis, was $42.4 million, down 8% from $46.3 million in last year's first quarter. The decrease reflects a decline in the net interest margin to 1.26% from 1.34% in the prior year quarter, partially offset by a $5.0 million decrease in the provision for possible credit losses assigned to this segment. The lower interest margin resulted from the significant decline in short-term interest rates which reduced the value of deposit funding that C&IS provides to the Treasury and Other segment. Noninterest expenses were virtually unchanged at $167.6 million in the current quarter compared to $167.2 million last year. Lower compensation levels were offset by increases in payments made to the lockbox joint venture. Compensation costs were lower than the previous year due to both reductions in staff resulting from the outsourcing of the lockbox operations and lower performance-based pay. Previously the cost of the lockbox operations was primarily included in compensation and employee benefits. 18 Personal Financial Services PFS net income for the quarter was $67.8 million, essentially unchanged from $68.0 million reported a year ago. Noninterest income was $177.3 million in the current quarter compared to $174.6 million in last year's first quarter. The slight improvement was due primarily to a 2% increase in trust fees, which totaled $158.6 million in the current quarter resulting from new business, partially offset by weak equity markets. Other income totaled $18.7 million in the current quarter, compared with $18.5 million in the prior year. Net interest income after the provision for credit losses, stated on a FTE basis, decreased 2% to $103.7 million in the current quarter. The decrease was due primarily to a $5.0 million increase in the provision for credit losses assigned to this segment and a slight reduction in the net interest margin, partially offset by a 3% increase in average earning assets, concentrated in the loan portfolio. Noninterest expenses were virtually unchanged at $170.8 million in the current quarter compared to $169.9 million in last year's first quarter. Compensation and employee benefits increased 1% as the effects of staff growth, merit increases and employee benefits were partially offset by lower performance-based pay. Occupancy costs were $1.2 million or 13% higher as a result of opening new PFS offices and the remodeling of existing locations. Partially offsetting the above were business development expenses falling 12% below the prior year level and, the adoption of new accounting requirements in 2002 to eliminate goodwill amortization costs, which reduced expenses by an additional $1.3 million. Treasury and Other The Treasury Department is responsible for managing The Northern Trust Company's (Bank) wholesale funding, capital position and interest rate risk, as well as the investment portfolio. "Other" corporate income and noninterest expenses represent items that are not allocated to the business units and generally represent certain nonrecurring items and certain executive level compensation. Net interest income for the first quarter was $9.8 million compared to $4.4 million in the year-ago quarter. The improvement resulted primarily from the impact of lower interest rates which reduced the cost of the funds that the Treasury and Other segment acquires from the C&IS business unit. Noninterest expenses totaled $4.4 million for the quarter compared to $4.5 million in the year-ago period. 19 BALANCE SHEET Total assets at March 31, 2002 were $38.0 billion and averaged $37.7 billion for the first quarter, up 6% from last year's average of $35.7 billion. Loans and leases totaled $17.8 billion at March 31, 2002 and averaged $17.7 billion for the first quarter, each virtually unchanged from the respective periods of 2001. Securities totaled $9.0 billion at March 31, 2002 and averaged $7.3 billion for the quarter, compared to $12.7 billion at March 31, 2001 and $9.9 billion on average in the first quarter of 2001. Money market assets totaled $7.7 billion at March 31, 2002 and averaged $9.0 billion in the first quarter, up 98% from the year-ago quarter. Driven by the retention of earnings, offset in part by stock repurchases under Northern Trust's ongoing stock buyback program, common stockholders' equity increased to $2.71 billion at March 31, 2002 and averaged $2.65 billion for the quarter, up 12% from the $2.37 billion average in last year's first quarter. Total stockholders' equity averaged $2.77 billion compared with $2.49 billion in the first quarter of 2001. During the quarter, the Corporation acquired a total of 801,640 shares at a cost of $46.0 million. An additional 3.8 million shares may be purchased after March 31, 2002 under the current stock buyback program. Northern Trust's risk-based capital ratios remained strong at 11.0% for tier 1 capital and 14.3% for total capital at March 31, 2002. These 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 7.6% at March 31, 2002, also exceeded the minimum regulatory requirement of 3%. The Bank's risk-based capital ratios at March 31, 2002 were 9.5% for tier 1 capital, 12.8% for total capital and 6.5% for the leverage ratio. Each of Northern Trust's other subsidiary banks had a ratio of 11.4% or higher for tier 1 capital, 12.3% for total risk-based capital, and 7.8% for the leverage ratio. ASSET QUALITY Nonperforming assets consist of nonaccrual loans and other real estate owned (OREO). Nonperforming assets at March 31, 2002 totaled $118.7 million, compared with $109.5 million at December 31, 2001 and $112.7 million at March 31, 2001. Domestic nonaccrual loans and leases, consisting primarily of commercial loans, totaled $117.9 million, or .69% of total domestic loans and leases at March 31, 2002. At December 31, 2001 and March 31, 2001, domestic nonaccrual loans and leases totaled $108.7 million and $111.1 million, respectively. The increase during the quarter primarily reflects the further deterioration in two commercial loans that have been significantly affected by the recent economic downturn, offset in part by the sale of a commercial loan with asbestos-related exposure. 20 ASSET QUALITY (continued) The following table presents the outstanding amounts of nonaccrual 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.
- ---------------------------------------------------------------------------------------------------- (In Millions) March 31, 2002 December 31, 2001 March 31, 2001 - ---------------------------------------------------------------------------------------------------- Nonaccrual Loans Domestic Residential Real Estate $ 4.9 $ 5.0 $ 4.2 Commercial 108.0 99.3 104.8 Commercial Real Estate 4.7 4.3 1.4 Personal .3 .1 .7 - ---------------------------------------------------------------------------------------------------- Total Domestic 117.9 108.7 111.1 International - - - - ---------------------------------------------------------------------------------------------------- Total Nonaccrual Loans 117.9 108.7 111.1 Other Real Estate Owned .8 .8 1.6 - ---------------------------------------------------------------------------------------------------- Total Nonperforming Assets $118.7 $109.5 $112.7 - ---------------------------------------------------------------------------------------------------- Total 90 Day Past Due Loans (still accruing) $ 16.4 $ 14.5 $ 31.1 - ----------------------------------------------------------------------------------------------------
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. The reserve provides for probable losses that have been identified with specific borrower relationships (specific loss component) and for probable losses that are believed to be inherent in the loan and lease portfolios and other credit undertakings but that have not yet been specifically identified (inherent loss component). Note 6 to the Consolidated Financial Statements includes a table that analyzes the reserve for credit losses for the three months ended March 31, 2002 and March 31, 2001 and identifies the charge-offs, recoveries and the provision for credit losses during the respective periods. The table on the following page shows (i) the specific reserve, (ii) the allocated portion of the inherent reserve and its components by loan category and (iii) the unallocated portion of the inherent reserve at March 31, 2002, December 31, 2001 and March 31, 2001. 21 Provision and Reserve for Credit Losses (continued)
- ------------------------------------------------------------------------------------------------------------------------ ALLOCATION OF THE RESERVE FOR CREDIT LOSSES - ------------------------------------------------------------------------------------------------------------------------ March 31, 2002 December 31, 2001 March 31, 2001 --------------------------------------------------------------------------------------- Percent of Percent of Percent of Reserve Loans to Reserve Loans to Reserve Loans to ($ in millions) Amount Total Loans Amount Total Loans Amount Total Loans - ------------------------------------------------------------------------------------------------------------------------ Specific Reserve $ 24.6 - % $ 21.1 - % $ 29.0 - % - ------------------------------------------------------------------------------------------------------------------------ Allocated Inherent Reserve Residential Real Estate 10.4 42 9.7 41 9.5 38 Commercial 76.3 26 81.7 27 80.4 29 Commercial Real Estate 14.3 6 14.8 6 13.1 5 Personal 3.7 12 3.8 12 4.2 12 Other - 4 - 4 - 5 Lease Financing 3.8 7 3.0 7 2.9 6 International 4.6 3 5.0 3 3.9 5 - ------------------------------------------------------------------------------------------------------------------------ Total Allocated Inherent Reserve $113.1 100 % $118.0 100 % $114.0 100 % - ------------------------------------------------------------------------------------------------------------------------ Unallocated Inherent Reserve 22.6 - 22.5 - 24.9 - - ------------------------------------------------------------------------------------------------------------------------ Total Reserve $160.3 100 % $161.6 100 % $167.9 100 % - ------------------------------------------------------------------------------------------------------------------------
Specific Reserve. At March 31, 2002, the specific component of the reserve stood at $24.6 million, compared to $21.1 million at December 31, 2001 and $29.0 million at March 31, 2001. The $3.5 million increase from year-end 2001 relates primarily to further deterioration in two commercial loans that have been significantly affected by the recent economic downturn, offset in part by the sale of a commercial loan with asbestos-related exposure, whose loss in value had been provided for in prior quarters. Allocated Inherent Reserve. The allocated inherent portion of the reserve decreased by $4.9 million during the quarter to $113.1 million at March 31, 2002, primarily reflecting the partial sale of another large commercial loan with asbestos-related exposure and the impact of transferring certain loans to nonperforming status where specific reserves are determined. These events were partially offset by the impact of lowering the credit ratings on several commercial loans due to the continued downturn in the economy. Unallocated Inherent Reserve. The unallocated portion of the inherent reserve is based on management's review of overall factors affecting the determination of probable losses primarily inherent in the commercial portfolio, which are not necessarily captured by the application of historical loss ratios. This portion of the reserve analysis involves the exercise of judgment and reflects considerations such as management's view that the reserve should have a margin that recognizes the imprecision inherent in the process of estimating expected credit losses. The unallocated inherent portion of the reserve was $22.6 million, virtually unchanged from December 31, 2001, reflecting management's judgment that there have been only minor changes in the factors affecting this component of the reserve. 22 Provision and Reserve for Credit Losses (continued) Other Factors. During the quarter ended March 31, 2002, there were no significant changes in concentration of credits that impacted asset quality at the time reserve determinations were made for the quarter. At that time, the total amount of the two highest risk loan groupings, those rated "7" and "8" (based on Northern Trust's internal rating scale, which closely parallels that of the banking regulators), was $267 million of which $115.5 million was classified as impaired, down from $295 million at December 31, 2001 when $97.6 million was impaired. The decrease of $28 million in the current quarter primarily reflects the sale of one commercial loan and the partial sale of another, both of which were impacted by exposure to asbestos-related claims. At March 31, 2001, loans rated "7" and "8" totaled $171 million, of which $107.7 million was impaired. Total Reserve. Management's evaluation of the factors above resulted in a reserve for credit losses of $160.3 million at March 31, 2002, compared to $161.6 million at December 31, 2001. The reserve as a percentage of total loans remained at .90% at March 31, 2002, the same as at December 31, 2001. Provision. The resulting provision for credit losses was $5.0 million during the first quarter of 2002. MARKET RISK MANAGEMENT As described in the 2001 Annual Report to Shareholders, Northern Trust manages its interest rate risk through measurement techniques which include simulation of earnings, simulation of the economic value of equity, and gap analysis. Also, as part of its risk management activities, it regularly measures the risk of loss associated with foreign currency positions using a value at risk model. Based on this continuing evaluation process, Northern Trust's interest rate risk position and the value at risk associated with the foreign exchange trading portfolio have not changed significantly since December 31, 2001. 23 FORWARD-LOOKING INFORMATION This report contains statements that may be considered forward-looking, such as the discussion of Northern Trust's financial goals, dividend policy, expansion and business development plans, business prospects and positioning with respect to market and pricing trends, new business results and outlook, changes in securities market prices, credit quality, planned capital expenditures and technology spending, and the effect of various matters (including changes in accounting standards and interpretations) on Northern Trust's business and results. These statements speak of Northern Trust's plans, goals, beliefs or expectations, refer to estimates or use similar terms. Actual results could differ materially from the results indicated by these statements because the realization of those results is subject to many uncertainties including: ... The future health of the U.S. and international economies and other economic factors that affect wealth creation, investment and savings patterns, and Northern Trust's interest rate risk exposure and credit risk. ... U.S. and international economic factors that may impact Northern Trust's interest rate risk exposure and credit risk. ... Any extraordinary events (such as the September 11, 2001 events and the U.S. government's response to those events). ... Changes in U.S. and worldwide securities markets, with respect to the market values of financial assets, the stability of particular securities markets and the level of volatility in certain markets such as foreign exchange. ... Changes in the level of cross-border investing by clients resulting from changing economic factors, political conditions or currency markets. ... Regulatory developments and changes in accounting requirements or interpretations in the U.S. and other countries where Northern Trust has significant business. ... Changes in the nature of Northern Trust's competition resulting from industry consolidation, enactment of the Gramm-Leach-Bliley Act of 1999, and other regulatory changes and other factors, as well as actions taken by particular competitors. ... Northern Trust's success in continuing to generate new business in its existing markets, as well as its success in identifying and penetrating targeted markets, through acquisition or otherwise, and generating a profit in those markets in a reasonable time. ... Northern Trust's ability to continue to generate strong investment results for clients and continue to develop its array of investment products, internally or through acquisition, in a manner that meets clients' needs. 24 FORWARD-LOOKING INFORMATION (continued) ... Northern Trust's success in further developing and executing on implementing initiatives that integrate the Internet into methods of product distribution, new business development and client service. ... Northern Trust's ability to continue to fund and accomplish technological innovation, improve processes and controls, address technology risks, including material systems interruptions or errors, and attract and retain capable staff in order to deal with technology challenges and increasing volume and complexity in many of its businesses. ... Northern Trust's success in integrating future acquisitions and using the acquired businesses to execute its business strategy. ... The ability of each of Northern Trust's principal businesses to maintain a product mix that achieves satisfactory margins. ... Changes in tax laws or other legislation in the U.S. or other countries (including pension-reform legislation) that could affect Northern Trust or clients of its personal and institutional asset administration businesses. Some of these uncertainties that may affect future results are discussed in more detail in the section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" captioned "Risk Management" in the 2001 Annual Report to Shareholders (pp. 48-60) and in the sections of "Item 1 - Business" of the 2001 Annual Report on Form 10-K captioned "Government Policies", "Competition" and "Regulation and Supervision" (pp. 7-12). All forward-looking statements included in this report are based upon information presently available, and Northern Trust assumes no obligation to update any forward-looking statement. 25 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 AVERAGE STATEMENT OF CONDITION NORTHERN TRUST CORPORATION WITH ANALYSIS OF NET INTEREST INCOME
First Quarter --------------------------------------------------------------------------- (Interest and rate on a taxable equivalent basis) 2002 2001 ---------------------------------- -------------------------------------- ($ in Millions) Interest Volume Rate Interest Volume Rate - ------------------------------------------------------- -------- ---------- ---------- ------------ ----------- ------- Average Earning Assets Money Market Assets Federal Funds Sold and Resell Agreements $ 5.7 $ 1,305.0 1.79% $ 10.8 $ 741.9 5.89% Time Deposits with Banks 48.7 7,632.9 2.59 47.5 3,763.9 5.12 Other Interest-Bearing .2 24.5 2.84 .4 24.3 6.73 - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Total Money Market Assets 54.6 8,962.4 2.47 58.7 4,530.1 5.25 - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Securities U.S. Government 1.3 157.7 3.39 3.4 208.8 6.66 Obligations of States and Political Subdivisions 11.0 561.0 7.84 9.1 453.9 8.03 Federal Agency 30.5 6,198.7 1.99 128.4 8,803.2 5.91 Other 6.0 401.3 6.04 7.4 397.7 7.47 Trading Account .1 10.1 5.23 .2 14.8 6.06 - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Total Securities 48.9 7,328.8 2.70 148.5 9,878.4 6.09 - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Loans and Leases 223.2 17,673.8 5.12 300.1 17,713.9 6.87 - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Total Earning Assets $ 326.7 33,965.0 3.90% $507.3 32,122.4 6.40% - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Reserve for Credit Losses - (161.0) - - (165.4) - Cash and Due from Banks - 1,576.2 - - 1,448.6 - Other Assets - 2,298.0 - - 2,249.4 - - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Total Assets - $ 37,678.2 - - $ 35,655.0 - - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Average Source of Funds Deposits Savings and Money Market $19.5 $ 6,210.4 1.28% $ 54.8 $ 5,620.6 3.96% Savings Certificates 18.3 1,983.0 3.74 34.7 2,351.3 5.98 Other Time 2.6 381.6 2.81 17.8 1,293.0 5.57 Foreign Offices Time 41.8 9,170.6 1.85 102.9 8,642.1 4.83 - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Total Deposits 82.2 17,745.6 1.88 210.2 17,907.0 4.76 Federal Funds Purchased 16.2 3,792.8 1.74 34.0 2,492.4 5.54 Repurchase Agreements 5.4 1,296.1 1.67 23.3 1,726.3 5.47 Commercial Paper .6 131.9 1.85 2.0 140.1 5.72 Other Borrowings 38.8 4,128.3 3.81 50.9 3,469.6 5.95 Senior Notes 7.8 450.0 6.92 8.6 500.0 6.86 Long-Term Debt 13.1 766.6 6.82 11.9 684.5 6.97 Debt - Floating Rate Capital Securities 1.7 267.7 2.53 4.4 267.7 6.51 - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Total Interest-Related Funds 165.8 28,579.0 2.35 345.3 27,187.6 5.15 - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Interest Rate Spread - - 1.55% - - 1.25% Noninterest-Related Deposits - 5,180.0 - - 4,750.9 - Other Liabilities - 1,145.9 - - 1,225.7 - Stockholders' Equity - 2,773.3 - - 2,490.8 - - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Total Liabilities and Stockholders' Equity - $ 37,678.2 - - $ 35,655.0 - - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- ------- Net Interest Income/Margin $ 160.9 - 1.92% $ 162.0 - 2.05% - ------------------------------------------------------- ------- ---------- --------- ----------- ----------- -------
ANALYSIS OF NET INTEREST INCOME CHANGES DUE TO VOLUME AND RATE
First Quarter 2002/2001 -------------------------------------- Change Due To --------------------------- (In Millions) Volume Rate Total - ----------------------------------------------------------------------------------------- ----------- ----------- ------- Earning Assets $ 17.4 $ (198.0) $(180.6) Interest-Related Funds 5.0 (184.5) (179.5) - ----------------------------------------------------------------------------------------- ----------- ----------- ------- Net Interest Income $ 12.4 $ (13.5) $ (1.1) - ----------------------------------------------------------------------------------------- ----------- ----------- -------
26 Item 3. Quantitative and Qualitative Disclosures about Market Risk. The information called for by this item is incorporated herein by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Market Risk Management" on page 23 of this document. 27 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The annual meeting of the stockholders of Northern Trust Corporation was held on April 16, 2002 for the purposes of electing fourteen Directors to hold office until the next annual meeting of stockholders and approving the Northern Trust Corporation 2002 Stock Plan. 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 the management's nominees for Director as listed in the proxy statement were elected by the votes set forth below. As contemplated by the description of cumulative voting procedures in the Corporation's Proxy Statement, votes withheld from some (but less than all) of the candidates were distributed by the proxies among candidates with respect to whom authority was not withheld. There were no broker non-votes with respect to any candidates. NOMINEES FOR WITHHELD -------- --- -------- Duane L. Burnham 196,002,075 1,056,420 Dolores E. Cross 196,959,868 1,056,420 Susan Crown 195,954,436 1,056,420 Robert S. Hamada 196,008,653 1,056,420 Barry G. Hastings 196,956,402 1,056,420 Robert A. Helman 196,046,170 1,056,420 Arthur L. Kelly 196,065,143 1,056,420 Frederick A. Krehbiel 174,019,332 1,056,420 Robert C. McCormack 197,035,172 1,056,420 Edward J. Mooney 196,087,411 1,056,420 William A. Osborn 197,030,440 1,056,420 John W. Rowe 196,943,450 1,056,420 Harold B. Smith 197,029,924 1,056,420 William D. Smithburg 195,997,994 1,056,420 In other business brought before stockholders, the Northern Trust Corporation 2002 Stock Plan (the "2002 Plan") was approved. The 2002 Plan is a compensation plan authorizing the grant of stock options, stock appreciation rights, stock awards, performance shares and stock units. The 2002 Plan replaces the Northern Trust Corporation Amended 1992 Incentive Stock Plan, which expired by its terms on April 30, 2002. 117,873,383 votes were cast in favor of the resolution to approve the 2002 Stock Plan, 46,473,442 votes were cast against it, and 1,562,517 shares specifically abstained from voting on the resolution. 28 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- (3) Articles of Incorporation and By-Laws: (i) Amendment to By-laws and By-laws as amended to date. (10) Material Contracts (i) Second Amendment of the Northern Trust Corporation Supplemental Employee Stock Ownership Plan dated as of January 1, 2002 (ii) Third Amendment of the Northern Trust Corporation Supplemental Pension Plan dated as of January 15, 2002 (iii) Third Amendment of the Northern Trust Corporation Supplemental Thrift-Incentive Plan dated as of January 1, 2002 (iv) Form of Amendment to Form of Employment Security Agreement (v) Northern Trust Corporation 2002 Stock Plan (vi) Northern Trust Corporation Severance Plan (99) Edited version of remarks delivered by Mr. William A. Osborn, Chairman and Chief Executive Officer of the Corporation, at the Annual Meeting of Stockholders of Northern Trust Corporation held on April 16, 2002. 29 PART II - OTHER INFORMATION (continued) (b) Reports on Form 8-K ------------------- In a report on Form 8-K filed January 14, 2002, Northern Trust Corporation incorporated in Item 5 its January 14, 2002 press release, reporting on its earnings for the fourth quarter of 2001. The press release, with summary financial information, was filed pursuant to Item 7. In a report on Form 8-K filed March 27, 2002, Northern Trust Corporation reported under Item 4, "Changes in Registrant's Certifying Accountant" that its Board of Directors voted to replace Arthur Andersen LLP as Northern Trust's independent public accountants for 2002, and authorized the commencement of a selection process for new independent accountants. Attached as exhibits to the Form 8-K were a letter from Arthur Andersen LLP and the Corporation's press release dated March 22, 2002. In a report on Form 8-K filed April 19, 2002, Northern Trust Corporation reported under Item 4, "Changes in Registrant's Certifying Accountant" that its Board of Directors selected KPMG LLP as Northern Trust's independent public accountants for 2002. Attached as an exhibit to the Form 8-K was the Corporation's press release dated April 16, 2002. 30 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, 2002 By: Perry R. Pero ------------- Perry R. Pero Vice Chairman and Chief Financial Officer Date: May 14, 2002 By: Harry W. Short -------------- Harry W. Short Executive Vice President and Controller (Chief Accounting Officer) 31 EXHIBIT INDEX The following exhibits have been filed with the Securities and Exchange Commission with Northern Trust Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. You may obtain copies of these exhibits from the SEC's site on the worldwide web at http://www.sec.gov. Stockholders may also ------------------ obtain copies of such exhibits by writing Rose A. Ellis, Secretary, Northern Trust Corporation, 50 South LaSalle Street, Chicago, Illinois 60675. Exhibit Number Description - ------ ----------- (3) Articles of Incorporation and By-Laws: (i) Amendment to By-laws and By-laws as amended to date. (10) Material Contracts (i) Second Amendment of the Northern Trust Corporation Supplemental Employee Stock Ownership Plan dated as of January 1, 2002 (ii) Third Amendment of the Northern Trust Corporation Supplemental Pension Plan dated as of January 15, 2002 (iii) Third Amendment of the Northern Trust Corporation Supplemental Thrift-Incentive Plan dated as of January 1, 2002 (iv) Form of Amendment to Form of Employment Security Agreement (v) Northern Trust Corporation 2002 Stock Plan (vi) Northern Trust Corporation Severance Plan (99) Edited version of remarks delivered by William A. Osborn, Chairman and Chief Executive Officer of the Corporation, at the Annual Meeting of Stockholders of Northern Trust Corporation held on April 16, 2002. 32 EX-3.(I) 3 dex3i.txt AMENDMENT TO BY-LAWS Exhibit 3(i) Resolution 5/16/00 - -------------------------------------------------------------------------------- Northern Trust Corporation AMENDMENT TO CORPORATION BY-LAWS RESOLVED, that Article IV of the By-laws of Northern Trust Corporation is hereby amended in its entirety to read as follows: ARTICLE IV THE AUDIT COMMITTEE An Audit Committee and its Chairman shall be appointed by the Board of Directors annually at its organization meeting. The Committee shall perform such functions, both for the Corporation and its subsidiaries on a consolidated basis and for such individual banking subsidiaries as the Board shall direct, as are set forth in an Audit Committee Charter adopted by the Board and conforming to the requirements of the National Association of Securities Dealers, Inc. ("NASD") and applicable regulatory authorities. The Committee shall consist of no fewer than four Directors. The membership of the Committee shall meet the requirements of the NASD and applicable regulatory authorities, as set forth in the Audit Committee Charter. The Committee shall meet upon the call of its 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 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 to act at the meeting in the place of any such absent or disqualified member. By-laws of Northern Trust Corporation Chicago, Illinois As Effective May 16, 2000
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 Elections ........................................ 2 SECTION 1.6. Quorum ......................................................... 3 SECTION 1.7. Cumulative Voting Rights ....................................... 3 SECTION 1.8. Proxies ........................................................ 3 SECTION 1.9. Voting by Ballot ............................................... 4 SECTION 1.10. Voting Lists ................................................... 4 SECTION 1.11. Place of Meeting ............................................... 4 SECTION 1.12. Voting of Shares of Certain Holders ............................ 4 SECTION 1.13. Nature of Business at Annual Meeting of Stockholders ........... 5 ARTICLE II-THE BOARD OF DIRECTORS SECTION 2.1. General Powers ................................................. 6 SECTION 2.2. Number, Tenure and Qualifications .............................. 6 SECTION 2.3. Regular Meetings ............................................... 6 SECTION 2.4. Special Meetings; Notice ....................................... 6 SECTION 2.5. Time of Notice ................................................. 6 SECTION 2.6. Quorum ......................................................... 7 SECTION 2.7. Manner of Acting ............................................... 7 SECTION 2.8. Directors' Compensation ........................................ 7 SECTION 2.9. Vacancies ...................................................... 7 SECTION 2.10. Consent in Lieu of Meeting ..................................... 7 SECTION 2.11. Nomination of Directors ........................................ 7 ARTICLE III-THE EXECUTIVE COMMITTEE SECTION 3.1. Number, Tenure and Quorum ...................................... 9 SECTION 3.2. Powers ......................................................... 9 SECTION 3.3. Meetings ....................................................... 9 SECTION 3.4. Records and Reports ............................................ 9 ARTICLE IV-THE AUDIT COMMITTEE SECTION 4.1. The Audit Committee ............................................ 10 ARTICLE V-THE CORPORATE GOVERNANCE COMMITTEE SECTION 5.1. The Corporate Governance Committee ............................. 10
ARTICLE VI-THE COMPENSATION AND BENEFITS COMMITTEE SECTION 6.1. The Compensation and Benefits Committee ...................... 10 ARTICLE VII-THE BUSINESS RISK COMMITTEE SECTION 7.1. The Business Risk Committee .................................. 11 ARTICLE VIII-THE BUSINESS STRATEGY COMMITTEE SECTION 8.1. The Business Strategy Committee .............................. 11 ARTICLE IX-THE OFFICERS SECTION 9.1. Number and Term of Office .................................... 12 SECTION 9.2. Removal ...................................................... 12 SECTION 9.3. The Chairman of the Board .................................... 12 SECTION 9.4. The President ................................................ 12 SECTION 9.5. The Chief Executive Officer .................................. 12 SECTION 9.6. The Vice Chairmen ............................................ 13 SECTION 9.7. The Executive Vice Presidents ................................ 13 SECTION 9.8. The Vice Presidents .......................................... 13 SECTION 9.9. The Treasurer ................................................ 13 SECTION 9.10. The Secretary ................................................ 13 SECTION 9.11. Assistant Treasurers and Assistant Secretaries ............... 14 SECTION 9.12. Salaries ..................................................... 14 ARTICLE X-CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 10.1. Contracts .................................................... 14 SECTION 10.2. Loans ........................................................ 14 SECTION 10.3. Checks, Drafts, etc. ......................................... 14 SECTION 10.4. Deposits ..................................................... 14 SECTION 10.5. Power to Execute Proxies ..................................... 14 ARTICLE XI-CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 11.1. Certificates for Shares ...................................... 15 SECTION 11.2. Transfers of Shares .......................................... 15 ARTICLES XII-FISCAL YEAR SECTION 12.1. Fiscal Year .................................................. 15 ARTICLE XIII-SEAL SECTION 13.1. Seal ......................................................... 15 ARTICLE XIV-WAIVER OF NOTICE SECTION 14.1. Waiver of Notice ............................................. 16 ARTICLE XV-INDEMNIFICATION SECTION 15.1. Indemnification Request ...................................... 16
SECTION 15.2. Determination of Indemnification Request ..................... 16 SECTION 15.3. Presumption of Entitlement; Conclusive Effect of Findings of Fact and Law; Other Procedures ............................ 16 SECTION 15.4. Cooperation and Expenses ..................................... 17 SECTION 15.5. Selection of Independent Counsel ............................. 17 SECTION 15.6. Time for Determination ....................................... 17 SECTION 15.7. Failure to Make Determination Remedies For Enforcement .................................................. 18 SECTION 15.8. Appeal of Adverse Determination .............................. 18 SECTION 15.9. Burden of Proof .............................................. 18 SECTION 15.10. Definition of "Disinterested Director." ...................... 18 SECTION 15.11. Definition of "Change of Control." ........................... 19 SECTION 15.12. Advancement of Expenses ...................................... 19 SECTION 15.13. Personal Liability of Directors .............................. 19 ARTICLE XVI-AMENDMENTS SECTION 16.1. Amendments ................................................... 20
By-laws of Northern Trust Corporation Chicago, Illinois ARTICLE I THE STOCKHOLDERS SECTION 1.1. Annual Meeting. The annual meeting of stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meeting the stockholders shall elect directors, and transact such other business as may properly be brought 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 or the President. At a special meeting of the stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors. 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. (b) In order that the Corporation may determine the stockholders 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. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, 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 date 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. SECTION 1.6. Quorum. The holders of a majority of the outstanding 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. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the presiding officer at the meeting or the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. 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. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy pursuant to the foregoing sentence, a stockholder may validly grant such authority by (a) executing a writing authorizing another person or persons to act for such stockholder as proxy, (b) authorizing another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder, or (c) any other means permitted under the General Corporation Law of the State of Delaware. 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 10 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 10 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. SECTION 1.12. Voting of Shares of Certain Holders. 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 trustee, 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. SECTION 1.13. Nature of Business at Annual Meeting of Stockholders. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 1.13 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 1.13. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one-hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is -------- ------- called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 1.13, provided, however, that, once business has been properly -------- ------- brought before the annual meeting in accordance with such procedures, nothing in this Section 1.13 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. 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 five 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 or a majority of the Directors then in office. 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 each Director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, facsimile or telegram on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. 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 facsimile or 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. SECTION 2.10. Consent in Lieu of Meeting. Unless 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. SECTION 2.11. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Restated Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.11 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 2.11. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one-hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is -------- ------- called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.11. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. 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. ARTICLE IV THE AUDIT COMMITTEE SECTION 4.1. The Audit Committee. An Audit Committee and its Chairman shall be appointed by the Board of Directors annually at its organization meeting. The Committee shall perform such functions, both for the Corporation and its subsidiaries on a consolidated basis and for such individual banking subsidiaries as the Board shall direct, as are set forth in an Audit Committee Charter adopted by the Board and conforming to the requirements of the National Association of Securities Dealers, Inc. ("NASD") and applicable regulatory authorities. The Committee shall consist of no fewer than four Directors. The membership of the Committee shall meet the requirements of the NASD and applicable regulatory authorities, as set forth in the Audit Committee Charter. The Committee shall meet upon the call of its 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 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 to act at the meeting in the place of any such absent or disqualified member. 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. 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 services and the control processes with respect to these risks, including matters related to credit risk, market and liquidity risk and fiduciary 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. 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 and the President 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. SECTION 9.5. The Chief Executive Officer. The 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 and perform such duties as are vested in or assigned to him or her by the Board of Directors, the Chairman, the President or these By-laws. In the absence or inability to act of the Chairman of the Board and the President, the 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 perform the duties of the Chairman of the Board and the President and when so acting shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board and President. 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. SECTION 9.10. The Secretary. The Secretary shall 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. SECTION 10.5. Power to Execute Proxies. The Chairman 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. 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 Restate 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. SECTION 15.4. Cooperation and Expenses. The 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. SECTION 15.7. Failure To Make Determination; 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"); (b) 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; (c) The effective time of (i) 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 80% of the voting stock of the surviving or resulting corporation, or (ii) 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 (d) The election to the Board of Directors of the Corporation, without the recommendation or approval of the incumbent Board of Directors of the Corporation, of the lesser of (i) three directors or (ii) directors constituting a majority of the number of directors of the Corporation then in office. SECTION 15.12. Advancement of Expenses. Expenses as may be incurred by a person referred to in paragraphs 1, 2 or 3 of Article Eighth of the Restated Certificate of Incorporation in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized in such Article Eighth. Such expenses as may be incurred by other employees and agents may be so paid on such terms and conditions, if any, as the Board of Directors deems appropriate. For purposes of the foregoing, a determination that a person referred to in paragraphs 1, 2 or 3 of Article Eighth of the Restated Certificate of Incorporation is not entitled to be indemnified by the Corporation shall be made in the manner hereinbefore provided for the determination of an Indemnification Request; provided, however, that the Board of Directors may initiate such determination whenever it shall deem the same to be appropriate. In connection with such determination, such person shall be subject to all requirements of these By-laws imposed on an "Indemnitee" in respect of a determination made pursuant to Section 15.2 hereof. SECTION 15.13. Personal Liability of Directors. No director of the Corporation shall be personally liable to any person seeking indemnification or advancement of expenses for any determination, act or omission in connection therewith. ARTICLE XVI AMENDMENTS SECTION 16.1. Amendments. These By-laws may be altered, amended or repealed and new By-laws may be adopted at any meeting of the Board of Directors of the Corporation by the affirmative vote of a majority of the members of the Board. These By-laws may also be amended or repealed, or new By-laws may be adopted, by action taken by the stockholders of the Corporation. STATE OF ILLINOIS) SS. COUNTY OF COOK) ____________________________________, being duly sworn states that he or she is an Assistant Secretary of Northern Trust Corporation, that he or she is the keeper of its records and seal, that he or she certifies that he or she has compared the foregoing copy with the By-laws of Northern Trust Corporation now in force, as they appear in the record books of said Corporation in his or her custody, and that the same is a complete, true and exact copy of said By-laws. IN WITNESS WHEREOF ___________________ has hereunto set his or her hand and seal of said Northern Trust Corporation this ____________ day of ___________________, ______. Assistant Secretary EX-10.(I) 4 dex10i.txt 2ND AMNDMNT SUPP EMPLOYEE STOCK OWNERSHIP PLAN Exhibit 10(i) SECOND AMENDMENT OF THE NORTHERN TRUST CORPORATION SUPPLEMENTAL EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, the Northern Trust Corporation (the "Corporation") sponsors the Northern Trust Corporation Supplemental Employee Stock Ownership Plan, as amended and restated effective as of July 20, 1999 (the "Plan"); and Whereas, pursuant to section 7.1 of the Plan, the Corporation has the right to amend the Plan when the Corporation deems such amendment to be advisable; and WHEREAS, the Corporation deems it advisable to amend the Plan; NOW, THEREFORE, the Plan is hereby amended effective as of January 1, 2002, as follows: 1. The following is hereby added at the end of Section 1.3: "In accordance with the Qualified Plan, each Participant or Inactive Participant who is an Employee on the date a Change in Control occurs shall be 100 percent vested in the adjusted balance of his or her Supplemental ESOP Account. In addition, for the calendar year in which a Change in Control occurs, the Company shall make a Supplemental ESOP Allocation to the Supplemental ESOP Account of any Participant for whom the Company makes an Employer Contribution to the Qualified Plan for such Plan Year, if such Participant is entitled to a Supplemental ESOP Allocation under the terms of Section 3.1 of this Plan." 2. Section 1.6 of the Plan is hereby deleted in its entirety, and the following new section is substituted therefor: "1.6 "Company" means The Northern Trust Company, an Illinois banking corporation; the Corporation; and such subsidiaries and affiliates of the Corporation as shall, with the consent of the Board, adopt the Plan." 3. Section 1.11 is hereby amended to delete the term "Restated". 4. Section 1.13 is hereby amended to delete the word "Company" and to delete the date January 1, 1989" and substitute the date of "January 1, 2002" therefor. 5. Section 1.15 is hereby amended to delete the date "January 1, 1989" and to substitute the date "January 1, 2002" therefor. 6. The following phrase shall be added to the end of the first sentence in Section 8.8: ", subject to the provisions of Section 7.1." 7. The following phrase shall be added after the phrase: "subject to the provisions of" in the last sentence in Section 8.8: "Section 7.1 and..." IN WITNESS WHEREOF, the Corporation has caused this amendment to be executed on its behalf as of January 1, 2002. NORTHERN TRUST CORPORATION By: /s/William A. Osborn ------------------------------- Name: William A. Osborn Title: Chairman and Chief Financial Officer - 2 - EX-10.(II) 5 dex10ii.txt 3RD AMENDMENT OF SUPPLEMENTAL PENSION PLAN Exhibit 10(ii) THIRD AMENDMENT OF THE NORTHERN TRUST CORPORATION SUPPLEMENTAL PENSION PLAN WHEREAS, the Northern Trust Corporation (the "Corporation") sponsors the Northern Trust Corporation Supplemental Pension Plan, as amended and restated effective as of July 20, 1999, (the "Plan"); and WHEREAS, pursuant to Section 6.1 of the Plan, the Corporation has the right to amend the Plan when the Corporation deems such amendment to be advisable; and WHEREAS, the Corporation deems it advisable to amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 1.1 of the Plan is hereby deleted in its entirety, and the following new Section 1.1 is substituted therefor: "1.1 "Beneficiary" means the individual designated by the Participant to receive any survivor benefits payable under the Plan. If the Participant does not designate a Beneficiary, or if the designation is for any reason ineffective, as determined by the Committee, the Participant's Beneficiary shall be: (i) The Participant's Spouse or, if none, (ii) the Participant's children (in equal amounts) or, if none, (iii) the Participant's parents (in equal amounts) or, if none, (iv) the Participant's brothers and sisters (in equal amounts) or, if none, (v) the Participant's estate." 2. The following is hereby added at the end of Section 1.4: "In accordance with the Qualified Plan, each Participant's Supplemental Pension Benefit shall become fully vested and nonforfeitable upon the occurrence of a Change in Control. Any Supplemental Pension Benefit accrued for any such Participant following such Change in Control shall also be fully vested and nonforfeitable." 3. Section 1.6 is hereby deleted in its entirety and the following new Section 1.6 is substituted therefor: "1.6 "Company" means The Northern Trust Company, an Illinois banking corporation; the Corporation; and such subsidiaries and affiliates of the Corporation as shall, with the consent of the Board, adopt the Plan." 4. Section 1.9(b) of the Plan is hereby deleted in its entirety, and the following new Section 1.9(b) is substituted therefor: "(b) Any amounts of the cash portion of performance-based incentive compensation under the Northern Trust Corporation Annual Performance Plan, the Northern Trust Corporation Management Performance Plan and the Specialized Incentive Plan, the receipt of which is deferred under the Northern Trust Corporation Deferred Compensation Plan, will be taken into account as Compensation as if such amounts were not so deferred; and" 5. Section 1.10(b) of the Plan is hereby deleted in its entirety, and the following new Section 1.1.0(b) is substituted therefor: "(b) Any amounts of the cash portion of performance-based incentive compensation under the Northern Trust Corporation Annual Performance Plan, the Northern Trust Corporation Management Performance Plan and the Specialized Incentive Plan, the receipt of which is deferred under the Northern Trust Corporation Deferred Compensation Plan, will be taken into account as Compensation as if such amounts were not so deferred; and" 6. Section 1.12 of the Plan is hereby deleted in its entirety, and the following new Section 1.12 is substituted therefor: "1.12 "Annuity Starting Date" means the first day of the month following the month in which a Participant incurs a Break in Service under the Qualified Plan." 7. Section 1.13 of the Plan is hereby deleted in its entirety and the following new Section 1.13 is substituted therefor: "1.13 "Payment Date" means: (a) with respect to a Participant who is retirement eligible under the Qualified Plan, the last business day of the calendar month next following the calendar month in which the Participant's employment with the Company and its affiliates terminates for any reason other than the Participant's death; or (b) with respect to a Vested Terminated Participant, the last business day of the third calendar month following the calendar month in which the Participant's employment with the Company and its affiliates terminates for any reason other than the Participant's death." - 2 - 8. Section 1.14 is hereby amended to delete the term "Restated." 9. Section 1.15 is hereby amended to delete the date "January 1, 1989" and to substitute the date "January 1, 2002" therefor. 10. Section 1.17 is hereby amended to delete the phrase "Payment Entitlement Date" and to substitute the phrase "Annuity Starting Date" therefor. 11. Sections 1.19 and 1.20 are hereby amended to delete the phrase "lump sum." 12. The following is hereby added as new Section 3.1(c): "(c) In the event the Participant does not elect either an immediate lump sum distribution or an immediate annuity under the Qualified Plan, the amount of the Participant's Supplemental Pension Benefit shall be calculated and paid under Section 3.1(a) as if the Participant had elected an immediate lump sum distribution under the Qualified Plan." 13. Section 3.3 of the Plan is hereby deleted in its entirety and the following new Section 3.3 is substituted therefor: "3.3 Form of Benefit. For any Supplemental Pension Benefit payable on or after January 15, 2002: (a) If the lump sum value of a Participant's Supplemental Pension Benefit is equal to or less than One Hundred Twenty-five Thousand Dollars ($125,000.00) (or, during the 2002 Plan Year, any lesser amount as may be designated from time to time by the Company's Chairman and Chief Executive Officer), such Supplemental Pension Benefit shall be paid in a single lump sum calculated pursuant to Sections 3.1 and 3.6(a). (b) If the lump sum value of a Participant's Supplemental Pension Benefit exceeds One Hundred Twenty-five Thousand Dollars ($125,000.00) (or, during the 2002 Plan Year, any lesser amount as may be designated from time to time by the Company's Chairman and Chief Executive Officer), such Supplemental Pension Benefit shall be paid as a Five-Year Certain Annuity calculated pursuant to Sections 3.1 and 3.6(b); provided, however, that any Participant otherwise covered by this Section 3.3(b) who announced his retirement under the Qualified Plan on or before November 30, 2001 shall be given the opportunity to make a one-time, irrevocable election prior to January 1, 2002 to receive his or her Supplemental Pension Benefit in the form of either a single lump sum or Five-Year Certain Annuity." - 3 - 14. Section 3.4 is hereby deleted in its entirely and the following new Section 3.4 is substituted therefor: "3.4 Commencement and Duration of Benefits. (a) If a Participant's Supplemental Pension Benefit is payable in the form of a lump sum, payment of such Supplemental Pension Benefit shall be made on the Participant's Payment Date. (b) If a Participant's Supplemental Pension Benefit is payable in the form of a Five-Year Certain Annuity, the first annual installment shall be paid on the Participant's Payment Date and a subsequent annual installment shall be paid on each of the next four anniversary dates of such Payment Date. If the Participant dies before receiving all five annual installments of the Five-Year Certain Annuity, any remaining installments shall be paid to the Participant's Beneficiary in the same amounts and on the same dates as the Participant would have received such payments." 15. The following new Section 3.6 is hereby added: "3.6 Calculation of Benefit. For any Supplemental Pension Benefit or Supplemental Survivor Benefit payable on or after January 15, 2002: (a) The amount of any lump sum calculated under the Plan for any Participant or Beneficiary shall be determined on the basis of the rates, tables and factors (including any early retirement adjustment factors) which would be used to determine the Participant's or Beneficiary's lump sum payment under the Qualified Plan as of the Participant's or Beneficiary's Annuity Starting Date. (b) The amount of any Five-Year Certain Annuity calculated under the Plan for any Participant or Beneficiary shall be determined: (1) by determining the lump sum value of such Participant's Supplemental Pension Benefit as provided in Sections 3.1 and 3.6(a) or such Beneficiary's Supplemental Survivor Benefit as provided in Sections 4.1 and 3.6(a) and, (2) by converting the lump sum calculated in paragraph (1) of this Section 3.6(b) to five guaranteed payments payable in equal annual installments using the greater of the annual yield on the monthly 5-year Treasury securities with constant maturity plus 150 basis points or the month-end Moody's Long Term Aa Corporate Index yield as an earnings factor. This earnings factor shall be determined as of the last month of the same calendar quarter as the interest rate used to - 4 - calculate the Participant's or Beneficiary's lump sum in paragraph (1) of this Section 3.6(b)." 16. Section 4.1 of the Plan is hereby deleted in its entirety and the following new Section 4.1 is substituted therefor: "4.1 Amount. If a Participant dies prior to his Annuity Starting Date under circumstances in which a Qualified Plan Survivor Benefit is payable to his Beneficiary, then a Supplemental Survivor Benefit is payable to his Beneficiary as hereinafter provided. Any Supplemental Survivor Benefit payable on or after January 15, 2002, shall be calculated as follows: (a) In the event the Beneficiary elects a lump sum distribution under the Qualified Plan, such amount shall be the difference between (i) the lump sum value of the Beneficiary's Modified Survivor Benefit and (ii) the lump sum value of the Beneficiary's Qualified Plan Survivor Benefit. (b) In the event the Beneficiary elects an annuity under the Qualified Plan, such amount shall be the lump sum value of the difference between (i) the monthly amount of the Beneficiary's Modified Survivor Benefit and (ii) the monthly amount of the Beneficiary's Qualified Survivor Benefit. (c) In the event the Beneficiary does not elect either a lump sum distribution or an annuity under the Qualified Plan, the amount of the Beneficiary's Supplemental Survivor Benefit shall be calculated and paid under Section 4.1(a) as if the Beneficiary had elected a lump sum distribution under the Qualified Plan." 17. Section 4.2 is hereby deleted in its entirety and the following new Section 4.2 is substituted therefor: "4.2 Form and Commencement of Benefit. For any Supplemental Survivor Benefit payable on or after January 15, 2002: (a) If the lump sum value of a Beneficiary's Supplemental Survivor Benefit is equal to or less than One Hundred Twenty-five Thousand Dollars ($125,000.00) (or, during the 2002 Plan Year, any lesser amount as may be designated from time to time by the Company's Chairman and Chief Executive Officer), such Beneficiary's Supplemental Survivor Benefit shall be paid in a single lump sum calculated pursuant to Sections 4.1 and 3.6(a). (b) If the lump sum value of a Beneficiary's Supplemental Survivor Benefit exceeds One Hundred Twenty-five Thousand Dollars - 5 - ($125,000.00)(or, during the 2002 Plan Year, any lesser amount as may be designated from time to time by the Company's Chairman and Chief Executive Officer), such Beneficiary's Supplemental Survivor Benefit shall be paid as a Five-Year Certain Annuity calculated pursuant to Sections 4.1 and 3.6(b)." (c) (1) If a Beneficiary's Supplemental Survivor Benefit is payable in the form of a lump sum, payment of such Supplemental Survivor Benefit shall be made according to the schedule for payment of a Qualified Plan Survivor Benefit as though such Qualified Plan Survivor Benefit had commenced immediately. (2) If a Beneficiary's Supplemental Survivor Benefit is payable in the form of a Five-Year Certain Annuity, the first annual installment shall be paid on the date the Beneficiary would have received a lump sum payment as described in paragraph (1) of this Section 4.2(c). A subsequent annual installment shall be paid on each of the next four anniversary dates of such payment date. If the Beneficiary dies before receiving all five annual installments of the Five-Year Certain Annuity, any remaining installments shall be paid to the Beneficiary who would have been entitled to such Supplemental Survivor Benefit if the initial Beneficiary had predeceased the Participant. Such remaining installments shall be paid in the same amounts and on the same dates as the initial Beneficiary would have received such payments." 18. The following phrase shall be added to the end of the first sentence in Section 7.8: ", subject to the provisions of Section 6.1." 19. The following phrase shall be added after the phrase "subject to the provisions of" in the last sentence in Section 7.8: "Section 6.1 and..." 20. The following new Article VIII is hereby added: "ARTICLE VIII CHANGE IN CONTROL 8.1 Participants and Beneficiaries Receiving Benefits. Notwithstanding any other provision of the Plan, if a Change in Control occurs, each Participant or Beneficiary who began receiving a Supplemental Pension Benefit or a Supplemental Survivor Benefit prior to such Change in Control in the form of a Five-Year Certain Annuity shall receive any remaining installments of the Five-Year Certain Annuity in the form of a single lump sum payment, with the earnings factor described in Section 3.6(b) applied through the lump sum payment date. Any such lump sum payment shall - 6 - be made as soon as reasonably practicable after the Change in Control, but in any event no later than thirty (30) days after the Change in Control. 8.2 Participants and Beneficiaries Not Yet Receiving Benefits. Notwithstanding any other provision of the Plan, if a Change in Control occurs, the Supplemental Pension Benefit or Supplemental Survivor Benefit of any Participant or Beneficiary who has not begun to receive such Supplemental Pension Benefit or Supplemental Survivor Benefit prior to the Change in Control shall be payable in the form of a single lump sum, and no such Supplemental Pension Benefit or Supplemental Survivor Benefit shall be payable in the form of a Five-Year Certain Annuity regardless of the lump sum value of such Supplemental Pension Benefit or Supplemental Survivor Benefit. Any such lump sum Supplemental Pension Benefit shall be payable to such a Participant on the Participant's Payment Date. Any such lump sum Supplemental Survivor Benefit shall be payable to a Beneficiary on the date on which the Beneficiary is entitled to payment under Section 4.2(c)(1)." Items 1, 3 through 10, 18 and 19 of this Third Amendment shall be effective from and after January 1, 2002. Item 2 of this Third Amendment shall be effective from and after September 25, 2001. Items 11 through 17 and 20 of this Third Amendment shall be effective from and after January 15, 2002. In all other respects, the Plan and the First and Second Amendments thereto are hereby ratified and confirmed. IN WITNESS WHEREOF, the Corporation has caused this amendment to be executed on its behalf as of January 15, 2002. NORTHERN TRUST CORPORATION By: /s/William A. Osborn ----------------------------- Name: William A. Osborn Title: Chairman and Chief Executive Officer - 7 - EX-10.(III) 6 dex10iii.txt 3RD AMENDMNT FO SUPPLEMENTAL THRIFT-INCENTIVE PLAN Exhibit 10(iii) THIRD AMENDMENT OF THE NORTHERN TRUST CORPORATION SUPPLEMENTAL THRIFT-INCENTIVE PLAN WHEREAS, the Northern Trust Corporation (the "Corporation") sponsors the Northern Trust Corporation Supplemental Thrift-Incentive Plan as amended and restated effective as of July 20, 1999 (the "Plan"); and WHEREAS, pursuant to Section 7.1 of the Plan, the Corporation has the right to amend the Plan when the Corporation deems such amendment to be advisable; and WHEREAS, the Corporation deems it advisable to the amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows; 1. The following is hereby added at the end of Section 1.3: "In accordance with the Qualified Plan, upon the occurrence of a Change in Control, each Participant and Inactive Participant shall become fully vested in the balance of his or her Supplemental Matching Contribution Account. Any amounts credited to any such Supplemental Matching Contribution Account following such Change in Control shall also be fully vested." 2. Section 1.6 is hereby deleted in its entirety and the following new Section 1.6 is substituted therefor: "1.6 "Company" means The Northern Trust Company, an Illinois banking corporation; the Corporation; and such subsidiaries and affiliates of the Corporation as shall, with the consent of the Board, adopt the Plan." 3. Section 1.10 is hereby amended to complete the sentence by adding the word "made" so that the end of the sentence reads: "to whom contributions may be made under the Plan." 4. Section 1.11 is hereby amended to delete the term "Restated" and to change the word "Plans" to "Plan". 5. Section 1.13 is hereby amended to delete the date "January 1, 1989" and to substitute the date "January 1, 2002" therefor. 6. The first paragraph of Section 3.1 is hereby deleted in its entirety and the following new paragraph is substituted therefor: "The Supplemental Before-Tax Deposit authorized by a Participant for any Plan Year shall be applied only to Salary in excess of Code Section 401(a)(17) limitations, in any amount equal to at least one percent (1%), but not to exceed the maximum percentage which a Participant could contribute to the Qualified Plan in such Plan Year in the absence of any statutory or administratively imposed limitations. 7. The first paragraph of Section 3.2 is hereby deleted in its entirety and the following new paragraph is substituted therefor: "As a condition of making a Supplemental Before-Tax Deposit for the benefit of a Participant pursuant to Section 3.1 for any Plan Year, the Participant must execute a Supplemental Before-Tax Deposit Agreement, in such form as the Committee in its discretion shall determine, on which the Participant shall elect to have his Salary for such Plan Year reduced, and a Supplemental Before-Tax Deposit made on his behalf, on Salary in excess of the Code Section 401(a)(17) limitations, in any amount equal to at least one percent (1) of his Salary, or any multiple thereof, but not to exceed the maximum percentage which a Participant could contribute to the Qualified Plan in such Plan Year in the absence of any statutory or administratively imposed limitations." 8. The following phrase shall be added to the end of the first sentence in Section 8.8: ", subject to the provisions of Section 7.1." 9. The following phrase shall be added after the phrase: "subject to the provisions of " in the last sentence in Section 8.8: "Section 7.1 and..." This Third Amendment of the Plan shall be effective from and after January 1, 2002. IN WITNESS WHEREOF, the Corporation has caused this amendment to be executed on its behalf as of January 1, 2002. NORTHERN TRUST CORPORATION By: /s/William A. Osborn ----------------------------- Name: William A. Osborn Title: Chairman and Chief Executive Officer - 2 - EX-10.(IV) 7 dex10iv.txt FORM OF AMNDMNT TO FORM OF EMPLOYMENT SECURITY AGM Exhibit 10(iv) FORM OF AMENDMENT TO EMPLOYMENT SECURITY AGREEMENT -------------------------------------------------- This Amendment, dated as of [insert date], expressly amends that certain Employment Security Agreement, dated as of [insert date of original agreement] [and previously amended as of [insert date]], by and between Northern Trust Corporation, a Delaware corporation (the "Company") and [insert name of executive] (the "Executive"). WHEREAS, effective as of [insert date of original agreement], the Company and the Executive entered into an Employment Security Agreement concerning the provision of certain security to the Executive in connection with any potential change in control of the Company; and WHEREAS, the Company and the Executive desire to amend the Employment Security Agreement; NOW, THEREFORE, the Company and the Executive agree as follows: Effective as of the date hereof, the Employment Security Agreement is amended as follows: 1. Section 1 of the Employment Security Agreement is hereby amended by adding the following new clause [(f)][(g)] thereto, as follows: [(f)][(g)] Solely for purposes of determining the Executive's eligibility to participate in the Company's retiree medical care program, in the event that the Executive qualifies for neither early nor normal retirement benefits pursuant to the terms of The Northern Trust Company Pension Plan (or any successor plan thereto)(the "Qualified Pension Plan"), the Executive will be deemed to have up to an additional [twenty-four (24)][thirty-six (36)] months of age and/or service credit with respect to the Qualified Pension Plan, provided, however, that such additional age and/or service credit will only be credited to the Executive to the extent that such additional credit would, as of the Executive's Employment Termination, enable the Executive to qualify for participation in the Company's retiree medical care program. The additional credit described in this Section 1[(f)][(g)] shall be deemed to exist only for purposes of determining the Executive's eligibility to participate in the Company's retiree medical care program and shall otherwise have no effect on the Executive's age and service credit under the Qualified Pension Plan. The provisions of this Section shall have no effect on the Company's ability to amend or terminate the retiree medical care program and shall not be construed as requiring the Company to maintain any such program in any manner or for any period of time. IN WITNESS WHEREOF, Executive and, pursuant to due authorization from its Board of Directors, the Company have caused this Amendment to be executed as of the day and year first above written. NORTHERN TRUST CORPORATION By:_________________________________ Name: Title: ------------------------------------ [Executive] - 2 - EX-10.(V) 8 dex10v.txt NORTHERN TRUST CORPORATION 2002 STOCK PLAN Exhibit 10(v) NORTHERN TRUST CORPORATION 2002 STOCK PLAN 1. PURPOSE. The purpose of the Northern Trust Corporation 2002 Stock Plan is to promote the growth and profitability of the Corporation and its Subsidiaries by (a) encouraging outstanding individuals to accept or continue employment with the Corporation and its Subsidiaries or to serve as Directors of the Corporation, and (b) providing those persons with incentive compensation opportunities in the form of Stock Options and other Awards based on the value or increase in the value of shares of Common Stock of the Corporation, thereby aligning their interests with those of the Corporation's stockholders. 2. ADMINISTRATION. (a) The Committee shall administer the Plan, except as otherwise determined by the Board. The Committee shall consist of at least two (2) Directors as the Board may designate from time to time. Notwithstanding anything to the contrary contained herein, membership of the Committee shall be limited to Board members who meet the "non-employee director" definition in Rule 16b-3 under Section 16 of the Exchange Act and the "outside director" definition under Section 162(m) of the Code and the regulations thereunder. (b) The Committee shall have full power and authority to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any Award Agreement entered into under the Plan, and to make all other determinations that may be necessary or desirable for the administration of the Plan. Any interpretation of the Plan by the Committee shall be final and binding on all persons. (c) The Committee may delegate the administration of the Plan, in whole or in part, on such terms and conditions as it may impose, to such other person or persons as it may determine in its discretion, except with respect to Awards to officers subject to Section 16 of the Exchange Act or officers who are or may be Covered Employees and except to the extent prohibited by applicable law or the applicable rules of a stock exchange. 3. PARTICIPANTS. (a) Participants shall consist of Directors and Employees whom the Committee may designate from time to time to receive Awards under the Plan. Awards may be granted to Participants who are or were previously Participants under this or other plans of the Corporation or any Subsidiary and, with the agreement of the Participant, may be granted in substitution, exchange or cancellation of any rights or benefits then or theretofore held under this or other plans of the Corporation or any Subsidiary. The Corporation may continue to award bonuses and other compensation to Participants under other programs now in existence or hereafter established. (b) The Committee shall have the authority to amend the Plan or the terms and conditions relating to an Award to the extent necessary or appropriate to comply with applicable law, regulation or accounting rules in order to permit Employees who are located outside of the United States to participate in the Plan. 4. AWARDS. (a) The following types of Awards may be granted under the Plan, either alone or in combination with other Awards: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Performance Shares, (iv) Stock Awards and (v) Stock Units. (b) The Committee may, in its discretion, provide that any Award granted under the Plan shall be subject to the attainment of performance goals in order to qualify such Award as "performance-based compensation" within the meaning of Section 162(m) of the Code. Performance goals may be based on one or more business criteria, including, but not limited to: (i) return on equity, (ii) earnings or earnings per share, (iii) Common Stock price, (iv) return on assets, (v) return on investment, (vi) net income, (vii) expense management, (viii) credit quality, (ix) revenue growth, or (x) operating leverage. Corporate performance goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the Committee. In addition, corporate performance goals may be adjusted for any events or occurrences (including extraordinary charges, losses from discontinued operations, restatements and accounting charges, and other unplanned special charges such as restructuring expenses, acquisition expenses and strategic loan loss provisions) as may be determined by the Committee. Corporate performance goals may be particular to one or more business units, lines of business or Subsidiaries or may be based on the performance of the Corporation as a whole. The corporate performance goals and the performance targets established thereunder by the Committee may be identical for all Participants for a given performance period or, at the discretion of the Committee, may differ among such Participants. 1 5. SHARES ISSUABLE UNDER THE PLAN. (a) An aggregate of 22,000,000 shares of Common Stock, consisting of authorized but unissued shares or treasury shares, may be issued under the Plan from and after the date of its initial adoption. Such aggregate number of shares shall be adjusted in accordance with the provisions of Section 11 of the Plan. (b) The maximum number of shares of Common Stock as to which a Participant may receive Stock Options or Stock Appreciation Rights in any calendar year is 500,000, as such number shall be adjusted in accordance with the provisions of Section 11 of the Plan. The maximum number of shares for Awards (other than Stock Options and Stock Appreciation Rights) intended to qualify as "performance-based compensation" in accordance with Section 4(b) of the Plan that may be granted to any Participant in any calendar year is 150,000, as such number shall be adjusted in accordance with the provisions of Section 11 of the Plan. The maximum number of shares of Common Stock issuable under the Plan as Incentive Stock Options is 22,000,000, as such number shall be adjusted in accordance with the provisions of Section 11 of the Plan. (c) Any shares of Common Stock subject to an Award may thereafter be subject to a new Award under the Plan if there is a lapse, cancellation, forfeiture, surrender, expiration or termination of any such prior Award, or if shares are issued under such Award and thereafter are reacquired by the Corporation pursuant to rights reserved by the Corporation upon issuance thereof. In addition, any shares of Common Stock exchanged by an optionee as full or partial payment to the Corporation of the exercise price under any Stock Option exercised under the Plan and any shares of Common Stock retained by the Corporation pursuant to a Participant's tax withholding election shall not count towards the aggregate number of shares that may be issued under the Plan as set forth in Section 5(a). (d) A share of Common Stock subject to a Stock Option and its related Stock Appreciation Right shall only be counted once for purposes of this Section 5. 6. STOCK OPTIONS. The Committee may, in its discretion, grant Stock Options under the Plan to any Participant hereunder. Each Stock Option granted hereunder shall be subject to such terms and conditions as the Committee may determine at the time of grant, the general provisions of the Plan, the terms and conditions of the applicable Stock Option Agreement, and the following specific rules: (a) Stock Options granted to a Participant under the Plan shall be governed by a Stock Option Agreement, which shall specify such terms and conditions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine. (b) Stock Options shall consist of options to purchase Common Stock at exercise prices not less than 100% of the Fair Market Value thereof on the date the Stock Options are granted. (c) Stock Options shall be exercisable for such period as specified by the Committee, but in no event may Stock Options be exercisable for a period of more than ten years after their date of grant. (d) In addition to the general terms and conditions set forth in this Section 6 in respect of Stock Options granted under the Plan, Incentive Stock Options granted under the Plan shall be subject to the following additional terms and conditions: (i) the exercise price of each Incentive Stock Option shall be at least 100% of the Fair Market Value of the Common Stock subject to such Incentive Stock Option on the date of grant; (ii) Incentive Stock Options shall be exercisable not later than ten years after the date of grant; (iii) in the case of an Incentive Stock Option granted to a Participant who, at the time of grant, owns (as determined under Section 424(d) of the Code) stock of the Corporation or its Subsidiaries possessing more than 10% of the total combined voting power of all classes of stock of any such corporation, the exercise price shall be at least 110% of the Fair Market Value of the Common Stock subject to the Incentive Stock Option at the time it is granted, and the Incentive Stock Option, by its terms, shall not be exercisable after the expiration of five (5) years from the date of its grant; and (iv) the aggregate Fair Market Value (determined with respect to each Incentive Stock Option as of the time such Incentive Stock Option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year (under all Incentive Stock Option plans of the Corporation and its Subsidiaries) shall not exceed $100,000. (e) Stock Options may provide that they may be exercised by payment of the exercise price (i) in cash, (ii) by the Corporation's withholding a portion of the shares of Common Stock otherwise distributable to the Participant, (iii) by the Participant's actual delivery of previously acquired shares of Common Stock that are acceptable to the Committee, (iv) by certification of ownership by attestation of such previously acquired shares, (v) by delivery of a properly executed notice of exercise, together with irrevocable instructions to a broker or similar third party to deliver promptly to the Corporation the amount of sale proceeds from the sale of the option shares to pay the exercise price and any withholding taxes due to the Corporation, or (vi) by any other method of payment as the Committee, in its discretion, deems appropriate. In the event that the exercise price of a Stock Option is paid in whole or in part by the withholding or delivery of shares of Common Stock pursuant to clause (ii), (iii) or (iv) above, the number of shares so withheld or delivered shall be the number of shares having an aggregate Fair Market Value equal to the exercise price, or portion thereof, so paid. 2 (f) If a Participant delivers shares of Common Stock to pay all or a part of the exercise price of a Stock Option, or uses shares of Common Stock to satisfy any federal, state or local tax withholding requirements, the Participant may receive, at the discretion of the Committee, an additional Stock Option ("Replacement Option") equal to the sum of the number of shares delivered in payment of the exercise price and the number of shares used to pay withholding taxes. A Replacement Option shall have a term that shall not extend beyond the term of the Stock Option to which it relates and shall have an exercise price equal to the Fair Market Value of the Common Stock on the grant date of the Replacement Option. Replacement Options may be subject to such other terms and conditions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine. Replacement Options may be granted in connection with the exercise of Stock Options granted under this Plan or any other plan of the Corporation. (g) The Committee may prescribe such other terms and conditions applicable to Stock Options granted to a Participant under the Plan that are neither inconsistent with nor prohibited by the Plan or any Stock Option Agreement. 7. STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant a Stock Appreciation Right under the Plan to the holder of any Stock Option granted hereunder. Each Stock Appreciation Right granted hereunder shall be subject to such terms and conditions as the Committee may determine at the time of grant, the general provisions of the Plan, the terms and conditions of the applicable Stock Appreciation Right Agreement, and the following specific rules: (a) Stock Appreciation Rights granted to a Participant under the Plan shall be governed by a Stock Appreciation Right Agreement, which shall specify such terms and conditions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine. (b) A Stock Appreciation Right may be granted in connection with a Stock Option at the time of the grant of the Stock Option or at any time thereafter up to six months prior to the expiration of the Stock Option. (c) Each Stock Appreciation Right will entitle the holder to elect to receive, in lieu of exercising the Stock Option to which it relates, an amount (payable in cash or in shares of Common Stock of the Corporation, or a combination thereof, determined by the Committee and set forth in the related Stock Appreciation Right Agreement) of up to 100% (or such lesser percentage as determined by the Committee and set forth in the related Stock Appreciation Right Agreement) of the excess of (i) the Fair Market Value per share of Common Stock on the date of exercise of such Stock Appreciation Right, multiplied by the number of shares of the Common Stock with respect to which the Stock Appreciation Right is being exercised, over (ii) the aggregate exercise price under the terms of the related Stock Option for such number of shares. (d) Each Stock Appreciation Right will be exercisable at the time and to the extent that the Stock Option to which it relates is exercisable, provided that no Stock Appreciation Right shall be exercisable during the first six months following the date of its grant. (e) Upon exercise of a Stock Appreciation Right, the Stock Option (or portion thereof) with respect to which such Stock Appreciation Right is exercised and any other Stock Appreciation Rights with respect to such Stock Option (or portion thereof) shall be surrendered to the Corporation and shall not thereafter be exercisable. (f) Exercise of a Stock Appreciation Right will reduce the number of shares of Common Stock purchasable pursuant to the related Stock Option and available under the Plan to the extent of the total number of shares of Common Stock with respect to which the Stock Appreciation Right is exercised. (g) The Committee may prescribe such other terms and conditions applicable to Stock Appreciation Rights granted to a Participant under the Plan that are neither inconsistent with nor prohibited by the Plan or any Stock Appreciation Right Agreement. 8. PERFORMANCE SHARES. The Committee may, in its discretion, grant Performance Shares under the Plan to any Participant hereunder. Each Performance Share granted hereunder shall be subject to such terms and conditions as the Committee may determine at the time of grant, the general provisions of the Plan, the terms and conditions of the related Performance Share Agreement, and the following specific rules: (a) Performance Shares granted to a Participant under the Plan shall be governed by a Performance Share Agreement, which shall specify such terms and conditions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine. (b) With respect to each performance period, the Committee shall establish such performance goals relating to one or more of the business criteria identified in Section 4(b) of the Plan. (c) With respect to each performance period, the Committee shall establish targets for Participants for achievement of performance goals. Following the completion of each performance period, the Committee shall determine the extent to which 3 performance goals for that performance period have been achieved and shall authorize credit as of the end of such performance period of Performance Shares to the accounts of Participants for whom targets were established, in accordance with the terms of the applicable Performance Share Agreements. (d) The Committee may prescribe such other terms and conditions applicable to Performance Shares granted to a Participant under the Plan that are neither inconsistent with nor prohibited by the Plan or any Performance Share Agreement. 9. STOCK AWARDS. The Committee may, in its discretion, grant, or sell for such amount of cash, Common Stock or such other consideration as the Committee deems appropriate (which amount may be less than the Fair Market Value of the Common Stock on the date of grant or sale), shares of Common Stock under the Plan to any Participant hereunder. Each share of Common Stock granted or sold hereunder shall be subject to such restrictions, conditions and other terms as the Committee may determine at the time of grant or sale, the general provisions of the Plan, the restrictions, terms and conditions of the related Stock Award Agreement, and the following specific rules: (a) Shares of Common Stock issued to a Participant under the Plan shall be governed by a Stock Award Agreement, which shall specify whether the shares of Common Stock are granted or sold to the Participant and such other provisions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine. (b) The Corporation shall issue, in the name of the Participant, stock certificates representing the total number of shares of Common Stock granted or sold to the Participant, as soon as may be reasonably practicable after such grant or sale, which shall be held by the Secretary of the Corporation as provided in subsection (e) hereof. (c) Subject to the provisions of subsection (b) hereof, and the restrictions set forth in the related Stock Award Agreement, the Participant receiving a grant of or purchasing Common Stock shall thereupon be a stockholder with respect to all of the shares represented by such certificate or certificates and shall have the rights of a stockholder with respect to such shares, including the right to vote such shares and to receive dividends and other distributions paid with respect to such shares. (d) The Committee, in its discretion, shall have the power to accelerate the date on which the restrictions contained in any Stock Award Agreement shall lapse with respect to any or all shares of Common Stock granted or sold under the Plan. (e) The Secretary of the Corporation shall hold the certificate or certificates representing shares of Common Stock issued under this Section 9 of the Plan on behalf of each Participant who holds such shares, whether by grant or sale, until such time as the Common Stock is forfeited, resold to the Corporation, or the restrictions lapse. (f) The Committee may prescribe such other restrictions, terms and conditions applicable to the shares of Common Stock issued to a Participant under the Plan that are neither inconsistent with nor prohibited by the Plan or any Stock Award Agreement, including, without limitation, terms providing for a lapse of the restrictions of this Section 9 or in any Stock Award Agreement, in installments. (g) Notwithstanding the provisions of subsections (b) and (e) above, the Corporation, in lieu of issuing stock certificates, may reflect the issuance of shares of Common Stock to a Participant on a non-certificated basis, with the ownership of such shares by the Participant evidenced solely by book entry in the records of the Corporation's transfer agent; provided, however that following the lapse of all restrictions with respect to the shares granted or sold to a Participant, the Corporation, upon the written request of the Participant, shall issue, in the name of the Participant, stock certificates representing such shares. 10. STOCK UNITS. The Committee may, in its discretion, award Stock Units under the Plan to Participants hereunder. Each Stock Unit granted hereunder shall be subject to such terms and conditions as the Committee may determine at the time of grant, the general provisions of the Plan, the terms and conditions of the applicable Stock Unit Agreement and the following specific rules: (a) Grants of Stock Units to a Participant under the Plan shall be governed by a Stock Unit Agreement, which shall specify such terms and conditions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine. (b) Stock Units shall be denominated in an equal number of shares of Common Stock of the Corporation, as determined by the Committee, and shall be payable either in shares of Common Stock or in cash, as provided in the Stock Unit Agreement. (c) Any Stock Unit may provide that the Participant shall receive, on the date of payment of any dividend on Common Stock occurring during the period preceding payment of the Award, an amount in cash equal in value to the dividends that the Participant would have received had he been the actual owner of the number of shares of Common Stock designated by the Committee at the time of the Award. (d) The Corporation's obligation to make payments or distributions with respect to Stock Units shall not be funded or secured in any manner. 4 (e) The Committee may prescribe such other terms and conditions applicable to Stock Units granted to a Participant under the Plan that are neither inconsistent with nor prohibited by the Plan or any Stock Unit Agreement. 11. ADJUSTMENT. In the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the Corporation or any similar corporate transaction, the Committee or the Board shall make such adjustments as it deems appropriate, in its sole discretion, to preserve the benefits or intended benefits of the Plan and Awards granted under the Plan. Such adjustments may include: (a) adjustment in the number and kind of shares reserved for issuance under the Plan; (b) adjustment in the number and kind of shares covered by outstanding Awards; (c) adjustment in the exercise price of outstanding Stock Options and SARs or the price of other Awards under the Plan; (d) adjustments to any of the shares limitations set forth in Section 5 of the Plan; and (e) any other changes that the Committee or the Board determine to be equitable under the circumstances. 12. NONTRANSFERABILITY. Except as provided below, each Award granted under the Plan to a Participant shall not be transferable by the Participant other than by will or the laws of descent and distribution and shall be exercisable, during the Participant's lifetime, only by the Participant or, in the event of disability, by the Participant's personal representative. In the event of the death of a Participant during employment or prior to the termination, expiration, cancellation or forfeiture of any Award held by the Participant hereunder, each Award theretofore granted to the Participant shall be exercisable or payable to the extent provided therein but no later than five years after his death and then only: (a) by or to the executor or administrator of the estate of the deceased Participant or the person or persons to whom the deceased Participant's rights under the Award shall pass by will or the laws of descent and distribution or as provided in the Award Agreement; and (b) to the extent set forth in the Award Agreement. Notwithstanding the foregoing, the Committee may set forth in the Stock Option Agreement for a Non-Qualified Stock Option, at the time of grant or thereafter, that the Non-Qualified Stock Option may be transferred by the Participant, subject to such terms and conditions as may be established by the Committee. 13. CHANGE IN CONTROL. (a) The Committee may, in its discretion, at the time an Award is made hereunder or at any time prior to a Change in Control of the Corporation, provide for the acceleration of any time periods relating to the exercise or realization of such Awards so that such Awards may be exercised or realized as of the date of a Change in Control of the Corporation, including specifically that as of such date: (i) all outstanding Stock Options and Stock Appreciation Rights shall become fully vested and exercisable; (ii) all performance goals under any Award shall be deemed fully achieved; (iii) all outstanding Performance Shares shall become fully vested and distributable; (iv) all restrictions on outstanding Stock Awards shall lapse; and (v) all restrictions on outstanding Stock Units shall lapse and such Stock Units shall become fully vested and distributable. The Committee may, in its discretion, include such further provisions and limitations in the Award Agreement as it may deem equitable and in the best interests of the Corporation. (b) A "Change in Control" shall be deemed to have occurred if: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation or its Affiliates) representing 20% or more of the combined voting power of the Corporation's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph (iii) below; or (ii) the election to the Board of Directors of the Corporation, without the recommendation or approval of two thirds of the incumbent Board of Directors of the Corporation, of the lesser of: (A) three directors; or (B) directors constituting a majority of the number of directors of the Corporation then in office, provided, however, that directors whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Corporation will not be considered as incumbent members of the Board of Directors of the Corporation for purposes of this section; or (iii) there is consummated a merger or consolidation of the Corporation or any direct or indirect subsidiary of the Corporation with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), at least 60% of the combined voting power of the securities of the Corporation or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation (not including in 5 the securities Beneficially Owned by such Person any securities acquired directly from the Corporation or its Affiliates) representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets, other than a sale or disposition by the Corporation of all or substantially all of the Corporation's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Common Stock of the Corporation immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions. For purposes of the foregoing, the following definitions shall apply: "Affiliate" shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act; "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act, except that a Person shall not be deemed to be the Beneficial Owner of any securities with respect to which such Person has properly filed a form 13-G; "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; and "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Corporation or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefits plan of the Corporation or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation. 14. OTHER PROVISIONS. Any Award under the Plan shall be subject to other provisions as the Committee determines, including, without limitation, provisions for the installment purchase of Common Stock under Stock Options, provisions to assist the Participant in financing the acquisition of Common Stock, provisions for the forfeiture of, or restrictions on resale or other disposition of shares acquired under any Award, provisions to comply with Federal or state securities laws and stock exchange requirements, provisions permitting acceleration of exercise or the lapse of restrictions in the event of death, disability or retirement, understandings or conditions as to the Participant's employment in addition to those specifically provided for under the Plan, provisions for the forfeiture of Awards in the event of breach of noncompetition or confidentiality agreements during or following termination of employment, provisions permitting the deferral of the receipt of Awards for such period and upon such terms and conditions as the Committee shall determine, provisions giving the Corporation the right to repurchase shares acquired under any Award in the event the Participant elects to dispose of such shares, provisions requiring the achievement of specified performance goals, and provisions permitting acceleration of exercise upon the occurrence of specified events or otherwise in the discretion of the Committee. 15. TAXES. The Corporation shall have the right to deduct from any payment to be made under the Plan the amount of any taxes required by law to be withheld from such payment, or to require a Participant to pay to the Corporation such amount required to be withheld prior to the issuance or delivery of any shares of Common Stock or the payment of any cash in connection with any Award under the Plan. The Committee may, in its discretion and subject to such rules as it may adopt, permit a Participant to elect to satisfy such withholding obligations through cash payment by the Participant, the surrender of shares of Common Stock acceptable to the Committee which the Participant already owns or through the surrender of shares of Common Stock which the Participant is otherwise entitled to receive under the Plan. 16. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN. The Board may at any time amend, suspend or terminate the Plan as it deems advisable and in the best interests of the Corporation; provided, that no amendment, suspension or termination shall adversely affect the right of any Participant under any outstanding Award in any material way without the written consent of the Participant, unless such amendment, suspension or termination is required by applicable law. No amendment of the Plan shall be made without stockholder approval if stockholder approval is required by law, regulation or stock exchange rule. 17. NO CONTRACT OF EMPLOYMENT. Neither the adoption of the Plan nor the grant of any Award under the Plan shall be deemed to obligate the Corporation or any Subsidiary to continue the employment of any Participant for any particular period, nor shall the granting of an Award constitute a request or consent to postpone the retirement date of any Participant. 18. EFFECTIVE DATE. The Plan was adopted by the Board on February 19, 2002 and, subject to approval of the Corporation's stockholders at the 2002 annual meeting of stockholders, will become effective as of April 16, 2002. The Plan and any Awards 6 granted under the Plan shall be null and void if stockholder approval is not obtained at the 2002 annual meeting of stockholders. The Plan shall remain in effect until terminated by the Board in accordance with Section 16 of the Plan. 19. APPLICABLE LAW. All questions pertaining to the validity, construction and administration of the Plan and all Awards granted under the Plan shall be determined in conformity with the laws of the State of Illinois, without regard to the conflict of law provisions of any state, and, in the case of Incentive Stock Options, Section 422 of the Code and regulations issued thereunder. 20. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Award" shall mean any award or benefit granted under the Plan, including, without limitation, Stock Options, Stock Appreciation Rights, Performance Shares, Stock Awards and Stock Units. (b) "Award Agreement" shall mean, as applicable, a Stock Option Agreement, Stock Appreciation Agreement, Performance Share Agreement, Stock Award Agreement, Stock Unit Agreement or such other agreement evidencing an Award granted under the Plan. (c) "Board" shall mean the Board of Directors of the Corporation. (d) "Change in Control" shall have the meaning set forth in Section 13(b) of the Plan. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (f) "Committee" shall mean the Compensation and Benefits Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer the Plan. (g) "Common Stock" shall mean the Common Stock, par value $1.66 2/3 per share, of the Corporation. (h) "Corporation" shall mean Northern Trust Corporation, a Delaware corporation. (i) "Covered Employee" shall mean "covered employee" as that term is defined in Section 162(m) of the Code or any successor provision. (j) "Director" shall mean a director of the Corporation. (k) "Employee" shall mean an employee of the Corporation or any Subsidiary; it being understood that an Award (other than an Incentive Stock Option) may be granted in connection with the hiring of a person prior to the date the person becomes an employee of the Corporation or any Subsidiary, provided that such Award shall not vest prior to the commencement of employment. (l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (m) "Fair Market Value" shall mean the fair market value of the Common Stock, as determined by the Committee. (n) "Incentive Stock Option" shall mean an option granted under Section 6 of the Plan that meets the requirements of Section 422(b) of the Code or any successor provision. (o) "Non-Qualified Stock Option" shall mean an option granted under Section 6 of the Plan that is not an Incentive Stock Option. (p) "Participant" shall mean any Employee or Director selected to receive an Award. (q) "Performance Share" shall mean a grant of a right to receive shares of Common Stock under Section 8 of the Plan. (r) "Plan" shall mean the Northern Trust Corporation 2002 Stock Plan. (s) "Replacement Option" shall mean an option granted under Section 6(f) of the Plan. (t) "Stock Appreciation Right" shall mean any right granted under Section 7 of the Plan. (u) "Stock Award" shall mean a grant of shares of Common Stock under Section 9 of the Plan. (v) "Stock Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option granted under Section 6 of the Plan. (w) "Stock Unit" shall mean a grant of a right to receive shares of Common Stock or cash under Section 10 of the Plan. 7 (x) "Subsidiary" shall mean any entity that is directly or indirectly controlled by the Corporation or any entity in which the Corporation has a significant equity or other interest, as determined by the Committee in its discretion. EX-10.(VI) 9 dex10vi.txt NORTHERN TRUST CORPORATION SEVERANCE PLAN Exhibit 10(vi) NORTHERN TRUST CORPORATION SEVERANCE PLAN ARTICLE I --------- Purpose The purpose of the Northern Trust Corporation Severance Plan ("Plan") is to provide severance payments to certain Employees in the event their employment is terminated by their Employer in specified circumstances such as job eliminations, reductions in force and similar situations described in this Plan. ARTICLE II ---------- Definitions 2.1 "Administrator" means the Corporation or such person(s) or committee(s) designated by the Corporation. Where appropriate, Administrator also means any duly authorized delegate of the Administrator. The Administrator shall be the "plan administrator" and the "named fiduciary" of the Plan for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). 2.2 "Base Pay" means: (i) (A) for a salaried Employee, that Employee's weekly base salary as determined from the personnel records of an Employer at Termination and (B) for an Employee who is paid on an hourly basis, that Employee's hourly rate of pay multiplied by the number of hours the Employee is schedule to work during a week, as determined from the personnel records of the Employer at Termination, plus (ii) for any Employee, that Employee's scheduled weekly shift differential, if any, as determined from the personnel records of the Employer at Termination. In all instances, Base Pay excludes overtime, commissions, bonuses, reimbursements, pay for time worked in excess of hours scheduled and all other forms of compensation. 2.3 "Corporation" means Northern Trust Corporation, a Delaware corporation, and its successors and assigns. 2.4 "Company" means The Northern Trust Company, an Illinois state bank, and its successors and assigns. 2.5 "Committee" means the Employee Benefit Administrative Committee of the Company, as constituted from time to time. 2.6 "Eligible Employee" means an Employee who is determined by the Administrator to be entitled to Severance Benefits under the Plan, subject to Section 4.4. 2.7 "Employee" means an individual employed in the service of an Employer as a regular full-time or part-time common-law employee (i) on the active payroll; (ii) on a leave of absence with a reemployment guarantee; or (iii) receiving disability benefits. An Employee does not include individuals in jobs classified by an Employer as "temporary" or "limited post" positions or any other individual in the temporary employ of an Employer. No individual will be considered an Employee nor will such individual be otherwise eligible to receive benefits under the Plan during any period in which such individual is providing services to an Employer under a contract, arrangement, or understanding with such individual, or with an agency or leasing organization that treats the individual as either an independent contractor or an employee of such agency or leasing organization, even if such individual is later determined (by judicial action or otherwise) to have been a common law employee of an Employer rather than an independent contractor or an employee of such agency or leasing organization. 2.8 "Employer" means the Corporation and its U.S. affiliates, including the Company. The term "affiliate" means any corporation which is a member of the same controlled group of corporations as the Corporation under section 1563(a) of the Internal Revenue Code of 1986, as amended (the "Code") or an unincorporated trade or business under Section 414(c) of the Code. 2.9 "Severance Benefits" means the benefits described in the Severance Schedule to the Plan to which an Eligible Employee may be entitled under the provisions of the Plan. 2.10 "Termination" means, for purposes of determining entitlement to Severance Benefits under the Plan, a complete severance of an Employee's employment relationship with Employer. "Termination" does not include situations involving (i) temporary absence, such as a Family and Medical Leave Act ("FMLA") leave or a temporary layoff, in which an Employee retains any entitlement to reinstatement; (ii) the total or partial sale or transfer of ownership of an Employer or a business unit of an Employer (stock or asset sale) if the Employee is offered employment with the purchasing or new entity as part of or at the time of the sale or transfer; (iii) the outsourcing of Employer work to a non-Employer if the Employee is offered employment with such non-Employer as part of or at the time of the outsourcing; or (iv) the elimination of the position or job of an Employee if the Employee is offered comparable employment with an Employer (as determined by the Employer in the Employer's sole discretion) in a position which does not require relocation to a non-commutable distance. 2.11 "Termination for Unacceptable Performance" means the Termination of an Employee for reasons related to his or her performance of job duties and responsibilities, which performance is considered unacceptable to an Employer. 2.12 "Termination for Cause" means the Termination of an Employee for engaging in conduct which violates an Employer's policies and/or is harmful to an Employer, including but not limited to excessive unauthorized absenteeism or tardiness, abuse of controlled substances and/or alcohol, reporting to work under the influence of controlled substances and/or alcohol, gambling, possession of firearms on Employer property, theft or unauthorized use of Employer property, conduct which creates a conflict of interest, unauthorized use of insider information and offering or accepting bribes, and all other misconduct, as determined by an Employer. 2.13 "Termination Based on Employer Action" means any Termination of an Eligible Employee at the request of an Employer due to: (i) the elimination of such Employee's job, (ii) a reduction in force, (iii) the outsourcing of Employer work to a non-Employer, (iv) the - 2 - consolidation of positions or functions, (v) the relocation of work to a non-commutable distance as provided in an Employer's policies and practices, or (vi) the sale or transfer of all or part of the stock or assets of an Employer or a business unit of Employer; provided, however, that a Termination Based on Employer Action, shall not be considered to have occurred if the Employee is offered (A) a comparable position (as determined by the Employer in the Employer's sole discretion) with an Employer which does not require relocation to a non-commutable distance or (B) employment with a purchaser, transferee or outsourcing non-Employer or an affiliate of a purchaser, transferee, or outsourcing non-Employer, regardless of whether the Employee elects to accept any such offer. 2.14 "Voluntary Termination" means an Employee's voluntary Termination of his or her employment. 2.15 "Year of Service" means a 12-consecutive month period beginning on the Employee's hire date with an Employer and on each anniversary thereof during which he or she continues to be an Employee. ARTICLE III ----------- Eligibility for Severance Benefits 3.1 Termination Based on Employer Action. Subject to Section 4.4, an Employee whose Termination of employment is a Termination Based on Employer Action, as defined in Section 2.13, will be considered an Eligible Employee and entitled to Severance Benefits. 3.2 Ineligible Employees. An Employee whose Termination of employment is for any reason other than a Termination Based on Employer Action, including but not limited to Termination for Cause, Termination for Unacceptable Performance, or Voluntary Termination, shall not be entitled to Severance Benefits under this Plan. 3.3 Employees on Leave or Receiving Disability Benefits. (i) (A) Except as otherwise required by applicable law, no Eligible Employee may apply for or commence any leave of absence after the beginning of such Eligible Employee's Notification Period described in Section 4.2, even if such leave was previously approved before such Notification Period. (B) If an Eligible Employee commences an authorized leave of absence during the Notification Period pursuant to applicable law as described in Section 3.3(i)(A) or if an Eligible Employee has commenced an authorized leave of absence under an Employer's leave policies before such Eligible Employee's Notification Period, such Eligible Employee may remain on such leave until the earlier of the authorized end of the leave or the end of such Notification Period. At the end of such Notification Period, such Eligible Employee's employment will be terminated, and such Eligible Employee will be entitled to Severance Benefits, subject to Section 4.4. (ii) If, before or during the Eligible Employee's Notification Period described in Section 4.2, an Eligible Employee begins receiving benefits under an Employer's short-term disability plan, the Eligible Employee will continue to receive such disability benefits through the end of the certification period under such short-term disability plan. At the end of the certification period, such Eligible Employee's employment will be terminated, and - 3 - such Eligible Employee will be entitled to Severance Benefits, subject to Section 4.4 and subsection (iii) of this Section 3.3. (iii) If, before or during the Eligible Employee's Notification Period (or immediately following an Eligible Employee's receipt of short-term disability benefits pursuant to subsection (ii) of this Section 3.3), an Eligible Employee begins receiving benefits under an Employer's long-term disability plan, such Eligible Employee will continue to receive such disability benefits in accordance with such long-term disability plan. If such Eligible Employee is able to return to active employment during the first six (6) months of such long-term disability benefits, such Eligible Employee's employment will be terminated, and such Eligible Employee will be entitled to Severance Benefits, subject to Section 4.4. However, if such an Eligible Employee receives such long-term disability benefits for more than six (6) months, such Eligible Employee will no longer be entitled to any Severance Benefits regardless of the reasons for or timing of such Employee's Termination of employment. (iv) Anything in the Plan to the contrary notwithstanding, an Eligible Employee who, during his or her Notification Period, is on an authorized, unpaid personal leave with a medical condition pursuant to his or her Employer's leave policies, shall be treated for purposes of this Plan as if he or she were receiving benefits under such Employer's short-term disability plan. Such an Eligible Employee's employment termination and eligibility for Severance Benefits shall be determined under Section 3.3(ii) of this Plan. ARTICLE IV ---------- Severance Benefits 4.1 Severance Benefits. An Eligible Employee shall be entitled to severance benefit payments in accordance with the Severance Schedule attached hereto. In addition, an Eligible Employee shall be entitled to certain welfare benefits and enhanced retirement benefits in accordance with the Severance Schedule. Welfare benefits and enhanced retirement benefits shall only be provided pursuant to the Plan in accordance with the provisions of the applicable welfare and retirement plans sponsored by an Employer. 4.2 Payment. Severance Benefits will generally be paid in the form elected by an Eligible Employee under the Plan. An Eligible Employee may elect to receive Severance Benefits in the form of a lump sum cash payment to be made as soon as practicable following Termination Based on Employer Action or in a specified number of periodic payments as provided in the Severance Schedule. All payments will be made from an Employer's general assets. Severance Benefits will commence upon the Eligible Employee's Termination Based on Employer Action following a notification period of no less than sixty (60) days (the "Notification Period"). At the Employer's sole discretion, an Eligible Employee may or may not be required to report to his or her usual work location and to continue to perform his or her regular duties during the Notification Period. Payment of Severance Benefits is conditioned upon the execution of a release in accordance with the provisions of Section 4.4. 4.3 Withholding. An Employer shall withhold from any Severance Benefits paid hereunder all federal and state income, FICA and other employment taxes, and any other amounts - 4 - required or permitted to be withheld under any agreement with the Eligible Employee, applicable law or other employee benefit plans of an Employer. 4.4 Payments Conditioned on Release. Except as otherwise provided in this Section 4.4, eligibility for the receipt of any and all Severance Benefits under the Plan is expressly conditioned upon the execution by an Eligible Employee of a comprehensive settlement agreement, waiver and release ("Release"), in a form and manner to be determined in the sole discretion of the Administrator. An Eligible Employee who does not execute such a Release or who revokes such a Release during the applicable revocation period will receive only (i) one week of Base Pay for Non-Officers and two weeks of Base Pay for Officers as described in the Severance Schedule, (ii) access to the Employer's Family Assistance and LifeWorks(R) Programs for a period of ninety (90) days following such Eligible Employee's Termination date and basic outplacement assistance, and (iii) the opportunity to work with a recruiting consultant to perform an internal search for a new position during the Notification Period, and will not be eligible for any other Severance Benefits under the Plan regardless of the reason for Termination. 4.5 Right of Offset. By accepting Severance Benefits under the Plan, an Eligible Employee agrees that the Administrator, in its sole discretion, may withhold from any amounts payable under the Plan any amounts owed to the Employer by the Eligible Employee. 4.6 Reduction for Other Severance Payments. The amount of Severance Benefits to which an Eligible Employee is otherwise entitled under the Plan upon a Termination Based on Employer Action shall be reduced by the amount, if any, of any other severance payments payable by reason of such Termination to the Eligible Employee by an Employer under any other plan, program or individual contractual arrangement. 4.7 Death of Eligible Employee. If an Eligible Employee dies after his or her date of Termination Based on Employer Action under this Plan and prior to the receipt of all Severance Benefits to which he or she is entitled under the Plan, any such remaining Severance Benefits shall be paid on his or her behalf in the form of a single, lump sum cash payment to the Eligible Employee's estate or to the court presiding over the deceased Eligible Employee's estate, if in the opinion of the Administrator, the administration of the estate is in dispute. If an Eligible Employee dies, after the beginning of his or her Notification Period but before his or her date of Termination Based on Employer Action, no Severance Benefits or other payments of any kind will be made to him or her or on his or her behalf under this Plan at any time. Instead, such pay and/or benefits as are provided upon the death of any other active Employee shall be payable with respect to such deceased Eligible Employee. 4.8 Reemployed Eligible Employees. If an Eligible Employee has a Termination of employment and he or she is later reemployed by an Employer, his or her prior service with the Employer will be treated as follows for Plan purposes if his or her employment is terminated under the Plan following such reemployment: (i) If such Eligible Employee is reemployed within a year of the prior Termination date, the period of absence and such Eligible Employee's prior service as of the prior Termination date will be considered - 5 - continuous service for purposes of determining eligibility for and the amount of Plan benefits under the Plan. (ii) If such Eligible Employee is reemployed more than one year after the prior Termination date, neither such Eligible Employee's prior service nor the period of absence will be considered as service for any purpose under the Plan. Instead, such former Eligible Employee's date of reemployment with an Employer will determine such Employee's subsequent eligibility for and amount of Plan benefits under the Plan, if any. ARTICLE V --------- Plan Administration 5.1 Operation and Administration of Plan by the Administrator. The Administrator shall have the complete authority to control and manage the operation and administration of the Plan. The Administrator has full and exclusive discretionary authority to: a. construe and interpret the provisions of the Plan; b. adopt any rules, procedures and forms necessary for the operation and administration of the Plan; c. determine all questions relating to the eligibility, benefits and other rights of Employees under the Plan; d. keep all records necessary for the operation and administration of the Plan; e. designate or employ agents (who may also be Employees of an Employer) and delegate to such agents the exercise of one or specific powers of the Administrator; f. delegate any or all of its authority under the Plan to any individual, organization or committee either within an Employer or an unrelated third party; and g. retain any legal, accounting or other expert advisers (who may also be advisers to an Employer) in connection with the Administrator's operation and administration of the Plan. 5.2 Reliance on Documents, Instruments, etc. The Administrator may rely on any certificate, statement or other representation made on behalf of an Employer or any Employee which it in good faith believes to be genuine, and on any certificate, statement, report or other representation made to it by any agent or any attorney, accountant or other expert retained by it or an Employer in connection with the operation and administration of the Plan. 5.3 Administrative Expenses. All expenses of operating and administering the Plan, including, but not limited to, fees of any agents and experts retained by the Administrator under Sections 5.1 and 5.2, will be paid by the Employers. - 6 - 5.4 Bond, Compensation, Indemnification of Administrator. No bond or other security will be required of the Administrator except as provided by law. No compensation will be paid to any person for performing his or her duties as Administrator. If the Administrator is not an Employer, the Administrator will be indemnified by the Corporation for any liabilities (including legal expenses) arising from any act or failure to act which is done in good faith in accordance with the Plan's provisions. 5.5 Claims. Any person (a "claimant") may make a claim for benefits under the Plan by filing a written request for benefits with the Administrator. If the claim is wholly or partially denied, the Administrator will cause the claimant to receive written or electronic notice of the adverse benefit determination within ninety (90) days after receipt of the claim. Notice of an adverse benefit determination shall be written in a manner calculated to be understood by the claimant and shall contain (1) the specific reason or reasons for the adverse benefit determination, (2) a specific reference to the pertinent Plan provisions upon which the adverse determination is based, (3) a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary, and (4) an explanation of the Plan's review procedures and the time limits applicable to such procedures including a statement of the claimant's right to bring a civil action under section 502(a) of ERISA following an adverse benefit determination. If the Administrator determines that an extension of time is necessary for processing the claim, the Administrator shall notify the claimant in writing or electronically of such extension, the special circumstances requiring the extension and the date by which the Administrator expects to render the benefit determination. In no event shall the extension exceed a period of ninety (90) days from the end of the initial ninety (90) day period. If notice of the denial of a claim is not furnished within ninety (90) days after the Administrator receives it (or within one hundred and eighty (180) days after such receipt if the Administrator determines an extension is necessary), the claim shall be deemed denied and the claimant shall be permitted to proceed to the review stage described in Section 5.6. 5.6 Appeals. Within sixty (60) days after the claimant receives the written or electronic notice of an adverse benefit determination, or the date the claim is deemed denied pursuant to Section 5.5, the claimant may file a written request with the Committee that it conduct a full and fair review of the adverse benefit determination. In connection with the claimant's appeal of the adverse benefit determination, the claimant may review pertinent documents and may submit issues and comments in writing. The Committee shall render a decision on the appeal within sixty (60) days after the receipt of the claimant's request for review, unless special circumstances require an extension of time for processing, in which case the sixty (60) day period may be extended to one hundred and twenty (120) days. The Committee shall notify the claimant in writing or electronically of any such extension, the special circumstances requiring the extension, and the date by which the Committee expects to render the determination on review. The Committee shall notify the claimant of its decision in writing or electronically. In the case of an adverse determination, such notice shall (1) include specific reasons for the adverse determination, (2) be written in a manner calculated to be understood by the claimant, (3) contain specific references to the pertinent Plan provisions upon which the benefit determination is based, (4) contain a statement that the claimant is entitled to receive upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant's claim for - 7 - benefits, and (5) contain a statement of the claimant's right to bring an action under Section 502(a) of ERISA. 5.7 Rules Governing Claim and Appeal Procedures. The Administrator or the Committee may adopt additional rules for implementing the claim and appeal procedures under the Plan, so long as they are consistent with Department of Labor Regulation (S)2560.503-1 or any applicable successor to such regulation. ARTICLE VI ---------- General Provisions 6.1 Amendment and Termination. The Corporation may at any time and without prior notice amend or terminate the Plan, provided, that in no event shall any such amendment or termination in any manner affect the entitlement to Severance Benefits of an Eligible Employee who became eligible for such Severance Benefits prior to the date of such amendment or termination. 6.2 Governing Law. To the extent not preempted by ERISA or any other federal law, the Plan shall be governed by and construed in accordance with the laws of Illinois, excluding conflicts of laws provisions. 6.3 Nonassignability. Severance Benefits under the Plan may not be assigned or alienated by any Employee. 6.4 Gender and Number. Unless the context clearly indicates otherwise, words in any gender will include any other gender, words in the singular will include the plural and words in the plural will include the singular. 6.5 Severance Benefits Not Compensation. The period for which Severance Benefits are paid and the Severance Benefits provided under the Plan shall not constitute employment, compensation or salary for purposes of determining eligibility, entitlement to benefits or the amount of benefits under any other employee benefit plan of an Employer. 6.6 Severability. Any provision in the Plan that may be unenforceable will be deemed severed from the remainder hereof, with such remaining provisions being given full force and effect. 6.7 Effective Date: The Plan is effective as of March 1, 2002. IN WITNESS WHEREOF, the Corporation has caused the Northern Trust Corporation Severance Plan to be executed on its behalf by its duly authorized officer this 30th day of April, 2002. NORTHERN TRUST CORPORATION By: /s/ Timothy P. Moen ------------------- Timothy P. Moen Executive Vice President - 8 - Severance Schedule for Termination By Employer Action*
- --------------------------------------------------------------------------------------------------------- SEVERANCE BENEFITS PAYMENTS** - --------------------------------------------------------------------------------------------------------- Official Status Years of Service - --------------------------------------------------------------------------------------------------------- Less than 3 Years Greater than or equal to 3 Years Greater than or equal to 25 Years but less than 25 Years - --------------------------------------------------------------------------------------------------------- Officer* 4 weeks of Base Pay 2 weeks of Base Pay per completed 52 weeks of Base Pay Year of Service - --------------------------------------------------------------------------------------------------------- Non-Officer* 2 weeks of Base Pay 1 week of Base Pay per completed 26 weeks of Base Pay Year of Service - ---------------------------------------------------------------------------------------------------------
**Minimum Severance Benefits Pay is 2 weeks of Base Pay and Maximum Severance Benefits Pay is 52 weeks of Base Pay. Total Severance Benefits payments may not exceed twice an Eligible Employee's annual Base Pay in the year prior to Termination. Severance Benefits Payments and any COBRA Subsidy will be paid either as a lump sum or in periodic payments in accordance with the Employer's regular payroll cycle, as elected by the Eligible Employee. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WELFARE BENEFITS - -------------------------------------------------------------------------------- COBRA Continuation Coverage: An Eligible Employee and eligible dependents have the right to continue medical, dental and vision coverage in accordance with the time periods set forth under the provisions of the federal Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). Medical, dental and vision coverage will automatically cease on the last day of the month in which an Eligible Employee's Termination of employment occurs unless an Eligible Employee elects such continuation coverage under the provisions of COBRA. The costs of such coverage shall be payable by the Eligible Employee for the duration of the COBRA coverage, to be paid monthly by personal check, as the premiums become due. - -------------------------------------------------------------------------------- COBRA Subsidy*: The Employer shall provide a COBRA subsidy payment to assist the Eligible Employee in paying the costs of coverage under applicable employee welfare benefit plans (medical and dental). The amount of the COBRA subsidy payment shall equal the difference between an Eligible Employee's active employee medical and/or dental premium(s) as of the first day of the Notification Period (described in Section 4.2) and the rate under COBRA on such date, including the 2% administrative fee, multiplied by the number of weeks to which an Eligible Employee is eligible for Severance Benefits Payments as described above. The COBRA subsidy payment shall be made in same form as the Severance Benefits Payments, in accordance with the Eligible Employee's election under Section 4.2 to receive payment in the form of a lump sum or in periodic payments. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Outplacement Assistance*: Varied levels of outplacement assistance will be offered through a firm selected by the Employer. Outplacement assistance will be available immediately following the Eligible Employee's Termination of employment or last day worked, whichever occurs first. The level and duration of outplacement assistance will be determined by an Eligible Employee's official status in accordance with the Employer's policies and practices. In order to use outplacement assistance, an Eligible Employee must begin outplacement assistance no later than 30 days after Termination of employment. - -------------------------------------------------------------------------------- Non-contributory Life Insurance, Business Coverage ends upon Termination. Travel, Workers Compensation - -------------------------------------------------------------------------------- Contributory Life Insurance, Dependent Coverage ends on the last day Life Insurance, 24-Hour Accident Insurance of the month for which a premium contribution from an Eligible Employee's salary was made. - -------------------------------------------------------------------------------- Health Care Account, Day Care Account Eligible Employees may submit claims for expenses incurred prior to Termination date in accordance with applicable plan terms and administrative requirements. Claims must be submitted prior to end of first quarter of the year following Termination. Health Care Account may be extended on after-tax basis through a valid COBRA election. - -------------------------------------------------------------------------------- Educational Assistance* Existing tuition reimbursement repayment obligations will be waived. At the Eligible Employee's Termination of employment, if enrolled and attending course(s), the Eligible Employee will be reimbursed in accordance with the Educational Assistance Program. - -------------------------------------------------------------------------------- Short-Term Disability, Long-Term Disability Coverage ends upon Termination, unless disabled on the date of Termination. If disabled on the date of Termination, coverage will generally continue until individual determined to be medically able to return to work, in accordance with applicable disability plan terms. See also Plan Section 3.3 (ii) and (iii). - -------------------------------------------------------------------------------- Family Assistance and LifeWorks(R) Programs Eligible Employees will have access to these programs for 90 days following Termination. - -------------------------------------------------------------------------------- - 2 - - -------------------------------------------------------------------------------- ENHANCED RETIREMENT AND OTHER BENEFITS - -------------------------------------------------------------------------------- Pension Plan, TIP and ESOP* Enhanced retirement eligibility, vesting and related benefits will be provided in accordance with the applicable retirement plans. - -------------------------------------------------------------------------------- Stock Options* Enhanced vesting and other benefits may be provided in accordance with the applicable stock option plan and the Eligible Employee's stock option agreements. - -------------------------------------------------------------------------------- *NOTE: Eligibility for receipt of all benefits is conditioned on execution (and non-revocation) of a settlement agreement, waiver and release ("Release") in accordance with Section 4.4., provided that an Eligible Employee who does not execute (or who revokes within the revocation period) such a Release shall be entitled to (i) severance benefits, payable in the form of a lump sum, in the amount of one (1) week of Base Pay for non-officers and two (2)weeks of Base Pay for officers, (ii) access to (A) the Employer's Family Assistance and LifeWorks(R) Programs for 90 days following Termination and (B) basic outplacement assistance and (iii) the opportunity to work with a recruiting consultant to perform an internal search for a new position during the Notification Period. - 3 - EX-99 10 dex99.txt WILLIAM A. OSBORN REMARKS Exhibit 99 EDITED VERSION OF REMARKS DELIVERED BY MR. WILLIAM A. OSBORN AT THE ANNUAL MEETING OF STOCKHOLDERS OF NORTHERN TRUST CORPORATION HELD APRIL 16, 2002 FORWARD-LOOKING STATEMENTS Before I begin, let me note that this presentation may include forward-looking statements like those described in the projected slide. Our 2001 annual report and periodic reports to the SEC contain information about specific factors that could cause actual results to differ from these statements, and you are urged to read them. OVERVIEW Despite an extremely challenging environment, net income in 2001 increased to $487.5 million from $485.1 million in 2000. 2001 was the fourteenth consecutive year of record earnings for Northern Trust. Revenue growth moderated during the year, increasing 3% from 2000 levels to $2.2 billion. Our revenue mix continues to be an attractive one, with 71% of revenues generated by trust and other fees and net interest income contributing 29%. In addition, in 2001 we posted our 18th consecutive year of record net interest income. Since 1997, the compound annual growth rate in net income is 12%. Revenues since 1997 have grown 12.4% annually, while expenses have grown 11.8%. During 2001 we met or exceeded two of our three annual strategic financial goals. Return on average common equity was 19.3%, reaching our target range of 18 to 20 percent for the sixth consecutive year. Our extremely effective management of expenses resulted in a record productivity ratio of 162%, which exceeded our target of 160%. After six consecutive years of exceeding our earnings per share growth target of 10%, we fell short of the goal in 2001 with EPS growth of 1%. Let me review why our revenue growth moderated to 3%. As you know, trust fees are the single largest component of Northern's revenue profile - accounting for 55% of total revenues and are the driver of our revenue growth. Our trust fees have grown by a combination of net new trust fee business plus or minus the impact of the markets on our trust assets. As you can see from the chart, over the last 10 years, 2000 and 2001 were the only back-to-back declines in the equity markets, and the first since 1973 and 1974. While the market decline impacts both our corporate and personal trust assets, it has been particularly difficult on the personal side, where we have approximately 50% of our $96 billion of managed assets in equities. So, even though we added more relationships, assets and transactions in our businesses, the negative impact of the market on our fees was a strong drag to overcome. As a result, our trust fees were up only 3% during 2001, which is quite unlike the profile of the past decade. However, the fact that our trust fees were up is an indication that we are not solely an equity manager. Of our total trust assets under management, only 34% are in equities, the remainder being fixed income and cash. And, fortunately we continued to generate strong new business. The basis of our optimism and confidence in the future is that we continue to have sales success in our target markets. The key enabling us to continue that growth is our ability to win new business at an impressive rate. While net new business sold during 2001 moderated due to lower asset values and weak economic conditions, it still totaled $134 million and was equivalent to 11% of total trust fees. This allowed us to report trust fee growth in a period when the equity markets were down dramatically. Our ability to effectively manage expenses was another key to our performance last year. In the four years prior to 2001, our average annual expense growth was 15%. During 2001 we pulled back that expense growth to only 2%. It is important to realize that we achieved this level of expense management without layoffs and we maintained our platform of highly experienced and talented people. Consequently, we are very well positioned to continue to grow the business as the economy and markets turnaround. Controlling expense growth to just 2% allowed us to achieve positive operating leverage for the seventh consecutive year. A major factor impacting us during 2001 was the large increase in our provision for loan losses, from $24 million in 2000 to $66.5 million in 2001 - an increase of $42.5 million. During the fourth quarter, we took a loan provision of $45 million - more than half of which related to charging off part of our exposure to Enron Corp. In total, we have $43.5 million of exposure to Enron with $24.5 million being unsecured and $19 million secured. We charged off $24.1 million which addressed our exposure in both the secured and unsecured credits. We took the provision to address aggressively our credit exposure to Enron as well as other credit risks stemming from the economic recession. We are often asked why we are in the lending business. Frankly, our clients want us to be. It is one part of the complete financial relationship we strive to develop with clients on both the personal and corporate sides. We have made good money by being in this business. It is important to remember the profile of our loan portfolio. Loans account for only 50% of our total assets. Secondly, residential mortgages of $7.4 billion represent 41% of our loan portfolio. When personal loans are added to that, our total loans to personal clients amount to 53% of overall loans. Losses on the residential and personal loan portfolio have been nearly non-existent. As a result of our aggressive action in dealing with our loan portfolio during the fourth quarter, we ended 2001 with an asset quality which was stronger than it was at the end of the Third Quarter. Nonperforming assets actually declined $6.3 million during the quarter to $109.5 million, while our reserve for credit losses increased by $3.6 million to $161.7 million. $66 million, or 60%, of our nonperforming assets at year end were concentrated in four borrowers - Enron Corp. and three bankrupt asbestos producers - USG, Owens Corning, and W.R. Grace. I want to point this out to highlight that apart from these special situations, only $43 million of the remainder of our almost $18 billion loan portfolio is nonperforming. With nonperforming assets representing only 0.61% of total loans at year-end, our credit quality remains in a leadership position within our peer group. PERSONAL FINANCIAL SERVICES Now, let me briefly review our two client-focused businesses. Our personal business and our corporate and institutional business each account for approximately half of our revenues and profits. In Personal Financial Services, our mission is to deliver high-touch trust, investment management and banking services to individuals in affluent markets. We are truly a leader in this market. At year-end in PFS, we administered $167 billion of trust assets and had investment discretion for $94 billion of those assets. PFS trust fees totaled $615 million. Ten years ago we had only 38 offices in 5 states. Our PFS network now stands at 82 offices in 12 states. This gives us a one-of-kind distribution capability for personal trust and private banking services. No one else has this kind of presence in this market. We are in close proximity to approximately 30% of the nation's millionaire population. Over the next 5 years, this affluent segment of the population is expected to grow at nine times the rate of the general population. So, we see many growth opportunities in this business. We will continue to fill in and enhance our existing markets with additional locations and renovated offices. We will also continue to look opportunistically at new markets. Our goal is to have 100 offices by the end of 2005. CORPORATE & INSTITUTIONAL SERVICES Corporate & Institutional Services accounts for the other half of our revenues and profits. In C&IS, we provide trust, custody, investment and banking services to corporations and institutions around the world. Last year, C&IS trust fees totaled $616 million. With $1.52 trillion in assets under administration at year end, 97 countries in our subcustodian network, and clients in 37 countries, we continue to be a market leader with a strong and growing global presence. Providing trust and custody services to institutional investors outside the U.S. is the fastest growing segment of the C&IS business. Over the last two years, global custody assets have grown over 45 percent and stood at $452 billion at year-end. The C&IS international client base has increased by almost 50 percent over the last five years. NORTHERN TRUST GLOBAL INVESTMENTS Our investment organization, Northern Trust Global Investments, is a global, multi-asset class investment manager. As one of the largest investment managers in the world, NTGI follows a highly focused strategy that continued to contribute to our success in 2001. Despite the very challenging investment environment during 2001, NTGI's asset base declined only slightly to $330 billion from $338 billion a year earlier. Pensions & Investments magazine ranks us as the 15th largest U.S. money manager, as well as the 12th largest institutional asset manager. In addition, we were ranked the 5th largest U.S. tax exempt money manager and the 7th largest index manager. Our mutual fund assets at year-end, totaling $44 billion, ranked us as the 5th largest bank-run mutual fund family. TECHNOLOGY Worldwide Operations and Technology supports the business efforts of both our PFS and C&IS businesses by developing and implementing innovative technologies and systems to meet the sophisticated needs of our clients worldwide. Our strategy of a single technology platform has enabled us to effectively leverage our capabilities across our businesses. This distinguishes us as a cost-effective technology leader in the financial services industry. There are only a handful of companies that have the ability to do what we do. Our technology is the driver of our competitive advantage. During the past three years, we spent $800 million on technology. For the years 2002 through 2004, we estimate an expenditure of $950 million. Clearly, we are still investing in our technology platform and it demonstrates our desire to remain a leader. FIRST QUARTER PERFORMANCE Now let's review the First Quarter results. Yesterday we reported earnings per share of $.56 for the quarter, an increase of 2% from a year ago. Although the economic environment remained a difficult one, we were pleased to report an increase in our quarterly earnings. We achieved this by our continued aggressive focus on managing expenses, which were flat as compared to last year. Revenue growth was also flat, with weakness in foreign exchange trading results offsetting the 4% increase in trust fees. Trust assets under administration totaled $1.72 trillion, an increase of 4% from a year ago, and assets under management grew slightly to $337.7 billion. STOCK PERFORMANCE During 2001, the performance of Northern Trust stock was a disappointment with a decline of 26% for the year. However, the long-term track record of our common stock remains solid. For the period beginning at the end of 1996 through the end of 2001, Northern Trust stock has appreciated 232%. That compares extremely favorably to the S&P 500 which was up 55% for the same period, as well as the Keefe, Bruyette & Woods 50 Bank Index which was up 57%. On an annualized basis, Northern stock was up 27% per year, while the S&P 500 and KBW50 were both up only 9% per year. Our PE ratio continues to rank among the leaders in our peer group with our stock closing 2001 at a PE multiple of 28.5 times earnings. CLOSING For more than 113 years, Northern Trust has stood as a symbol of strength and stability in an ever-changing environment. Even during these challenging times, Northern continues to deliver outstanding service by remaining true to our standards: unrivaled trust, investment, and banking services; uncompromising integrity; unquestioned financial strength; and an unparalleled client focus. Despite the difficult environment facing the financial services industry today, we see many reasons for continued confidence in Northern's success: ... We have experienced continous growth in capital and at times like these capital strength matters. At the end of 2001, our capital reached $2.8 billion - four times our level of $700 million in 1990. ... Our unrivaled business focus to provide high-quality trust, custody, investment management and banking services has been the most important factor contributing to our success - resulting in 14 consecutive years of record earnings and more than 100 consecutive years of annual dividend payments to our shareholders. ... Our growth in trust assets has been extraordinary - a 15-fold increase in the past 16 years. ... We are a leader within our peer group in asset quality. At year-end, our nonperforming assets were 0.61% of our total loans - less than half of the 1.49% ten years earlier in 1991. ... Our balance sheet is exceptionally liquid. It is during these challenging times when balance sheets matter most and ours is one of the most liquid in financial services. U.S. Government securities account for 40% of our investments and loans and leases represent only 50% of our total assets. ... Northern Trust has top-tier credit ratings. In fact, our "AA-" senior debt rating from Standard & Poor's has been awarded to only 5 U.S. bank holding companies. In closing, I would like to thank our employees for their hard work and dedication. They were truly at their best in 2001. They rose to the challenge of delivering exceptional service during a truly challenging year. I would also like to thank our clients for their confidence and trust in choosing Northern Trust. I would like to thank our Board of Directors for their advice, counsel and support during this turbulent time. We continue to be very optimistic about your company. Given the strong support of our clients, staff and directors, we look forward to the future with confidence. Finally, I would like to ask Jim Mitchell to stand. Jim is a 38-year veteran of Northern, and currently serves as President of the Worldwide Operations & Technology business unit. He has announced his intention to retire at the end of May. I want to express my personal appreciation to Jim for his leadership, his vision, his caring for our people and our clients, and the high standard he has set while leading our operations and technology areas through a dramatic period of growth and change. Jim, we will miss you. * * * * Mr. Osborn's above remarks may be deemed to include forward-looking statements such as statements that relate to Northern Trust's financial goals, dividend policy, expansion and business development plans, business prospects and positioning with respect to market and pricing trends, new business results and outlook, changes in securities market prices, credit quality, planned capital expenditures and technology spending, and the effect of any extraordinary events and various other matters (including changes in accounting standards) on Northern Trust's business and results. These statements speak of Northern Trust's plans, goals, beliefs, and expectations, refer to estimates or use of similar terms. Actual results could differ materially from those indicated by these statements because the realization of those results is subject to many risks and uncertainties. Our 2001 annual report and periodic reports to the SEC contain information about specific factors that could cause actual results to differ, and you are urged to read them. -----END PRIVACY-ENHANCED MESSAGE-----