<PAGE>

-------------------------------------------------------------------------------
 
                       Securities And Exchange Commission
                             Washington, D.C. 20549

                                      1995

                                   Form 10-K
(Mark One)
   [X]          Annual Report Pursuant To Section 13 or 15(d) of
                      The Securities Exchange Act of 1934
                                 [Fee Required]

 For the fiscal year ended December 31, 1995     Commission file number 0-18179
--------------------------------------------------------------------------------
                                       or
   [ ]         Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                               [No Fee Required]

                             Harris Bankcorp, Inc.
             ------------------------------------------------------   
             (Exact name of registrant as specified in its charter)

                Delaware                                 36-2722782
      ----------------------------        ------------------------------------  
      (State or other jurisdiction        (I.R.S. Employer Identification No.)
    of incorporation or organization)


        111 West Monroe Street, Chicago, Illinois                 60603
        -----------------------------------------               ----------  
        (Address of principal executive offices)                (Zip Code)


                                  312/461-2121
             -----------------------------------------------------
              (Registrant's telephone number, including area code)
          Securities registered pursuant to Section 12(b) of the Act:

                                      None

          Securities registered pursuant to Section 12(g) of the Act:

                      Common Stock, $8 par value per share
                                        
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes  X    No 
                                      -----    -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

All voting stock (6,667,490 shares of Common Stock, $8 par value) is owned by
Bankmont Financial Corp. as a result of the September 4, 1984 merger between
Harris Bankcorp, Inc. and Bank of Montreal. Bankmont Financial Corp. is a
wholly-owned Delaware subsidiary of Bank of Montreal.

The Registrant meets the conditions set forth in General Instruction (J)(1)(a)
and (b) of Form 10-K and is therefore filing this Form with a reduced disclosure
format.

                      Documents incorporated by reference:
                                      None
-------------------------------------------------------------------------------

<PAGE>
 
<TABLE>
<CAPTION>
 
<S>           <C>      <C>                                                                                      <C>
 
Form 10-K Cross Reference Index                                                                                 Page
----------------------------------------------------------------------------------------------------------------------
Part I        Item 1   Business...............................................................................     2
              Item 2   Properties.............................................................................     4
              Item 3   Legal Proceedings......................................................................     4
              Item 4   Submission of Matters to a Vote of Security Holders (during the fourth quarter of 1995)     4
----------------------------------------------------------------------------------------------------------------------
Part II       Item 5   Market for Registrant's Common Equity and Related Stockholder Matters..................     4
              Item 6   Selected Financial Data................................................................     5
              Item 7   Management's Discussion and Analysis of Financial Condition and Results of Operations..     7
              Item 8   Financial Statements and Supplementary Data:
                       Quarterly Financial Data...............................................................    33
                       Consolidated Statement of Income.......................................................    34
                       Consolidated Statement of Condition....................................................    35
                       Statement of Changes in Stockholder's Equity...........................................    36
                       Consolidated Statement of Cash Flows...................................................    37
                       Notes to Financial Statements..........................................................    38
                       Explanation of Joint Independent Auditors' Reports.....................................    57
                       Independent Auditors' Reports..........................................................    58
              Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...    59
----------------------------------------------------------------------------------------------------------------------
Part III      Item 10  Directors and Executive Officers of the Registrant.....................................    60
              Item 12  Security Ownership of Certain Beneficial Owners and Management.........................    61
----------------------------------------------------------------------------------------------------------------------
Part IV       Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K........................    61
----------------------------------------------------------------------------------------------------------------------
Signatures....................................................................................................    62
----------------------------------------------------------------------------------------------------------------------
 
</TABLE>

                                       1
<PAGE>

------------------------------------------------------------------------------- 
Part I

ITEM 1-BUSINESS

Business Overview

Harris Bankcorp, Inc. ("Bankcorp") is a Delaware multibank holding company
headquartered in Chicago. Bankcorp is a wholly-owned subsidiary of Bankmont
Financial Corp. ("Bankmont"), a wholly-owned U.S. subsidiary of Bank of Montreal
("BMO"). On October 1, 1994, Bankmont also became the parent company for Harris
Bankmont, Inc. (formerly Suburban Bancorp, Inc.), a Chicago area multibank
holding company with assets of $1.5 billion at December 31, 1994. The
transaction added 13 banks and 30 locations in Illinois in addition to those
owned by Bankcorp.

     Bankcorp provides banking, trust and other services domestically and
internationally through 14 bank and 17 active nonbank subsidiaries. The bank
subsidiaries include Harris Trust and Savings Bank; Harris Bank Barrington,
N.A.; Harris Bank Frankfort; Harris Bank Glencoe-Northbrook, N.A.; Harris Bank
Hinsdale, N.A.; Harris Bank Libertyville; Harris Bank Naperville; Harris Bank
Roselle; Harris Bank Argo; Harris Bank Wilmette, N.A.; Harris Bank Winnetka,
N.A.; Harris Bank St. Charles; Harris Bank Batavia, N.A.; and Harris Trust Bank
of Arizona. All bank subsidiaries, with the exception of Harris Trust Bank of
Arizona, are located in Illinois. Nonbank subsidiaries consist of trust
companies and other specialized financial services companies. The trust
companies include Harris Trust Company of California, Harris Trust Company of
Florida, Harris Trust Company of New York and Bank of Montreal Trust Company.
They provide specialized nondeposit services, notably stock transfer and
indenture trust. Other principal nonbank subsidiaries, Harris Investors Direct,
Inc., a discount brokerage company, and Harris Investment Management, Inc., a
registered investment adviser, are headquartered in Chicago. Throughout this
Form 10-K ("Report"), the term "Corporation" refers to Harris Bankcorp, Inc. and
subsidiaries.

     Bankcorp's lead bank subsidiary is Harris Trust and Savings Bank ("HTSB"),
an Illinois state-chartered bank with its principal office, three domestic
branch offices, an international banking facility and two automatic banking
centers located in Chicago. Additionally, HTSB has representative offices in Los
Angeles, New York and Tokyo; foreign branch offices in Nassau and London; and an
Edge Act subsidiary, Harris Bank International Corporation ("HBIC"), in New
York.

     HTSB provides a variety of banking and financial services to commercial and
industrial companies, financial institutions, governmental units, not-for-profit
organizations and individuals throughout the U.S. and abroad. Services rendered
and products sold to customers include numerous types of demand, savings and
time deposit accounts; negotiable certificates of deposit; various types of
loans including term, real estate and those under lines of credit and revolving
credit facilities; sales and purchases of foreign currencies; interest rate
management products including swaps, forward rate agreements and interest rate
guarantees; cash management services including lockbox and controlled
disbursement processing; underwriting of municipal bonds; and financial
consulting. Additionally, HTSB trades foreign currencies and a variety of debt
securities for its own account and utilizes interest rate swaps, financial
futures and options both to manage its risk exposure and as trading vehicles.
Effective April 3, 1995, HTSB and BMO agreed to combine their U.S. foreign
exchange activities ("FX"). Under this arrangement, FX net profit will be shared
by HTSB and BMO in accordance with a specific formula set forth in the
agreement.

     HTSB's overseas activities are conducted through its representative
offices, branches, an international banking facility, Bank of Montreal Trust
Company (Channel Islands), Ltd., and HBIC. Services include various types of
loans and deposits, letters of credit, personal trust services, export and
import financing and foreign exchange products.

     HTSB's Trust Department furnishes a variety of trust services to
individuals, businesses, municipalities and charitable organizations. HTSB acts
as trustee of personal, corporate, pension and other employee benefit trusts;
serves as executor and administrator of estates; provides global custody and
master trust services; and acts as stock and bond registrar and transfer agent,
dividend reinvestment agent and paying agent. On January 11, 1996, HTSB
announced the sale of its securities custody and related trustee services
business for large institutions to Citibank.

                                       2
<PAGE>
 
Effect of Government Policies

The operations of the Corporation are affected by general economic conditions
and the policies of various governmental regulatory authorities. In particular,
the Federal Reserve System regulates money and credit conditions and interest
rates in order to influence general economic conditions, primarily through open
market operations in U.S. Government securities, varying the discount rate on
bank borrowings, setting reserve requirements against financial institution
deposits and prescribing minimum capital requirements for member banks. These
policies have a significant influence on overall growth and distribution of bank
loans, investments and deposits, and affect interest rates charged on loans and
earned on investments or paid for time,  savings and other deposits. Federal
Reserve Board monetary policies have had a significant effect on the operating
results of commercial banks in the past and this is expected to continue. The
effect of such policies upon the future business and earnings of the Corporation
cannot accurately be predicted.

Regulation and Supervision

Bankcorp is a legal entity separate and distinct from its subsidiaries. There
are various legal limitations on the ability of its banking subsidiaries to
finance or otherwise supply funds to Bankcorp or various of its other
affiliates. Note 13 to Financial Statements on page 53 of this Report provides
details with respect to regulatory restrictions on dividends.

     In addition, the banking subsidiaries are subject to certain restrictions
on any extensions of credit to Bankcorp and (with certain exceptions) other
affiliates, on investments in stock or other securities thereof and on the
taking of such securities as collateral for loans. As a bank holding company,
Bankcorp is subject to the Bank Holding Company Act of 1956, as amended, which
generally limits the activities of the holding company and its subsidiaries to
those so closely related to banking or managing or controlling banks as to be a
proper incident thereto.

     Bankcorp and its banking subsidiaries are subject to regulation by various
State and Federal authorities. Applicable laws and regulations relate to
reserves, deposit insurance, investments, loans, mergers and consolidations,
issuance of securities, payment of dividends, capital adequacy and other aspects
of their operations. Bankcorp and its nonbank subsidiaries are affiliates of the
banking subsidiaries within the meaning of the Federal Reserve Act and the
Illinois Banking Act. Certain nonbank subsidiaries including the trust
companies; Harris Investment Management, Inc.; Harris Investors Direct, Inc. and
others are subject to a variety of Federal and state regulations.

     The enactment of the Federal Deposit Insurance Corporation Improvement Act
of 1991, and the regulations adopted to implement its various provisions, have
had a significant effect on commercial banks. Five capital categories ranging
from "well capitalized" to "critically undercapitalized" were defined. Adequate
capital is essential if a bank or thrift is to avoid the statute's prompt
corrective action provisions. Federal regulators adopted safety and soundness
standards covering operations and management, asset quality, earnings and stock
valuation, and compensation. Federal regulations require establishment of annual
independent audits, management's assessment of internal controls over financial
reporting and compliance with designated laws and regulations, independent
auditor reports and independent audit committees. A risk-based assessment system
was designed for the calculation of deposit insurance premiums. Truth-in-savings
regulations, loan-to-value ratios for real estate lending and standards to limit
interbank exposures were adopted. The Corporation's subsidiaries are in
compliance with the statute and its regulations.

Competition

Active competition exists in all principal geographic and product line areas in
which the Corporation is presently engaged. Competitors include other commercial
banks, investment banks, savings and loan associations, finance companies,
credit unions, insurance companies, mutual funds, mortgage banks, investment
managers and advisors, leasing companies, other domestic and foreign financial
institutions and various nonfinancial intermediaries.

Employees

The Corporation and HTSB had full-time equivalent employees of 5,749 and 4,256,
respectively, at December 31, 1995.

                                       3
<PAGE>
 
ITEM 2-PROPERTIES

The Corporation's headquarters and HTSB's main banking premises are located at
111 West Monroe Street, Chicago, Illinois. This bank and office building complex
is comprised of three connected buildings containing a total of approximately
1,590,000 gross square feet. Approximately 56 percent of the rentable space is
committed to use by HTSB. Virtually all of the remaining space in the entire
building complex has been rented to tenants. HTSB holds title to this property.

     HTSB also owns its operations center. This 15-story building contains
approximately 415,000 gross square feet and is totally dedicated to bank use. It
is located at 311 West Monroe Street, Chicago.

     Certain banking subsidiaries, other than HTSB, individually own premises
used to conduct banking business. Nonbank subsidiaries, certain divisions of
HTSB and certain other subsidiaries conduct activities from leased premises.

     In 1990 and 1991, HTSB purchased air rights and a 72,000 square foot parcel
of vacant land in Chicago's downtown business district. Construction plans for a
new operations and office building complex on this site were deferred. For more
information, see Note 5 to Financial Statements on page 43 of this Report.

ITEM 3-LEGAL PROCEEDINGS

For information on the Corporation's legal proceedings, see Note 14 to Financial
Statements on page 53 of this Report.

ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Stockholder during the fourth quarter
of 1995.

-------------------------------------------------------------------------------
Part II

ITEM 5-MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Bankmont presently owns all 6,667,490 shares of the voting stock of Bankcorp,
which are not listed or traded on any securities exchange. In 1995, Bankcorp
declared and paid approximately $262.7 million in cash dividends to Bankmont,
including a $205 million special dividend in connection with the capital
restructuring described below. Dividends amounting to approximately $34.7
million and $56.6 million were declared and paid to Bankmont in 1994 and 1993,
respectively. The 1993 dividend included a $7.2 million dividend-in-kind related
to the transfer of Harris Futures Corporation to Bankmont.

     Effective December 27, 1995, Bankcorp increased its capital base by $40
million. At the same time, Bankcorp adjusted its capital structure to mirror the
capital mix of BMO and more closely resemble its peer group comprising other
major U.S. and Chicago bank holding companies. Bankcorp issued $180 million of
Series A non-voting, callable, perpetual preferred stock and an additional $65
million of long-term subordinated debt, both purchased by Bankmont. The 180
shares of preferred stock have no par value and a stated value of $1.0 million
per share. The dividend rate per annum is 7.25 percent of the stated value per
share. No dividends were accrued or paid on the preferred stock in 1995.
Concurrently, common equity was reduced by $205 million through the declaration
of a special dividend. These actions resulted in a total capital base, including
long-term subordinated debt, of approximately $1.5 billion at December 31, 1995,
and a reduced overall cost of capital for the Corporation.

                                       4
<PAGE>
 
ITEM 6--SELECTED FINANCIAL DATA
<TABLE> 
<CAPTION> 

Comparative Consolidated Statement of Income                                          Harris Bankcorp, Inc. and Subsidiaries
 
(Fully taxable equivalent (FTE) basis, dollars in thousands 
except per share data)  
For the Years Ended December 31                                  1995            1994            1993            1992         1991
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>             <C>           <C>             <C>           <C>
Interest Income
Loans, including fees....................................  $  778,770        $594,265        $515,994        $586,000   $  727,671
Money market assets:
 Deposits at banks.......................................      38,617          30,739          25,212          32,419       51,327
 Federal funds sold and securities purchased
  under agreement to resell..............................      19,330          21,523          17,436          12,560       32,030
Trading account..........................................       4,556           2,796           6,537          21,056       16,790
Securities held to maturity..............................      77,820          87,740         193,487         200,393      210,068
Securities available for sale............................     162,867         121,372              --              --           --
                                                           ----------        --------       ---------        --------   ----------
 Total interest income...................................   1,081,960         858,435         758,666         852,428    1,037,886
                                                           ----------        --------       ---------        --------   ----------

Interest Expense
Domestic deposits........................................     215,276         160,357         143,614         188,082      289,040
Foreign deposits.........................................     143,310          89,645          56,558          64,544      117,289
Short-term borrowings....................................     168,993         108,485          73,043         103,988      152,253
Senior notes.............................................      31,125               -               -               -            -
Long-term notes..........................................      23,005          19,520          26,406          18,933       13,693
                                                           ----------        --------       ---------        --------   ----------
 Total interest expense..................................     581,709         378,007         299,621         375,547      572,275
                                                           ----------        --------       ---------        --------   ----------

Net Interest Income......................................     500,251         480,428         459,045         476,881      465,611
Provision for credit losses..............................      42,995          45,040          62,835          77,560       79,310
                                                           ----------        --------       ---------        --------   ----------
Net Interest Income after Provision for
 Credit Losses...........................................     457,256         435,388         396,210         399,321      386,301
                                                           ----------        --------       ---------        --------   ----------

Noninterest Income
Trust and investment management fees.....................     149,979         148,094         148,809         145,091      131,149
Trading account..........................................       5,110            (396)          5,258          (4,499)       8,403
Foreign exchange.........................................      14,248          19,769          24,302          25,062       14,718
Charge card..............................................      41,788          37,402          36,516          36,355       41,397
Service fees and charges.................................      69,333          73,621          77,774          80,056       60,940
Gain on sales of foreign claims..........................          --              --              --          15,823           --
Securities gains.........................................      23,379           5,254          13,038           4,239        2,578
Other....................................................      34,436          30,700          31,391          32,902       36,254
                                                           ----------        --------       ---------        --------   ---------- 
 Total noninterest income................................     338,273         314,444         337,088         335,029      295,439
                                                           ----------        --------       ---------        --------   ----------

Noninterest Expenses
Employment...............................................     318,302         312,570         305,758         281,562      261,098
Net occupancy............................................      46,099          45,052          46,676          47,673       49,415
Equipment................................................      42,541          42,284          43,396          46,460       42,994
Marketing................................................      25,583          24,632          22,613          20,114       18,810
Communication and delivery...............................      20,251          17,732          17,916          17,970       18,369
Deposit insurance........................................       8,124          15,684          15,047          16,586       15,101
Trust customer charge....................................          --          51,335              --              --           --
Writedown of property held for expansion.................          --              --              --          11,802           --
Other....................................................      99,203          94,839         100,681         123,806      111,788
                                                           ----------        --------       ---------        --------   ----------
 Total noninterest expenses..............................     560,103         604,128         552,087         565,973      517,575
                                                           ----------        --------       ---------        --------   ----------
FTE pretax income........................................     235,426         145,704         181,211         168,377      164,165
Applicable income taxes..................................      70,175          24,528          39,879          22,095       20,773
FTE adjustment...........................................      17,700          23,830          25,489          33,029       39,324
                                                           ----------        --------       ---------        --------   ---------- 
 Income before cumulative effect of a change in
  accounting principle...................................     147,551          97,346         115,843         113,253      104,068
Cumulative effect on prior years (to December 31, 1992) 
 of changing the accounting method for income taxes......          --              --           1,782              --           --
                                                           ----------        --------       ---------        --------   ----------
 Net Income..............................................  $  147,551        $ 97,346       $ 117,625        $113,253   $  104,068
                                                           ==========        ========       =========        ========   ==========

Per Common Share Statistics
Net income...............................................  $    22.13        $  14.60       $   17.64        $  16.99   $    15.61
Dividends................................................       39.40            5.21            8.48            6.62         7.24
Average common shares outstanding (in thousands).........       6,667           6,667           6,667           6,667        6,667

Profitability Ratios
Net income:
 % Average total assets..................................         .95%            .68%            .90%            .86%         .80%
 % Average common stockholder's equity...................       13.61            9.70           12.31           12.71        12.70
Number of Employees at Year-End
 (full-time equivalent basis)............................       5,749           5,655           5,792           5,528        5,401
 
</TABLE>

                                       5
<PAGE>
 
<TABLE>
<CAPTION>
  
Comparative Consolidated Statement of Condition
                                                                                              Harris Bankcorp, Inc. and Subsidiaries

 
(Daily averages, dollars in thousands
except per share data)      Years Ended December 31        1995             1994             1993             1992             1991
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>              <C>              <C>              <C>
Assets
Cash and demand balances due from banks............ $ 1,206,234      $ 1,173,266      $ 1,191,748      $ 1,142,354      $ 1,046,818
Money market assets:
 Interest-bearing deposits at banks................     566,072          686,995          677,565          687,311          699,271
 Federal funds sold and securities
  purchased under agreement to resell..............     330,783          536,185          522,757          338,027          560,936
Portfolio securities:
 Held to maturity..................................     962,245          963,690        2,987,053        2,782,148        2,478,347
 Available for sale................................   2,611,707        2,269,171            7,213                -                -
Trading account assets.............................      64,777           39,812          110,493          250,578          189,622
Domestic loans, net of unearned income.............   8,735,388        7,629,399        6,988,838        7,217,339        7,297,607
Foreign office loans, net of unearned income.......      50,183           43,176           55,970           76,787          110,285
                                                    -----------      -----------      -----------      -----------      -----------
  Total loans......................................   8,785,571        7,672,575        7,044,808        7,294,126        7,407,892
Allowance for possible credit losses...............    (126,041)        (129,377)        (131,243)        (129,739)        (124,618)
Premises and equipment.............................     224,205          223,538          228,992          239,676          240,511
Customers' liability on acceptances................     104,994           80,813           71,844          104,498          112,204
Other assets.......................................     784,524          700,675          367,954          450,640          465,729
                                                    -----------      -----------      -----------      -----------      ----------- 
  Total assets..................................... $15,515,071      $14,217,343      $13,079,184      $13,159,619      $13,076,712
                                                    ===========      ===========      ===========      ===========      =========== 
Liabilities                                         
Demand deposits.................................... $ 2,808,747      $ 2,859,643      $ 2,672,152      $ 2,346,435      $ 2,115,781
Interest checking deposits.........................     629,448          663,598          639,377          602,529          533,783
Money market accounts..............................   1,037,963        1,170,181        1,235,487        1,294,723        1,202,721
Savings deposits and certificates..................   2,442,101        2,189,049        2,164,583        2,272,386        2,411,959
Other time deposits................................     682,320          722,373          756,560          718,140          883,854
Deposits in foreign offices........................   2,435,124        2,110,342        1,813,720        1,638,363        1,931,611
                                                    -----------      -----------      -----------      -----------      -----------
  Total deposits...................................  10,035,703        9,715,186        9,281,879        8,872,576        9,079,709
Short-term borrowings..............................   3,010,753        2,654,891        2,332,260        2,938,501        2,757,009
Senior notes.......................................     512,204                -                -                -                -
Acceptances outstanding............................     105,064           80,818           73,711          104,501          112,395
Other liabilities..................................     465,145          463,736          136,862          150,854          166,244
Long-term notes....................................     299,771          298,745          298,807          202,350          141,711
                                                    -----------      -----------      -----------      -----------      -----------
  Total liabilities................................  14,428,640       13,213,376       12,123,519       12,268,782       12,257,068

Stockholder's equity...............................   1,086,431        1,003,967          955,665          890,837          819,644
                                                    -----------      -----------      -----------      -----------      -----------
 Total liabilities and stockholder's equity........ $15,515,071      $14,217,343      $13,079,184      $13,159,619      $13,076,712
                                                    ===========      ===========      ===========      ===========      =========== 
Ratios (Percentage of total average assets)
Money market assets................................         5.8%             8.6%             9.2%             7.8%             9.6%
Portfolio securities and trading account assets....        23.5             23.0             23.7             23.0             20.4
Loans, net of unearned income......................        56.6             54.0             53.9             55.4             56.6
Deposits...........................................        64.7             68.3             71.0             67.4             69.4
Short-term borrowings..............................        19.4             18.7             17.8             22.3             21.1
Common stockholder's equity........................        7.00             7.06             7.31             6.77             6.27

Selected Year-End Data
Loans, net of unearned income...................... $ 9,517,797      $ 8,229,254      $ 7,703,957      $ 7,082,861      $ 7,906,892
Allowance for possible credit losses...............     129,259          124,734          131,676          130,123          125,091
Total assets.......................................  15,676,201       15,331,539       13,517,834       12,729,237       14,480,907
Deposits...........................................  10,228,782        9,919,732        9,375,871        8,776,734        9,458,878
Long-term notes....................................     363,952          298,810          298,681          298,813          200,287
Preferred stock....................................     180,000                -                -                -                -
Common stockholder's equity........................     965,776        1,021,154        1,017,672          930,191          861,077

Year-End Common Stockholder's
 Equity per Common Share........................... $    144.85      $    153.15      $    152.63      $    139.51      $    129.15
</TABLE>

                                       6
<PAGE>
 
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Summary

1995 Compared to 1994

The Corporation's 1995 net income was $147.6 million, up 52 percent from $97.3
million in 1994. For 1995, the return on average common equity was 13.6 percent
and the return on average assets was 0.95 percent, compared to returns of 9.70
percent and 0.68 percent, respectively, a year ago. Year to year earnings
comparisons were significantly affected by a one-time $33.4 million after-tax
charge in 1994 resulting from management's decision to absorb the impact of
higher interest rates on mortgage-backed securities held in certain customer
accounts of HTSB's Securities Lending unit. Excluding the effect of the
securities lending charge, returns on average common equity and average assets
were, respectively, 13.0 percent and 0.92 percent in 1994, compared to 13.6
percent and 0.95 percent in 1995; and 1995 earnings increased by 13 percent
compared to 1994. The earnings gain is attributable to strong growth and
business momentum broadly across the Corporation--and in particular loan growth
in corporate banking, community banking and the credit card business; sustained
cost control, overhead reduction and operations consolidation; gains from
securities transactions; and reduced FDIC premiums.

     Net interest income on a fully taxable equivalent ("FTE") basis was $500.3
million in 1995, up $19.9 million or 4 percent from $480.4 million in 1994.
Average earning assets rose 10 percent to $13.33 billion from $12.17 billion in
1994, attributable to an increase of 15 percent or $1.11 billion in average
loans. Net interest margin declined to 3.75 percent in 1995 from 3.95 percent
the previous year, reflecting rate compression in certain asset categories, a
lower mix of noninterest-bearing deposits, and the relationship which existed in
the markets between short and longer term rates.

     Noninterest income increased $23.8 million or 8 percent in 1995, to $338.3
million. In 1995, net gains from the sale of debt securities amounted to $23.4
million, compared to $5.3 million in the prior year. Most of these 1995 gains
were recognized in the second quarter when conditions in the U.S. bond market
led to significant price rallies. This enabled the Corporation to sell certain
U.S. government agency securities and reinvest the proceeds to reposition its
portfolio, taking advantage of profit opportunities not typically available.
Money market and bond trading profits increased by $5.5 million in 1995, while
charge card fees increased $4.4 million, and trust and investment management
revenue rose $1.9 million. Other sources of non-interest income, which include
fees for letters of credit, corporate finance income and gains on asset sales,
increased $3.7 million year to year. Service charges declined by $4.3 million
due to the higher interest rate environment and to customer refunds with respect
to FDIC insurance. Foreign exchange revenue decreased by $5.5 million. This
revenue is now reported net of expenses under a new profit sharing arrangement
with BMO effective April 3, 1995.

     Noninterest expenses in 1995 declined to $560.1 million from $604.1 million
a year ago, reflecting the one-time $51.3 million (pretax) charge in the
securities lending unit in 1994 and lower FDIC insurance premiums in 1995.
Excluding the effect of these two events, noninterest expenses increased by 3
percent.

     Income taxes increased by $45.6 million in 1995, reflecting substantially
higher pretax income and a smaller tax-exempt municipal bond portfolio.

     The 1995 provision for credit losses was $43.0 million, down from $45.0
million in 1994. Net loan charge-offs for the current year were $38.5 million,
down from $52.0 million a year ago, resulting primarily from lower write-offs in
the commercial loan, installment loan and real estate mortgage loan portfolios.

     Nonperforming assets at December 31, 1995 totaled $55 million or 0.6
percent of total loans, down from $94.8 million or 1.15 percent of loans a year
ago. At December 31, 1995, the allowance for possible credit losses was $129
million or 1.4 percent of total loans outstanding, compared with $125 million or
1.5 percent of loans at the end of 1994. As a result, the ratio of the allowance
for possible credit losses to nonperforming assets increased from 132 percent at
December 31, 1994 to 235 percent at December 31, 1995. During the first quarter
of 1995, the Corporation adopted Statement of Financial Accounting Standards
("SFAS") No. 114--Accounting by Creditors for Impairment of a Loan and SFAS No.
118--Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures. SFAS No. 114 addresses accounting by creditors for impairment of
certain loans. It requires that impaired loans within the scope of the statement
(primarily commercial credits) be measured based on the present value of
expected future cash flows (discounted at the loan's effective interest rate)
or, alternatively, at the loan's observable market price or the fair value of
supporting collateral. The Corporation determines loan impairment when assessing
the adequacy of the allowance for possible credit losses. SFAS No. 118 permits
existing income recognition practices to continue. The adoption of these
Statements did not have a material impact on the Corporation's net income or
financial position.

     At December 31, 1995, the Corporation's consolidated equity capital
increased $124.6 million from the prior year-end to $1.15 billion. The increase
resulted from the issuance of $180 million of preferred stock, earnings for the
prior twelve months and $59.8 million of after-tax unrealized holding gains
related to the Corporation's debt and equity securities classified as available
for sale. Also, the Corporation paid $262.7 million of dividends. To support
continued business growth and expansion, Bankcorp increased its capital base by
$40 million, effective December 27, 1995. At the same time, Bankcorp adjusted
its capital structure to mirror the capital mix of BMO and more closely resemble
the Corporation's peer group comprising other major U.S. and Chicago bank
holding companies. Bankcorp issued $180 million of preferred stock and an

                                       7
<PAGE>
 
additional $65 million of long-term subordinated debt, purchased by Bankmont.
Concurrently, common equity was reduced by $205 million through the declaration
of a special dividend. These actions resulted in a total capital base, including
long-term subordinated debt, of approximately $1.5 billion at December 31, 1995,
and a reduced overall cost of capital for the Corporation. On a proforma basis,
had these changes to the Corporation's capital mix occurred on January 1, 1995,
they would have increased the Corporation's 1995 return on average common equity
by approximately 1.4 percent, from 13.6 percent to 15.0 percent.

     The Corporation's regulatory capital leverage ratio was 6.77 percent for
fourth quarter 1995 compared to 7.03 percent one year earlier. Regulators
require most banking institutions to maintain capital leverage ratios of not
less than 4.0 percent. At December 31, 1995, the Corporation's Tier 1 and Total
Risk-based capital ratios were 8.14 percent and 11.79 percent, respectively,
compared to respective ratios of 8.86 percent and 12.49 percent at December 31,
1994. The 1995 year-end ratios substantially exceeded minimum required
regulatory ratios of 4.0 percent and 8.0 percent, respectively.

                                       8
<PAGE>
 
1994 Compared to 1993

The Corporation's 1994 net income was $97.3 million, down 17 percent from $117.6
million in 1993. The earnings decline was primarily caused by the one-time $33.4
million after-tax charge resulting from management's decision in the second
quarter of 1994 to absorb the impact of higher interest rates on mortgage-backed
securities held in certain customer accounts of HTSB's Securities Lending unit.
Excluding the effect of this charge and the favorable benefit in 1993 of a
mandatory accounting change for income taxes, 1994 earnings would have increased
by approximately 13 percent. Returns on average assets and equity in 1994 were
0.68 percent and 9.70 percent, respectively, compared to 1993 returns of 0.90
percent and 12.31 percent.

     FTE net interest income was $480.4 million, up 5 percent from $459.0
million in 1993. Average earning assets, led by loan growth, rose 7 percent from
$11.35 billion in 1993 to $12.17 billion in 1994. However, the positive effects
of higher earning asset levels were somewhat offset by a narrower net interest
margin, which declined to 3.95 percent in 1994 from 4.04 percent in 1993.

     Average loans increased $628 million, or 9 percent, led by increases in
domestic commercial loans, installment loans and charge card outstandings.
Average portfolio securities, which include securities held to maturity and
securities available for sale, increased $239 million, or 8 percent to $3.23
billion, primarily reflecting increased holdings of U.S. Treasury securities.
Money market assets, consisting of interest-bearing deposits at banks, Federal
funds sold and reverse repurchase agreements, were up $23 million compared to
1993. Average levels of trading account assets employed decreased by $70 million
year to year.

     Incremental funding for the growth in average earning assets came mainly
from a $444 million increase in interest-bearing deposits and a $323 million
increase in short-term borrowings. Foreign office time deposits grew by $292
million and other interest-bearing time deposits were up $169 million. Average
noninterest-bearing supporting funds, primarily demand deposits and
stockholder's equity, increased $51 million compared to 1993.

     The Corporation's consolidated net interest margin declined by 9 basis
points to 3.95 percent. Factors causing this decline were rate compression
within certain asset categories, the relative decline in noninterest-bearing
funds, and sales and maturities of portfolio securities where proceeds were
reinvested at slightly lower yields. Positive factors relative to 1993 included
favorable retail spreads, an enrichment in the mixture of earning assets because
of overall loan growth and a restructuring of the Corporation's long-term notes
issued to Bankmont, converting them to a floating rate structure and extending
their maturities by two years.

     Total noninterest income in 1994 was $314.4 million, down $22.6 million or
7 percent from 1993. The most significant factor causing this decline resulted
from sales of portfolio securities. The Corporation realized a $5.3 million net
gain on the sale of certain portfolio securities during 1994, compared to a net
gain of $13.0 million in 1993. Bond and financial instrument trading activities
reported a $.4 million loss in 1994 compared to a $5.3 million profit in 1993.
Foreign exchange income also declined from $24.3 million in 1993 to $19.8
million at year-end 1994. Service fees and charges declined $4.2 million or 5
percent from $77.8 million in 1993 to $73.6 million in 1994.

     Noninterest expenses totaled $604.1 million in 1994, up $52.0 million or 9
percent from 1993. Expenses in 1994 contained the one-time $51.3 million
(pretax) charge in the Securities Lending unit. Expenses in 1993 benefited from
the reversal of $7.2 million of reserves previously recorded for anticipated
costs of customer guarantees that were no longer necessary. Excluding both
special items, expenses would have decreased by 1 percent.
    
     Income tax expense decreased by $13.6 million in 1994, resulting from lower
pretax income. In addition, the Corporation adopted SFAS No. 109--Accounting for
Income Taxes in the first quarter of 1993. The cumulative effect of this change,
approximately $1.8 million, increased 1993 net income.

     The 1994 provision for credit losses of $45.0 million was down from $62.8
million recorded in 1993. Net loan charge-offs were also down from $61.3 million
in 1993 to $52.0 million in 1994. At December 31, 1994, the allowance for
possible credit losses was $125 million, or 1.5 percent of total loans
outstanding, compared to the December 31, 1993 allowance of $132 million, or 1.7
percent of loans. Total nonperforming assets declined to $95 million at December
31, 1994, from $113 million at December 31, 1993.

     At December 31, 1994, the Corporation's consolidated equity capital
increased $3.5 million to $1.02 billion. The increase resulted from earnings for
the prior twelve months less $59.1 million of after-tax unrealized holding
losses related to the Corporation's debt and equity securities classified as
available for sale, and reduced further by $34.7 million of dividends paid. The
Corporation's regulatory capital leverage ratio was 7.03 percent for fourth
quarter 1994 compared to 7.33 percent one year earlier. Regulators require most
banking institutions to maintain capital leverage ratios of not less than 4.0
percent. At December 31, 1994, the Corporation's Tier 1 and total risk-based
capital ratios were 8.86 percent and 12.49 percent, respectively, compared to
respective ratios of 9.00 percent and 13.00 percent at December 31, 1993. The
1994 year-end ratios substantially exceed minimum required regulatory ratios of
4.0 percent and 8.0 percent, respectively.

                                       9
<PAGE>

<TABLE>
<CAPTION>
Net Interest Income                                                                          Harris Bankcorp, Inc. and Subsidiaries

                                                                                                    1995
                                                                        -----------------------------------------------------------
                                                                                                             Interest 1995 vs. 1994
                                                                                                       ----------------------------
                                                                                                                 Increase (Decrease)
                                                                                                                   due to change in
                                                                        Average             Average       Net    ------------------
(Fully taxable equivalent basis, dollars in millions)                   Balance   Interest     Rate    Change    Volume        Rate
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>         <C>        <C>       <C>        <C>        <C>   
Earning Assets/Interest Income
Domestic offices:
Loans, including fees................................................   $ 8,735     $  777     8.89%     $184      $ 92        $ 92
Portfolio securities:
 U.S. Treasury and Federal agency....................................     3,049        189     6.20        46        27          19
 State and municipal.................................................       379         42    11.27       (16)      (12)         (4)
 Other...............................................................       154          9     5.74         1        (1)          2
                                                                        -------     ------               ----
    Total portfolio securities.......................................     3,582        240     6.72        31        23           8
Trading account assets...............................................        65          5     7.03         2         2           -
Interest-bearing deposits at banks...................................         9          1     3.92         -         1          (1)
Federal funds sold and securities purchased under agreement
  to resell..........................................................       276         17     6.01        (2)       (9)          7
                                                                        -------     ------               ----
    Total domestic earning assets/interest income....................    12,667      1,040     8.22       215        99         116
                                                                        -------     ------               ----
Foreign offices:
Loans, including fees................................................        50          2     3.91         1         -           1
Interest-bearing deposits at banks...................................       557         38     6.37         8        (5)         13
Federal funds sold and securities purchased under agreement
  to resell..........................................................        55          2     5.00         -        (1)          1
                                                                        -------     ------               ----
    Total foreign earning assets/interest income.....................       662         42     6.07         9        (5)         14
                                                                        -------     ------               ----
Total domestic and foreign earning assets/interest income............   $13,329     $1,082     8.12       224        87         137
                                                                        =======     ------               ----

Supporting Liabilities/Interest Expense
Domestic offices:
Interest checking deposits...........................................   $   629         14     2.24         1        (1)          2
Money market accounts................................................     1,038         40     3.87         6        (4)         10
Savings deposits and certificates....................................     2,442        122     4.98        40        10          30
Other interest-bearing time deposits.................................       665         40     5.91         9        (1)         10
                                                                        -------     ------               ----
    Total interest-bearing deposits..................................     4,774        216     4.51        56         4          52
Short-term borrowings................................................     2,909        165     5.66        58        18          40
Senior notes.........................................................       512         31     6.08        31        31           -
Long-term notes......................................................       300         23     7.67         3         -           3
                                                                        -------     ------               ----
    Total domestic interest-bearing liabilities/interest expense.....     8,495        435     5.11       148        40         108
                                                                        -------     ------               ----

Foreign offices:
Time deposits........................................................     2,400        143     5.97        54        16          38
Short-term borrowings................................................       101          4     4.31         2         -           2
                                                                        -------     ------               ----
    Total foreign interest-bearing liabilities/interest expense......     2,501        147     5.90        56        14          42
                                                                        -------     ------               ----
Total domestic and foreign interest-bearing liabilities/interest
  expense............................................................    10,996        582     5.29       204        53         151
Other noninterest-bearing supporting liabilities.....................     2,333          -        -         -         -           -
                                                                        -------     ------               ----
Total domestic and foreign supporting liabilities/interest
  expense............................................................   $13,329        582     4.37       204        53         151
                                                                        =======     ------               ----
Total net interest income from domestic and foreign offices..........               $  500     3.75%     $ 20      $ 34        $(14)
                                                                                    ======     ====      ====      ====        ====
</TABLE>
1. Fully taxable equivalent adjustment

Tax-exempt interest income (for Federal purposes) has been restated to a
comparable taxable level. The statutory tax rate used for this purpose was 35
percent in 1995, 1994, and 1993.

2. Interest income

The impact of restructured and nonaccrual loans is reflected in all average
balance, net interest income and related yield calculations. Average balances
include restructured and nonaccrual loans. Interest income and yields on these
assets reflect income recorded on a cash basis.

3. Volume and rate variances

The change in interest income/expense attributable to volume is calculated by
multiplying the annual change in volume by the prior year's rate. The rate
variance is calculated by multiplying the annual change in rate by the prior
year's volume. Any variance attributable jointly to volume and rate changes is
prorated on a weighted basis between volume and rate.

4. Average rate on portfolio securities

Yields on the portion of average portfolio securities classified as available
for sale are based on amortized cost.

                                      10
<PAGE>


<TABLE>
<CAPTION>
                                                                               Harris Bankcorp, Inc. and Subsidiaries

                                                        1994                                        1993
                             ---------------------------------------------------------  -----------------------------
                                                              Interest   1994 vs. 1993
                                                           ---------------------------
                                                                   Increase (Decrease)
(Fully taxable equivalent                                             due to change in
 basis, dollars in            Average            Average       Net  ------------------   Average              Average
 millions)                    Balance   Interest    Rate    Change   Volume    Rate      Balance     Interest    Rate
---------------------------------------------------------------------------------------------------------------------
<S>                          <C>       <C>       <C>       <C>     <C>       <C>        <C>         <C>       <C>
Earning Assets/Interest
 Income
Domestic offices:
Loans, including fees.......  $ 7,629      $593     7.78%    $ 78     $49     $ 29       $ 6,989      $515       7.37%
Portfolio securities:
 U.S. Treasury and Federal
  agency....................    2,582       143     5.53       14       9        5         2,422       129       5.33
 State and municipal........      480        58    12.09       (2)     (1)      (1)          485        60      12.30
 Other......................      171         8     4.85        4       4        -            87         4       5.02
                              -------      ----              ----                        -------      ----
  Total portfolio
   securities...............    3,233       209     6.47       16      16        -         2,994       193       6.46
Trading account assets......       40         3     7.02       (4)     (5)       1           110         7       5.92
Interest-bearing deposits
 at banks...................       12         1     8.73        -      (1)       1            38         1       3.72
Federal funds sold and
 securities purchased
 under agreement to resell..      460        19     4.13        2      (1)       3           499        17       3.36
                              -------      ----              ----                        -------      ----
  Total domestic earning
   assets/interest
   income...................   11,374       825     7.26       92      54       38        10,630       733       6.90
                              -------      ----              ----                        -------      ----

Foreign offices:
Loans, including fees.......       43         1     1.69        -       -        -            56         1       1.27
Interest-bearing deposits
 at banks...................      675        30     4.40        6       2        4           640        24       3.72
Federal funds sold and
 securities purchased
 under agreement to resell..       76         2     3.29        2       2        -            24         1       2.76
                              -------      ----              ----                        -------      ----
  Total foreign earning
   assets/interest income...      794        33     4.14        8       4        4           720        26       3.50
                              -------      ----              ----                        -------      ----

Total domestic and foreign
 earning assets/interest
 income.....................  $12,168       858     7.05      100      58       42       $11,350       759       6.68
                              =======      ----              ----                        =======      ----

Supporting Liabilities/
 Interest Expense
Domestic offices:
Interest checking deposits..  $   664        13     1.99        -       -        -       $   639        13       1.99
Money market accounts.......    1,170        34     2.88        1      (2)       3         1,235        33       2.64
Savings deposits and
 certificates...............    2,189        82     3.78        3       1        2         2,165        80       3.69
Other interest-bearing
 time deposits..............      696        31     4.42       13       7        6           528        18       3.48
                              -------      ----              ----                        -------      ----
  Total interest-bearing
   deposits.................    4,719       160     3.40       17       6       11         4,567       144       3.14
Short-term borrowings.......    2,527       107     4.22       35      10       25         2,256        72       3.18
Long-term notes.............      299        20     6.53       (7)      -       (7)          299        26       8.84
                              -------      ----              ----                        -------      ----
  Total domestic
   interest-bearing
   liabilities/interest
   expense..................    7,545       287     3.80       45      16       29         7,122       242       3.39
                              -------      ----              ----                        -------      ----

Foreign offices:
Time deposits...............    2,072        89     4.33       33      10       23         1,780        57       3.18
Short-term borrowings.......      128         2     1.35        1       -        1            76         1       1.73
                              -------      ----              ----                        -------      ----
  Total foreign
   interest-bearing
   liabilities/
   interest expense.........    2,200        91     4.15       34      10       24         1,856        58       3.12
                              -------      ----              ----                        -------      ----
Total domestic and foreign
 interest-bearing
 liabilities/interest
 expense....................    9,745       378     3.88       79      26       53         8,978       300       3.34
Other noninterest-bearing
 supporting liabilities.....    2,423         -        -        -       -        -         2,372         -          -
                              -------      ----              ----                        -------      ----
Total domestic and foreign
 supporting liabilities/
 interest expense...........  $12,168       378     3.10       79      26       53       $11,350       300       2.64
                              =======      ----              ----                        =======      ----
Total net interest income
 from domestic and
 foreign offices............               $480     3.95%    $ 21     $32     $(11)                   $459       4.04%
                                           ====    =====     ====     ===     ====                    ====      =====
</TABLE>

                                      11
<PAGE>
 
Net Interest Income

Net interest income, the difference between interest and fees recognized on
earning assets and total interest expense, is the major component of operating
income for the Corporation. Since income on certain earning assets may be exempt
from Federal and/or State income taxes, the Management's Discussion and Analysis
section of this Report is prepared on an FTE basis, which, in effect, restates
tax-advantaged income to a comparable level. In 1995, the Corporation's FTE net
interest income was $500.3 million, up 4 percent from $480.4 million in 1994.

     The year-to-year change in net interest income is typically explained by
analyzing its two principal components, average earning assets and net interest
margin. Average earning assets represent the average volume of assets employed
by the Corporation during the year which generate interest income. Net interest
margin is the difference between the overall FTE yield on earning assets and the
average cost of supporting liabilities, including noninterest-bearing funds. For
1995, the Corporation's average earning assets grew 10 percent, while net
interest margin decreased 20 basis points from 3.95 percent in 1994 to 3.75
percent in 1995.

     Average earning assets in 1995 totaled $13.33 billion, up $1.16 billion, or
10 percent, from $12.17 billion in 1994. This growth is primarily the result of
an increase in average loans of $1.11 billion, or 15 percent, to $8.79 billion,
led by increases in average commercial, charge card, real estate and installment
loan outstandings of $608 million (12 percent), $232 million (31 percent), $174
million (14 percent), and $85 million (20 percent), respectively. The growth in
average loans is attributable to both a growing demand for credit in the U.S.
economy and an aggressive marketing effort by the Corporation. Average portfolio
securities increased $349 million, or 11 percent, to $3.58 billion primarily as
a result of increased holdings of Federal agency securities of $542 million.
Loans and portfolio securities, as a percent of earning assets, were 65.9
percent and 26.9 percent, respectively, compared to 63.1 percent and 26.6
percent, respectively, in 1994. Average federal funds sold and securities
purchased under agreement to resell decreased approximately 38 percent, or $206
million, year to year.

     Changes in the mix of total supporting funds are a function of loan demand,
consumer preferences for maintaining funds in so-called core deposits and
wholesale market spreads. The Corporation manages its wholesale funding activity
at the margin primarily by using the least expensive products given requirements
for matched funding, maturity, ability and expected cost to refund, reserve
requirements and deposit insurance costs. Secured borrowings, such as repurchase
agreements, may also depend on availability of collateral. Nearly all major
categories of supporting liabilities increased year to year. The issuance of new
senior notes totaling $512 million accounted for the largest increase in
supporting liabilities. Short-term borrowings rose $356 million or 13 percent
from 1994 levels. Federal funds purchased and securities sold under agreement to
repurchase grew $329 million, representing 93 percent of the growth in short-
term borrowings. Domestic interest-bearing deposits increased $56 million, or 1
percent, from one year ago. Average foreign office time deposits totaled $2.4
billion, up 16 percent or $328 million, compared to $2.1 billion in 1994.
Noninterest-bearing funds supporting earning assets decreased $90 million, and
declined from 20 percent to 18 percent year to year as a percentage of average
supporting liabilities.

     The Corporation's consolidated net interest margin declined to 3.75 percent
from 3.95 percent in the prior year. This decrease reflects rate compression
within certain asset categories, the maturity of certain higher-yielding
municipal bond holdings, the narrowed relationship which existed in the market
between short and longer term rates (i.e. flattened yield curve), the relative
decline in noninterest-bearing funds and sales and maturities of portfolio
securities where proceeds were reinvested at slightly lower yields. This was
somewhat offset by an improved mix of earning assets resulting from the
aforementioned loan growth.

                                      12
<PAGE>
      
<TABLE>
<CAPTION>
 
Noninterest Income
                                                                              Increase (Decrease)   Increase (Decrease)
                                                   Years Ended December 31          1995 vs. 1994         1994 vs. 1993
                                          --------------------------------    -------------------   ---------------------
(dollars in thousands)                      1995         1994         1993    Amount           %        Amount       %
-------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>           <C>       <C>             <C>      <C>            <C>
Trust and investment management fees    $149,979     $148,094     $148,809   $  1,885          1    $     (715)       --
Trading account.......................     5,110         (396)       5,258      5,506          +        (5,654)     (108)
Foreign exchange......................    14,248       19,769       24,302     (5,521)       (28)       (4,533)      (19)
Charge card...........................    41,788       37,402       36,516      4,386         12           886         2
Service fees and charges..............    69,333       73,621       77,774     (4,288)        (6)       (4,153)       (5)
Securities gains......................    23,379        5,254       13,038     18,125          +        (7,784)      (60)
Other.................................    34,436       30,700       31,391      3,736         12          (691)       (2)
                                        --------     --------     --------   --------                 --------                     
  Total noninterest income............  $338,273     $314,444     $337,088   $ 23,829          8      $(22,644)       (7)
                                        ========     ========     ========   ========        ====     ========      ====  
</TABLE>
Noninterest income for the year was $338.3 million in 1995, up $23.8 million or
8 percent from 1994, primarily due to an $18.1 million increase in net gains
from the sale of debt securities. During the second quarter of 1995, conditions
in the U.S. bond market led to significant price rallies, enabling the
Corporation to sell certain U.S. government agency securities and reinvest the
proceeds to reposition its portfolio and take advantage of profit opportunities
not typically available.

     Trading account gains, primarily from municipal bond trading, totaled $5.1
million up $5.5 million from the prior year when these activities reported
losses of $.4 million. Financial results from trading activities will typically
exhibit greater fluctuations over time than other business activities. Charge
card fees were $41.8 million in 1995, up $4.4 million or 12 percent from the
previous year as a result of charge card loan volume increases. Trust and
investment management fees were $150.0 million up $1.9 million or 1 percent from
the prior year. On January 11, 1996 the Corporation announced the sale of its
securities custody and related trustee services business for large institutions
to Citibank. After restructuring charges, it is estimated that the net gain on
the sale will approximate $4.0 million in 1996. The sale of the custody business
for large institutions is not expected to have a material impact on 1996
earnings.

     Foreign exchange revenues were $14.2 million, down $5.5 million or 28
percent from 1994. Effective April 3, 1995, the Corporation and BMO agreed to
combine their U.S. foreign exchange activities ("FX"). Under this arrangement,
FX net profit will be shared by the Corporation and BMO in accordance with a
specific formula set forth in the agreement. This agreement expires in April
2002 but may be extended at that time. Either party may terminate the
arrangement at its option. Beginning with second quarter 1995, FX revenues were
reported net of expenses. This agreement did not have a material impact on the
Corporation's 1995 net income or financial position as of December 31, 1995.
Service fees and charges were $69.3 million, down $4.3 million or 6 percent from
last year due to the higher interest rate environment and customer refunds with
respect to FDIC insurance.
<TABLE>
<CAPTION>
 
Noninterest Expense
                                                                              Increase (Decrease)   Increase (Decrease)
                                                   Years Ended December 31        1995 vs. 1994         1994 vs. 1993
                                         ---------------------------------    ------------------    -------------------
(dollars in thousands)                     1995          1994         1993     Amount          %     Amount          %
-----------------------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>            <C>         <C>                  <C>     <C>     <C>
Salaries and other compensation.....  $260,539       $246,200      $243,739    $ 14,339        6      $   2,461      1
Pension, profit sharing and other
 employee benefits..................    57,763         66,370        62,019      (8,607)     (13)         4,351      7
Net occupancy.......................    46,099         45,052        46,676       1,047        2         (1,624)    (3)
Equipment...........................    42,541         42,284        43,396         257        1         (1,112)    (3)
Marketing...........................    25,583         24,632        22,613         951        4          2,019      9
Communication and delivery..........    20,251         17,732        17,916       2,519       14           (184)    (1)
Deposit insurance...................     8,124         15,684        15,047      (7,560)     (48)           637      4
Trust customer charge...............        --         51,335            --     (51,335)    (100)        51,335    100
Other...............................    99,203         94,839       100,681       4,364        5         (5,842)    (6)
                                      --------       --------      --------    --------               ---------
  Total noninterest expenses........  $560,103       $604,128      $552,087    $(44,025)      (7)     $  52,041      9
                                      ========       ========      ========    =========      ===     =========     ==
</TABLE>

Noninterest expenses totaled $560.1 million, down $44.0 million or 7 percent
from 1994. In 1994, the Corporation recorded a one-time $51.3 million pretax
charge to absorb the impact of higher interest rates on mortgage-backed
securities held in certain customer accounts of HTSB's Securities Lending unit.
Excluding the effect of this item, 1995 noninterest expenses would have
increased $7.3 million or 1 percent from 1994 and 1994 noninterest expenses
would have approximated 1993 levels.

     The aforementioned charge in the second quarter of 1994 resulted from
investments of cash collateral managed by HTSB as agent for certain of its
institutional trust customers in its Securities Lending unit. The investments
consisted of floating rate mortgage-backed securities with caps on interest
ranging from 8.5 percent to 10 percent. HTSB's Securities Lending unit had
invested in these types of securities on behalf of customers since 1991, with
the total positions growing to $2.3 billion (representing about one-third of
total customer positions) by the second quarter of 1994. HTSB management
believed that the securities satisfied customer guidelines at the time of their
acquisition. All securities were AAA rated and the interest returns were tied to
movements in LIBOR. As of March 31, 1994 and December 31, 1993, HTSB had no
reason to believe that there were either imbedded customer losses on these
securities or that they violated customer guidelines for appropriate
investments. Subsequent to March 31, 1994, rising short-term rates substantially
extended the average duration of the securities. At that point, customers had an
exposure to long-term securities in portfolios that should be kept relatively
short. Given customer expectations and a con-

                                       13
<PAGE>
 
cern that further rate increases could have a disproportionate negative impact
on market values, HTSB made a decision to eliminate all the mortgage-backed
securities from these customer accounts and absorb the full loss on behalf of
customers. Of the approximately $2.3 billion outstanding, one-third was sold
into the market place while the remaining two-thirds were sold to the
Corporation's ultimate parent, BMO. Sales prices were determined based on
available market quotations, which resulted in a loss approximating $51.3
million ($33.4 million after-tax). At June 30, 1994, all mortgage-backed
securities that had been included in this portfolio were disposed of, and
neither HTSB nor its customers were at risk for subsequent declines in the
market value of those securities.

     Deposit insurance was $8.1 million, down $7.6 million or 48 percent from
1994, reflecting lower FDIC insurance premiums in 1995, primarily in the latter
half of the year. These premiums, assessed at individual bank subsidiaries, were
reduced for U.S. banks with favorable risk characteristics.

     Employment expenses were $318.3 million, up $5.7 million or 2 percent from
the previous year, reflecting normal salary increases, greater incentive
payments attributable to substantially stronger earnings performance partially
offset by reduced pension and retiree medical expenses. Communication and
delivery expenses were $20.3 million, an increase of $2.5 million or 14 percent
over 1994 due primarily to postage and printing for promotions and increased use
of communications technology. Net occupancy costs were $46.1 million, up $1.0
million or 2 percent from 1994 reflecting increased rental expenses partially
offset by lower real estate taxes and building maintenance.

     1993 noninterest expenses included the reversal of $7.2 million of reserves
previously recorded for anticipated costs of customer guarantees that were no
longer necessary.

Income Taxes

The Corporation recorded income tax expense of $70.2 million in 1995, compared
to $24.5 million in 1994, primarily due to higher (approximately $89.7 million
FTE) pretax earnings and a reduction in the current year's tax-exempt income.
The Corporation's effective tax rate increased to 32.2% in 1995 from 20.1% in
1994.

     At December 31, 1995, the Corporation's Federal and Illinois net deferred
tax assets were $62.4 million and $12.1 million, respectively. The Corporation
has fully recognized both its Federal and Illinois deferred tax assets. Current
taxable income and taxable income generated in the statutory carryback period is
sufficient to support the entire Federal and Illinois deferred tax assets.

     The deferred taxes reported on the Corporation's Statement of Condition at
December 31, 1995 also include a $17.8 million liability for the tax effect of
unrealized gains or losses associated with marking to market certain securities
designated as available for sale in accordance with SFAS No. 115.

Impact of New Accounting Standards

In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement
applies to long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and to long-lived assets and certain
identifiable intangibles to be disposed of. The Statement requires that long-
lived assets to be held and used be reviewed for impairment when events indicate
that the carrying value of an asset may not be recoverable and that impairment
be measured based on the fair value of the asset. The Statement requires that
long-lived assets to be disposed of be reported at the lower of carrying value
or fair value less cost to sell, except for assets covered by APB Opinion No.
30, Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. This Statement is effective for fiscal years beginning
after December 15, 1995. The Corporation intends to adopt the Statement in 1996
and does not expect it to have a material effect on the Corporation's financial
position or results of operations.

     In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage
Servicing Rights. This Statement amends SFAS No. 65, Accounting for Certain
Mortgage Banking Activities. The Statement applies to transactions in which a
mortgage banking enterprise acquires mortgage servicing rights through the
purchase or origination of mortgage loans and then sells or securitizes those
loans with servicing rights retained by the seller. The Statement requires that
the rights to service mortgage loans for others be recognized as separate assets
by allocating the total cost of the mortgage loans to the mortgage servicing
rights and the loans (without the mortgage servicing rights) based on their
relative fair values. The Statement also requires that the capitalized mortgage
servicing rights be periodically evaluated for impairment based on the fair
value of those rights. The Statement applies prospectively in fiscal years
beginning after December 15, 1995. The Corporation intends to adopt the
Statement in 1996 and does not expect it to have a material effect on the
Corporation's financial position or results of operations.

     In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. This Statement applies to transactions in which an employer issues
shares of its stock or other equity instruments to employees or incurs
liabilities to employees based on the price of its stock or other equity
instruments. The Statement also applies to transactions in which an entity
issues shares of its stock or other equity instruments to nonemployees in
exchange for goods or services. The Statement establishes a fair value based
method of accounting for stock-based compensation plans and proposes the use of
that method rather than an intrinsic value based method as prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees. The Statement is
effective for fiscal years beginning after December 15, 1995. At 1995 year-end,
the Corporation had no stock options outstanding. During the first quarter of
1996, options were issued to certain executives of the Corporation's
subsidiaries enabling them to acquire Bank of Montreal shares under specific
circumstances. The Corporation is currently evaluating the alternatives
available under SFAS No. 123 but does not believe that the impact of adopting
the Statement will be material.

                                      14
                             
<PAGE>
 
     On November 15, 1995, the FASB issued a Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. As described in detail in Question 61 of that report, an
enterprise was allowed to conduct a one-time reassessment of the classifications
of securities held. Any reclassifications from the held-to-maturity category
made in conjunction with that reassessment will not call into question an
enterprise's intent to hold other debt securities to maturity in the future and
must be accounted for as transfers in accordance with paragraph 15 of Statement
115 and disclosed in accordance with Paragraph 22. The FASB intended that any
resulting one-time reclassifications would occur on a single date between
November 15, 1995 and December 31, 1995. The Corporation reclassified all held-
to-maturity securities to available-for-sale on December 29, 1995. The
transaction did not have a material effect on the Corporation's financial
position. For additional information, see Note 2 to Financial Statements on page
41 of this Report.

Return on Assets and Common Stockholder's Equity

Return on assets, measured by net income as a percentage of average total
assets, was .95 percent in 1995 compared with .68 percent in 1994. The current
year's return on assets was higher than the average return on assets of .84
percent for the five-year period ended December 31, 1995. Average common
stockholder's equity to average total assets provides a measure of leverage for
the Corporation. Return on common stockholder's equity is computed by dividing
return on assets by this leverage ratio. The ratio of average common
stockholder's equity to average total assets was 6.99 percent in 1995 compared
to 7.06 percent in 1994. For 1995, the return on common stockholder's equity was
13.61 percent, up from the 9.70 percent achieved in 1994 and greater than the
12.21 percent five-year average return for the period ended December 31, 1995.
Returns on both average assets and common stockholder's equity in 1994 were
adversely affected by the one-time $33.4 million after-tax charge related to
HTSB's Securities Lending unit. Excluding this charge, in 1994 return on assets
would have been approximately .92 percent and return on common equity would have
been approximately 13.02 percent.
<TABLE>
<CAPTION>
 
(Based on net income and daily averages)                                Years Ended December 31         1995    1994   1993
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                             <C>     <C>     <C>
Return on assets (1)...........................................................................          .95%    .68%   .90%
Common stockholder's equity as a percentage of total assets (1)................................         6.99    7.06   7.31
Return on common stockholder's equity (1)......................................................        13.61    9.70  12.31
Dividend payout ratio (2)......................................................................       178.04   35.69  48.09
Earnings retained as a percentage of common stockholder's equity (3)...........................       (10.62)   6.24   6.39
Percentage growth (decline) in total average assets............................................         9.13    8.70   (.61)
</TABLE>

(1)  Total average assets and average common equity used in these calculations
include average gross and net unrealized gains or losses on available for sale
securities, respectively.

(2)  Dividends as a percent of net income. 1995 ratio includes the impact of a
$205 million special dividend as part of a capital restructuring. Excluding the
payment of the special dividend, the dividend payout ratio would have been 39.11
percent.

(3)  Earnings retained is defined as net income minus dividends. 1995 includes
the impact of a $205 million special dividend as part of a capital
restructuring. Excluding the payment of the special dividend, earnings retained
as a percentage of common stockholder's equity would have been 8.29 percent.

Capital Position

The Corporation's equity capital of $1.15 billion at December 31, 1995, has
increased significantly from five years earlier when equity capital amounted to
$805 million. Growth has come primarily from the of earnings and the recent
issuance of preferred stock. During 1995, Bankcorp declared and paid $262.7
million of cash dividends, including a $205 million special dividend as part of
a capital restructuring. For additional information see the Summary of 1995
Compared to 1994 section of this Report. During 1994 and 1993, dividends
declared and paid amounted to $34.7 million and $56.6 million, respectively.
Included in 1993 dividends were cash dividends of $49.4 million and a $7.2
million dividend-in-kind related to the transfer of Harris Futures Corporation
to Bankmont. During 1995, the Corporation's equity capital was increased by
$59.8 million of after-tax unrealized holding gains related to the Corporation's
debt and equity securities classified as available for sale. During 1994, equity
capital was reduced by $59.1 million of after-tax unrealized holding losses.
Average consolidated equity capital for 1995 was $1.1 billion, compared with the
1994 average of $1.0 billion and the 1993 average of $956 million.

     Bankcorp's double leverage ratio, which is the Bankcorp parent company-only
net equity investment in bank and nonbank subsidiaries and other equity
investments as a percentage of its equity capital, was 103 percent at December
31, 1995, up from 101 percent at December 31, 1994. This ratio generally
measures the extent to which holding company equity investments are supported,
in part, by parent-issued debt instruments. A double leverage ratio greater than
100 percent indicates that parent company equity investments are supported, in
part, by parent-issued debt. In the case of Bankcorp, outstanding long-term debt
is sufficient to fund equity investments not otherwise covered by equity
capital.

Risk-Based Capital

U.S. banking regulators have issued risk-based capital guidelines, based on the
international "Basle Committee" agreement, which are applicable to all U.S.
banks and bank holding companies. These guidelines serve to: 1) establish a
uniform capital framework which is more sensitive to risk factors, including
off-balance-sheet exposures; 2) promote the strengthening of capital positions;
and 3)diminish a source of competitive inequality arising from differences in
supervisory requirements among countries. Bankcorp, as a U.S. bank holding
company, and HTSB, as a state-member bank, must each adhere to the guidelines of
the Federal Reserve Board (the "Board"), which are not significantly different
than those published by other U.S. banking regulators. Effective December 31,
1992, the guidelines specify minimum ratios for Tier 1 capital to risk-weighted
assets of 4 percent and total regulatory capital to risk-weighted assets of 8
percent.

     Risk-based capital guidelines define total capital to consist of Tier 1
(core) and Tier 2 (supplementary) capital. In general, Tier 1 capital is
comprised of stockholder's equity, including certain types of preferred stock,
less goodwill and cer-

                                      15

<PAGE>
 
tain other intangibles. Core capital must comprise at least 50 percent of total
capital. Tier 2 capital basically includes subordinated debt (less a discount
factor during the five years prior to maturity), other types of preferred stock
and the allowance for possible credit losses. At year-end 1995, the portion of
the allowance for possible credit losses includable in Tier 2 capital is limited
to 1.25 percent of risk-weighted assets. The Corporation's Tier 1 and total
risk-based capital ratios were 8.14 percent and 11.79 percent, respectively, at
December 31, 1995.

     The Board also requires an additional measure of capital adequacy, the Tier
1 leverage ratio, which is evaluated in conjunction with risk-based capital
ratios. The Tier 1 leverage ratio is computed by dividing period-end Tier 1
capital by adjusted quarterly average assets. The Board established a minimum
ratio of 3 percent applicable only to the strongest banking organizations
having, among other things, excellent asset quality, high liquidity, good
earnings and no undue interest rate risk exposure. Other institutions, including
those experiencing or anticipating significant growth, are expected to maintain
a ratio which exceeds the 3 percent minimum by at least 100 to 200 basis points.
The Corporation's Tier 1 leverage ratio was 6.77 percent for fourth quarter 1995
and 7.03 percent for fourth quarter 1994.

     The Federal Deposit Insurance Corporation Improvement Act of 1991 contains
several provisions that established five capital categories for all FDIC-insured
institutions ranging from "well capitalized" to "critically undercapitalized."
Based on those regulations effective at December 31, 1995, all of the
Corporation's subsidiary banks were designated as "well capitalized" at year-end
1995, the highest capital category.

     In February 1993, the Board revised the capital adequacy guidelines by
further restricting the inclusion of intangible assets in Tier 1 capital.
Purchased mortgage servicing rights and the premium on purchased credit card
relationships are, in general, included with (i.e., not deducted from) Tier 1
capital provided that, in the aggregate, they do not exceed a limit of 50
percent of Tier 1 capital. In addition, intangibles from purchased credit card
relationships may not exceed a sublimit of 25 percent of Tier 1 capital. All
other intangibles (including core deposit premiums), along with amounts in
excess of the above limits, are deducted from Tier 1 capital for purposes of
risk-based and leverage capital ratio calculations. Identifiable intangibles
acquired before February 19, 1992 continue to be included with Tier 1 capital.
The previous requirement to deduct all goodwill from Tier 1 capital is
unchanged. At December 31, 1995, the Corporation's intangible assets totaled
$38.4 million, including approximately $1.0 million of intangibles excluded
under the new rules and an additional $16.5 million of goodwill excluded under
1992 guidelines. The Corporation's tangible Tier 1 leverage ratio (which
excludes all intangibles) was 6.65 percent for the fourth quarter of 1995.

     In September 1993, U.S. banking regulators proposed adding an additional
element to risk-based capital rules which would essentially require financial
institutions with levels of interest-rate risk above a specified threshold
amount to maintain higher capital levels. Based on the proposed rules,
management does not expect any of the Corporation's banking subsidiaries to be
subject to these higher capital requirements.

     Effective January 17, 1995, the Board issued amendments to its risk-based
capital guidelines for state member banks regarding concentration of credit risk
and risks of nontraditional activities. The guidelines now explicitly identify
these items, as well as an institution's ability to manage them, as important
factors in assessing the institution's overall capital adequacy. The Corporation
does not expect this amendment to have a significant effect on its capital
adequacy.

     The Board further amended risk-based capital guidelines relating to
deferred tax assets. Effective April 1, 1995, deferred tax assets included in
Tier 1 capital are limited to the amount of taxable income that an institution
expects to realize within one year of its quarter-end report date or 10 percent
of Tier 1 capital, whichever is less. Deferred tax assets that can be realized
from taxes paid in prior carryback years are generally not limited. This
amendment did not have a material impact on its risk-based capital ratios.

     As of December 31, 1993, the Corporation adopted SFAS No. 115-Accounting 
for Certain Investments in Debt and Equity Securities. This pronouncement
requires an adjustment to stockholder's equity for the tax effected unrealized
gain or loss associated with marking to market securities designated as
available for sale. Effective December 31, 1994, the Board amended its risk-
based capital guidelines to exclude net unrealized holding gains (losses) from
Tier 1 capital with the exception of unrealized depreciation of marketable
equity securities, which will continue to be deducted from Tier 1 capital. Net
unrealized holding gains(losses) excluded for risk-based capital purposes
amounted to $27.1 million and $(32.7) million at December 31, 1995 and 1994,
respectively.

     The following table summarizes the Corporation's risk-based capital ratios
and Tier 1 leverage ratio for the past three years.
<TABLE>
<CAPTION>
(dollars in thousands)                  December 31           1995            1994          1993
------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>            <C>             <C>
Ending assets......................................    $15,676,201     $15,331,539   $13,517,834
                                                       ===========     ===========   ===========
Average assets (fourth quarter)....................    $16,325,680     $14,668,264   $13,233,445
                                                       ===========     ===========   ===========
 
Risk-based on-balance-sheet assets.................    $10,336,569     $ 9,078,759   $ 8,293,915
Risk-based off-balance-sheet assets................      3,203,701       2,580,005     2,462,117
                                                       -----------     -----------   -----------
 Total risk-based assets...........................    $13,540,270     $11,658,764   $10,756,032
                                                       ===========     ===========   ===========
 
Tier 1 capital.....................................    $ 1,100,899     $ 1,033,481   $   968,386
Supplementary capital..............................        492,911         423,254       430,071
                                                       -----------     -----------   -----------
 Total capital.....................................    $ 1,593,810     $ 1,456,735   $ 1,398,457
                                                       ===========     ===========   ===========
 
Tier 1 leverage ratio..............................           6.77%           7.03%         7.33%
Risk-based ratios:
 Tier 1............................................           8.14%           8.86%         9.00%
 Total.............................................          11.79%          12.49%        13.00%
                                                       ============    ============   ===========
</TABLE>

                                       16

<PAGE>
 
Liquidity And Sources of Funds

Summary

Effective liquidity management allows a banking institution to accommodate the
changing net funds flow requirements of customers who may deposit or withdraw
funds, or modify their credit requirements. One of the principal obligations of
the banking system, and individual banks, is to provide for the legitimate
credit demands of customers. The liquidity of the banking system as a whole may
be viewed as the ability of the system to satisfy aggregate credit demand;
however, individual banks experience changes in liquidity resulting from
interbank transfers of deposits which do not affect the liquidity of the banking
system. Therefore, liquidity management within individual banks must deal with
the potential for greater volatility of net deposit flows which have little or
no impact on the banking system itself.

     The Corporation manages its liquidity position through continuous
monitoring of profitability trends, asset quality, interest rate sensitivity,
maturity schedules of earning assets and supporting liabilities, the composition
of managed and other (primarily demand) liabilities, and prospective customer
credit demand based upon knowledge of major customers and overall economic
conditions. Appropriate responses to changes in these conditions preserve
customer confidence in the ability of the Corporation to continually serve their
credit and deposit withdrawal requirements.

     Some level of liquidity is provided by maintaining assets which mature
within a short time-frame or could be sold quickly without significant loss. The
Corporation's liquid assets include cash and demand balances due from banks,
money market assets, portfolio securities available for sale and trading account
assets. Liquid assets represented approximately 36 percent of the Corporation's
total assets and amounted to $5.65 billion at December 31, 1995 compared to
liquid assets of $5.18 billion or approximately 34 percent of total assets one
year earlier. However, the most important source of liquidity is the ability to
raise funds, as required, in a variety of markets using multiple instruments.
This fund-raising activity involves the identification of broadly distributed
sources of funds, typically referred to as managed liabilities, which are varied
by type, maturity and geographical location of customers. The Corporation
monitors and controls the sources of these funds to avoid unwarranted market
activity or customer concentrations.

     The principal sources of external funds available to the Corporation are
retail and wholesale liabilities. Retail liabilities are comprised of demand
deposits, money market accounts, NOW accounts, passbook savings and
nonnegotiable certificates of deposit, typically of small denomination.
Wholesale funding sources include Eurodollar deposits in foreign offices,
Federal funds borrowed, securities sold under agreement to repurchase,
negotiable large denomination certificates of deposit and commercial paper. HTSB
offers to institutional investors from time to time, unsecured short-term and
medium-term bank notes in an aggregate principal amount of up to $1.5 billion
outstanding at any time. The term of each note could range from fourteen days to
fifteen years. The notes are subordinated to deposits and rank pari passu with
all other senior unsecured indebtedness of HTSB. As of December 31, 1995, $478
million of short-term notes were outstanding with maturities and interest rates
ranging from 29 to 180 days and 5.50 to 5.79 percent, respectively. There were
no outstandings under this program at December 31, 1994.

     The Corporation's average volume of core deposits, consisting of demand
deposits, interest checking deposits, savings deposits and certificates, and
money market accounts remained consistent with 1994. Core deposits represented
51.9 percent of average supporting liabilities in 1995 down from 56.6 percent in
1994. Average money market liabilities increased 13 percent to $3.01 billion
from $2.65 billion for 1994, primarily as a result of increases in Federal funds
borrowed and securities sold under repurchase agreements slightly offset by a
decrease in commercial paper. Average money market assets decreased $326.3
million or 26.7 percent from 1994 mainly as a result of the increase in loans
and portfolio securities. These assets represented 7 percent of average earning
assets in 1995 compared to 10 percent one year ago.

     The Corporation, in connection with the issuance of commercial paper and
for other corporate purposes, has a $150 million revolving credit agreement with
five nonaffiliated banks and BMO that terminates on December 18, 1999. There
were no borrowings under this credit facility in 1995 or 1994.

     The maintenance of an appropriate balance of maturity and interest rate
sensitivity risks between assets and liabilities is an integral component of
overall liquidity management. Mismatches of actual asset and liability
maturities, or interest rate sensitivity of assets and liabilities, will
increase the potential for profit or loss relative to changes in the general
level of interest rates. Asset and liability mismatches result in the normal
course of servicing customer credit and deposit requirements. The Corporation
uses interest rate swaps and financial futures, as appropriate, to reduce the
level of financial risk inherent in asset and liability mismatches. Gross cash
flows from the Corporation's derivative positions as an end-user were not
material to gross cash flows from financing and investing activities. The
Corporation's Asset/Liability Management Committee monitors and adjusts its
strategies in response to changing liquidity demands.

Interest Sensitivity

Interest rate sensitivity information, in the form of interest sensitivity gap
schedules and simulations reflecting exposure of earnings to future changes in
interest rates, is used in conjunction with other data by the Corporation's
banking subsidiaries to monitor and manage their individual interest rate
exposures. The Corporation uses various derivative products, including interest
rate swaps, forward rate agreements, futures, options, and forward commitments
to manage interest rate sensitivities corresponding to various balance sheet
items, thereby modifying its exposure to changing interest rates.

                                       17

<PAGE>
   
<TABLE>
<CAPTION>
 
                                                                                    Repricing
                                                                                       Period
                                                 --------------------------------------------
                                                    1-31    32-90    91-365      1-5   Over 5     Nonrepricing
(in millions)                December 31, 1995      days     days      days    years    years            Items      Total
-------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>      <C>      <C>        <C>     <C>        <C>              <C>
Assets
 Loans..........................................  $7,334   $   81    $  495   $1,109   $  482          $    17    $ 9,518
 Portfolio and trading account securities.......     569       72       879      971      948                5      3,444
Interest-bearing deposits at banks..............     252      187        19       --       --               --        458
 Federal funds sold and securities purchased
  under agreement to resell.....................     180       --        --       --       --               --        180
 Other assets...................................       1        1         2       20       21            2,031      2,076
                                                  ------   ------    ------   ------   ------          -------    -------
Total assets....................................   8,336      341     1,395    2,100    1,451            2,053    $15,676
                                                  ------   ------    ------   ------   ------          -------    =======
Liabilities and Stockholder's Equity
 Time deposits..................................   2,394    1,038       770      408       21               --      4,631
 Savings and interest checking deposits.........   2,554       --        --       --       --               --      2,554
 Noninterest-bearing deposits...................      --       --        --       --       --            3,044      3,044
                                                  ------   ------    ------   ------   ------          -------    -------
Total deposits..................................   4,948    1,038       770      408       21            3,044     10,229
 Federal funds purchased and securities sold
  under agreement to repurchase.................   1,869       10         9        7        2               --      1,897
 Other interest-bearing liabilities.............   1,316      297       200       --      164               --      1,977
 Other noninterest-bearing liabilities..........      --       --        --       --       --              427        427
 Stockholder's equity...........................      --       --        --       --       --            1,146      1,146
                                                  ------   ------    ------   ------   ------          -------    -------
Total liabilities and stockholder's equity......   8,133    1,345       979      415      187            4,617    $15,676
                                                  ------   ------    ------   ------   ------          -------    =======
 Interest sensitivity gap before net interest
  rate swaps, derivative products and forward
  commitments...................................     203   (1,004)      416    1,685    1,264           (2,564)
Net interest rate swaps.........................      --       26        14      (40)      --               --
Derivative products and forward commitments.....      --       44        --      --       (44)              --
                                                  ------   ------    ------   ------   ------          -------
 Interest sensitivity gap.......................  $  203   $ (934)   $  430   $1,645   $1,220          $(2,564)
                                                  ======   ======    ======   ======   ======          =======
 Cumulative gap.................................           $ (731)   $ (301)  $1,344   $2,564
                                                           ======    ======   ======   ======
</TABLE>                      
     The schedule above presents the Corporation's consolidated interest
sensitivity gap at December 31, 1995. This point-in-time analysis depicts
repricing dates for earning assets, supporting funds and related off-balance-
sheet activities. Generally, dates for repricing are included on a contractual
basis. A negative gap in a given time span indicates an excess of interest-
bearing liabilities over interest earning assets which reprice in that period.
After including interest rate swaps, derivative products and forward
commitments, at December 31, 1995, the Corporation had a cumulative negative
one-year interest rate gap of $301 million. This measure, called the
"contractual gap" position, is calculated without regard to the existence of
nonrepricing items, the behavior of which must be considered in the evaluation
of the Corporation's overall interest rate sensitivity.

     In addition to gap measurements, the Corporation uses simulation modeling
to measure valuation risk, risk to earnings, assets, liabilities and equity, as
a result of various interest rate scenarios and balance sheet structures. Shifts
in the yield curve and changes in the shape of the yield curve are among the
variables considered. Limits are established for valuation risk at the
individual bank and consolidated levels and actual exposure is monitored to
ensure that these limits are not exceeded. At December 31, 1995, simulations
indicate that for an immediate 100 basis point upward movement in interest
rates, net interest income would increase by approximately $8 million over the
next year compared to what it would otherwise have been, and the change in the
value of all gap positions, contractual and non-contractual, would be $55
million lower. Conversely, a decline in rates would have approximately the same
absolute impact but in the opposite direction.

     Management believes that the Corporation is well positioned with its mix of
assets and liabilities to respond to interest rate movements in either
direction.

Cash Flows

Cash flow analysis is an essential element for evaluating a company's ability to
satisfy its obligations to short- and long-term creditors, bondholders and
investors. The Corporation's Consolidated Statement of Cash Flows can be found
on page 37 of this Report. This financial statement is based on period-end
balances and does not reflect average investment or financing levels.

     As a bank holding company, the Corporation regularly receives and disperses
large volumes of cash and cash equivalents. Since these gross numbers provide
little additional information to financial statement users, the FASB permits
bank holding companies to net certain cash receipts and payments in their cash
flow statements. The Corporation has adopted this net presentation for loans and
deposits.

     The Corporation's Consolidated Statement of Cash Flows divides its
activities into three main categories: operating, investing and financing.
Operating activities consist of those activities not categorized as investing or
financing and generally include cash revenues and expenses associated with
providing services to customers. Investing cash flows are defined as those
arising from the acquisition or disposal of loans, portfolio securities, money 
market assets, subsidiaries, and fixed assets. Financing cash flows include
both infusions from and dividend payments to stockholders, along with borrowings
and principal repayments to bondholders or other creditors.

                                       18
<PAGE>
 
     Cash flows from operations are a significant source of operating capital.
Since applicable accounting statements require that cash transactions involving
assets held for sale and for trading purposes be included with operating cash
flows, normal year-end fluctuations in these holdings may not appropriately
portray the company's generated cash flows from operations. Excluding net
changes in loans held for sale and trading account assets, cash generated from
operations amounted to approximately $266 million in 1995 and $133 million in
1994. The change in cash flows from operations, from year to year, was mainly
due to increases in net income before provision for credit losses and gains on
sales of portfolio securities. Year-end trading account assets increased $63
million year to year, while loans held for sale (primarily residential
mortgages) increased $21 million.

     In 1995, the Corporation's investing activities utilized a total of $252
million in net cash. Loans, the primary use of new funds, increased $1.31
billion. Interest-bearing deposits at banks decreased $300 million, Federal
funds sold and securities purchased under agreement to resell decreased $225
million, and portfolio securities decreased $421 million in 1995.

     In 1995, the Corporation's financing activities included accepting customer
deposits, purchasing Federal funds and issuing long-term notes, short-term
senior notes and preferred stock. Financing activities provided $192 million of
net cash to the Corporation in 1995. Deposits increased $309 million. In
addition, net new short-term senior notes and preferred stock of $478 million
and $180 million, respectively, were issued. Gross cash received and paid
resulting from the Corporation's derivative positions as an end-user were not
material relative to gross cash flows from financing or investing transactions.

     Since 1992, the Corporation has had three significant noncash transactions.
On December 29, 1995, all held to maturity securities were reclassified to
available for sale. See Portfolio Securities section below for further
information. On December 31, 1993, the Corporation adopted SFAS No. 115--
Accounting for Certain Investments in Debt and Equity Securities. In compliance
with this Statement, portfolio securities designated as available for sale are
marked to market on the Corporation's Consolidated Statement of Condition. On
July 1, 1993, the Corporation paid a $7.2 million dividend-in-kind to Bankmont
related to the transfer of Harris Futures Corporation. Non-cash portions of
these transactions were excluded from the Corporation's Consolidated Statement
of Cash Flows.

Selected Loan Maturity Spread

Variable rate loans, excluding consumer loans, accounted for 55 percent of total
loans in 1995 compared to 57 percent in 1994. Excluding consumer loans, term
loans (those with a remaining contractual maturity in excess of one year)
totaled $1.035 billion. Of these loans, $893 million or 86 percent are due
within five years. Overall, the average FTE yield on total loans increased to
8.89 percent in 1995 from 7.75 percent in 1994. The Corporation's average prime
rate in 1995 was 8.83 percent compared to 7.07 percent in 1994.
<TABLE>
<CAPTION>

Type of loan, by maturity*                                          Within        1 Through             Over
(in thousands)                        December 31, 1995             1 year          5 years          5 years          Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>              <C>               <C>
Commercial, financial and agricultural.................         $4,588,448         $836,911         $139,130     $5,564,489
Real estate construction...............................            136,222           55,919            3,558        195,699
Foreign................................................            202,692               --               --        202,692
                                                                ----------         --------         --------     ----------
                                                                $4,927,362         $892,830         $142,688     $5,962,880
                                                                ==========         ========         ========     ==========
Loans with:
 Predetermined interest rates..........................         $  441,967         $223,317         $ 62,116     $  727,400
 Floating interest rates...............................          4,485,395          669,513           80,572      5,235,480
                                                                ----------         --------         --------     ----------
                                                                $4,927,362         $892,830         $142,688     $5,962,880
                                                                ==========         ========         ========     ==========
*Excludes installment loans to individuals, real estate mortgages and lease financing.
</TABLE>

Portfolio Securities

On December 31, 1993, the Corporation adopted SFAS No. 115--Accounting for
Certain Investments in Debt and Equity Securities, which requires debt and
marketable equity securities to be classified into three categories. Trading
account securities continue to include those securities purchased for sale in
the near term. The remaining securities have been segregated into "Held to
Maturity" and "Available for Sale" categories. Held to maturity securities
include those debt securities where a company has both the ability and positive
intent to hold to maturity. All other securities are classified as available for
sale, even if the company has no current intent to dispose of them. Held to
maturity securities are carried at amortized historical cost while available for
sale securities are carried at fair value, with net unrealized gains and losses
(after-tax) reported as a separate component of equity.

     Throughout this Report the term "portfolio securities" encompasses both the
held to maturity and available for sale categories. At December 31, 1995,
available for sale securities included $44.9 million of fair value above
amortized cost, and stockholder's equity included $27.1 million of unrealized
(after tax effect) holding gains.

                                       19
<PAGE>
 
     Portfolio securities averaged $3.57 billion in 1995. On an FTE basis,
interest income from portfolio securities increased $31.6 million to $241
million. The overall FTE yield on the Corporation's portfolio securities
averaged 6.72 percent during 1995. Yields on the portion of average portfolio
securities classified as available for sale are based on amortized cost.
<TABLE>
<CAPTION>
 
                                                                              1995                     1994                   1993
(Fully taxable equivalent yields)                           ----------------------   ----------------------   --------------------
(Daily balance sheet averages,     
 dollars in thousands)               Years Ended December 31    Amount       Yield       Amount       Yield       Amount     Yield
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>          <C>         <C>          <C>         <C>         <C>
U.S. Treasury.............................................  $1,536,686        6.10%  $1,620,059        6.04%  $1,363,711      6.26%
Federal agency............................................   1,504,096        6.31      962,144        4.69    1,057,879      4.16
State and municipal.......................................     379,337       11.27      479,432       12.09      485,431     12.30
Other.....................................................     153,833        5.74      171,226        4.85       87,245      5.02
                                                            ----------               ----------               ----------
 Total portfolio securities...............................  $3,573,952        6.72   $3,232,861        6.47   $2,994,266      6.46
                                                            ==========       =====   ==========       =====   ==========     =====
</TABLE>

     The Corporation periodically repositions its investment portfolio in
response to changes in laws, in order to meet regulatory capital requirements
or, as part of asset/liability management, to enhance future net interest income
levels while maintaining an appropriate risk/reward relationship. During 1995,
the Corporation purchased $7.09 billion of available for sale securities and
$445 million of held to maturity securities, sold $2.03 billion of available for
sale securities and had $5.22 billion available for sale securities and $714
million held to maturity securities mature. The aforementioned sales of
portfolio securities generated a pretax net gain of $23.4 million during 1995
compared to a net gain of $5.3 million during 1994 and $13.0 million in 1993.
$16.8 million of net gain was realized in the second quarter of 1995 when
conditions in the U.S. bond market led to significant price rallies. These
events enabled the Corporation to sell certain U.S. government agency securities
and reinvest the proceeds to reposition its portfolio and take advantage of
profit opportunities not typically available. On an after-tax basis, the
Corporation recorded a net gain from securities sales of $14.3 million in 1995
compared to $3.2 million in 1994 and $7.9 million in 1993. In some cases,
security gains are taken in order to realize otherwise unrealized profits in
anticipation of near-term increases in interest rates.

     On November 15, 1995, the FASB issued a Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. In accordance with that report, the Corporation conducted
a one-time reassessment of the classifications of all securities held. As a
result, the Corporation reclassified all held to maturity securities to
available for sale on December 29, 1995. The amortized cost of the transferred
securities was $839 million and the related unrealized gross holding gain was
$20 million.

     The estimated market value of held to maturity securities was $1,102
million at December 31, 1994, compared to a carrying value of $1,108 million.
See Note 2 to Financial Statements, page 41 of this Report for details on
specific types of securities.

     Unrealized holding gains for available for sale securities, as of December
31, 1995, amounted to $44.9 million compared to unrealized holding losses of
$54.2 million as of December 31, 1994. The change in net unrealized gains and
losses of $99.1 million was due to gains in market value as a result of declines
in interest rates during the year, a change in the mix of the portfolio and the
aforementioned reclassification of all held to maturity securities.
<TABLE>
<CAPTION>
 
 
                                                                    1995                       1994                        1993
Carrying value                                     ---------------------      ---------------------       ---------------------
(dollars in thousands)          December 31            Amount          %          Amount          %           Amount          %
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>              <C>        <C>             <C>         <C>             <C>     
Held to Maturity
 U.S. Treasury..................................   $       --         --      $  536,480       14.5       $  124,340        3.9
 Federal agency.................................           --         --          68,278        1.9           83,824        2.7
 State and municipal............................           --         --         466,965       12.6          475,087       15.0
 Other..........................................           --         --          35,936        1.0           63,969        2.0
                                                                              ----------      -----       ----------       ----
  Total held to maturity........................           --         --       1,107,659       30.0          747,220       23.6
                                                                              ----------      -----       ----------       ----
Available for Sale
 U.S. Treasury..................................    1,205,167       35.6       1,443,169       39.1        1,121,624       35.4
 Federal agency.................................    1,740,578       51.3       1,038,460       28.2        1,239,945       39.1
 State and municipal............................      308,805        9.1          11,917         .3               --         --
 Other..........................................      135,417        4.0          87,747        2.4           61,726        1.9
                                                   ----------      -----      ----------      -----       ----------      -----
  Total available for sale......................    3,389,967      100.0       2,581,293       70.0        2,423,295       76.4
                                                   ----------      -----      ----------      -----       ----------      -----
Total portfolio securities......................   $3,389,967      100.0      $3,688,952      100.0       $3,170,515      100.0
                                                   ==========      =====      ==========      =====       ==========      =====
</TABLE>                                          

     At year-end 1995, the weighted average maturity of the Corporation's
portfolio securities was 3 years and 3 months, an increase of 1 year from the
average maturity at the end of 1994. The maturity distribution of the investment
portfolio at December 31, 1995, together with the approximate taxable equivalent
yield of the portfolio, is presented in the following table. The weighted
average yields shown are computed by dividing an annualized interest income
amount, including the accretion of discounts and the amortization of premiums,
by the amortized cost of the securities outstanding at December 31, 1995. Yields
on tax-exempt securities have been calculated on an FTE basis.

                                       20
<PAGE>
 
<TABLE> 
<CAPTION> 
                                                                                           State, Municipal
                                                 U.S.Treasury          Federal Agency             and Other                 Total  
                                                     Weighted                Weighted              Weighted              Weighted
(Fully taxable                                        Average                 Average               Average               Average
equivalent yields)                       --------------------     -------------------    ------------------   -------------------
(dollars in thousands)      December 31      Amount     Yield        Amount     Yield      Amount     Yield       Amount    Yield
---------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>           <C>        <C>          <C>        <C>        <C>        <C>         <C>
Available for Sale
 Within 1 year.........................  $  509,718      6.21%    $ 691,439      5.70%   $ 94,911      8.57%  $1,296,068     6.14%
 1 to 5 years..........................     600,339      6.35       261,447      6.62     155,696      9.99    1,017,482     7.03
 5 to 10 years.........................      79,548      6.42       314,317      6.64      65,789      8.40      459,654     6.87
 Over 10 years.........................          --        --       459,491      7.22      19,103      9.24      478,594     7.35
 No stated maturity....................          --        --            --        --      93,311      5.76       93,311     5.76
                                         ----------      ----     ---------      ----    --------      ----    ---------     ----
 
 1995 Total............................  $1,189,605      6.29%   $1,726,694      6.42%   $428,810      8.48%  $3,345,109     6.64%
                                         ==========      ====    ==========      ====    ========      ====   ==========     ==== 
 
 1994 Total............................  $2,016,758      6.08%   $1,123,987      5.86%   $602,442     10.20%  $3,743,187     6.74%
                                         ==========      ====    ==========      ====    ========     =====   ==========     ====
 
1995 Average maturity..................      1 year 11 months        4 years 3 months      2 years 9 months      3 years 3 months
                                         ====================    ====================    ==================   ===================

1994 Average maturity..................     2 years  0 months        1 year 11 months      3 years 9 months      2 years 3 months
                                         ====================    ====================    ==================   ===================
</TABLE>

     Other than securities of the U.S. Government and its agencies and
corporations, at December 31, 1995, there were no portfolio securities of any
one issuer aggregating more than 10 percent of stockholder's equity of the
Corporation. In the opinion of management, there were no material investments in
securities which would have constituted an unusual risk or uncertainty for the
Corporation at December 31, 1995.

Deposits

Total deposits in 1995 averaged $10.04 billion, up $321 million or 3 percent
from 1994. Average total deposits in foreign offices experienced the largest
growth, up $325 million or 15 percent over 1994 levels. The growth was
attributed primarily to foreign office time deposits which increased by $328
million to $2.40 billion, up 16 percent from 1994. The Corporation's core
deposits, consisting of demand deposits, interest checking deposits, money
market accounts, passbook and statement savings accounts and savings
certificates grew $36 million or 1 percent to $6.92 billion. Savings
certificates increased by $259 million while money market accounts decreased by
$132 million and demand deposits decreased $51 million, accounting for the net
increase in core deposits. Other time deposits decreased $40 million or 6% from
1994 levels. Daily averages and year to year comparisons are summarized below.

<TABLE>
<CAPTION>
                                                                                            Increase (Decrease)  Increase (Decrease)
                                                                 Years Ended December 31         1995 vs. 1994        1994 vs. 1993
                                                 ---------------------------------------    -------------------  -------------------
(Daily averages, dollars in thousands)                  1995         1994           1993         Amount     %          Amount     %
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>             <C>            <C>           <C>      <C>
Demand deposits................................. $ 2,808,747   $2,859,643     $2,672,152      $ (50,896)   (2)       $187,491     7
Interest checking deposits......................     629,448      663,598        639,377        (34,150)   (5)         24,221     4
Money market accounts...........................   1,037,963    1,170,181      1,235,487       (132,218)  (11)        (65,306)   (5)
Passbook and statement savings accounts.........     876,412      882,507        823,193         (6,095)   (1)         59,314     7
Savings certificates............................   1,565,689    1,306,542      1,341,390        259,147    20         (34,848)   (3)
Other time deposits.............................     682,320      722,373        756,560        (40,053)   (6)        (34,187)   (5)
Deposits in foreign offices.....................   2,435,124    2,110,342      1,813,720        324,782    15         296,622    16
                                                 -----------   ----------     ----------      ---------              --------    
 Total deposits................................. $10,035,703   $9,715,186     $9,281,879      $ 320,517     3        $433,307     5
                                                 ===========   ==========     ==========      =========    ==        ========    ==
</TABLE>

     Interest expense on deposits increased by $109 million or 43 percent in
1995 primarily due to higher effective interest rates. Interest expense on
domestic deposits rose 34 percent from 1994, while interest on foreign office
deposits increased by 60 percent compared to the prior year. Effective interest
rates on both domestic and foreign office interest-bearing deposits are
summarized below.

<TABLE>
<CAPTION>
 
Average interest rates paid                                                          Years Ended December 31   1995    1994    1993
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                           <C>      <C>     <C> 
Interest checking deposits..................................................................................  2.24%    1.99%   1.99%
Money market accounts.......................................................................................  3.87     2.88    2.64
Passbook and statement savings accounts.....................................................................  3.71     2.90    2.74
Savings certificates........................................................................................  5.69     4.37    4.28
Other interest-bearing time deposits........................................................................  5.91     4.41    3.48
Time deposits in foreign offices............................................................................  5.97     4.33    3.18
 Total interest-bearing deposits............................................................................  5.00     3.68    3.15
                                                                                                              ====     ====    ====
</TABLE>

     Certificates of deposit in denominations of $100,000 or more issued by
domestic offices totaled $1.12 billion at December 31, 1995. These deposits
totaled $653 million and $753 million at December 31, 1994 and 1993,
respectively. During the past three years, virtually all time deposits in
foreign offices were in denominations of $100,000 or more.

                                      21
<PAGE>
 
     The remaining maturity of domestic office certificates of deposit of
$100,000 or more is as follows:

<TABLE>
<CAPTION>
 
Domestic office certificates of deposit (in millions)    December 31  1995   1994   1993
----------------------------------------------------------------------------------------
<S>                                                                 <C>      <C>    <C>
Maturities:
3 months or less....................................................$  813   $358   $419
3 to 6 months.......................................................   134    121    171
6 to 12 months......................................................    76     80     59
Over 12 months......................................................   100     94    104
                                                                    ------   ----   ----
  Total.............................................................$1,123   $653   $753
                                                                    ======   ====   ====

</TABLE>

Money Market Assets and Liabilities

The Corporation conducts most of its money market activities through HTSB.
Average money market assets, consisting primarily of interest-bearing deposits
at banks, Federal funds sold and securities purchased under agreement to resell,
decreased 27 percent to $897 million in 1995 from $1.22 billion in 1994. The
average yield on money market assets increased from 4.27 percent in 1994 to 6.46
percent in 1995. Interest income earned on these assets increased 11 percent to
$57.9 million in 1995. At December 31, 1995, interest-bearing deposits at banks,
Federal funds sold and reverse repurchase agreements totaled $458 million, $100
million and $79 million, respectively, compared to $757 million, $394 million
and $10 million at year-end 1994. The decrease in money market assets was
primarily the result of accommodating customers' borrowing requirements at the
end of 1995, thereby increasing loan volume.

     Money market liabilities, consisting of Federal funds purchased, securities
sold under agreement to repurchase, commercial paper and other short-term
borrowings, represent a managed source of funds for the Corporation. During
1995, money market liabilities averaged $3.01 billion, an increase of 13 percent
from 1994, when money market liabilities averaged $2.65 billion. The average
rate paid on these borrowings increased from 4.09 percent in 1994 to 5.61
percent in 1995, reflecting generally higher short-term interest rates
experienced by the market during 1995. At December 31, 1995, repurchase
agreements totaled $1.18 billion compared to $1.53 billion at year-end 1994.
Federal funds purchased and securities sold under agreement to repurchase
consist of overnight Federal funds borrowed and securities sold to banks,
brokers and corporations under agreement to repurchase. The repurchase
agreements are generally outstanding for periods ranging from one day to six
months. The following amounts and rates applied during 1995, 1994 and 1993:

<TABLE>
<CAPTION>
 
Federal funds purchased and securities sold under agreement to repurchase
(dollars in thousands)                                                                              1995         1994         1993
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>          <C>          <C>
Amount outstanding at end of year...........................................................  $1,896,817   $2,632,167   $1,861,061
Average interest rate of outstanding borrowings at end of year..............................        5.14%        5.03%        2.67%
Highest amount outstanding as of any month-end during the year..............................  $2,894,321   $2,632,167   $2,157,770
Daily average amount outstanding during the year............................................  $2,253,142   $1,924,373   $1,682,289
Daily average annualized rate of interest...................................................        5.65%        4.13%        3.14%

</TABLE> 
 
     Short-term borrowings consist primarily of term borrowings in excess of
three days, term Federal funds purchased and short sales of securities. The
following amounts and rates applied during 1995, 1994 and 1993:
 
<TABLE>
<CAPTION>

Short-term borrowings
(dollars in thousands)                                                                              1995         1994         1993
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>          <C>          <C>
Amount outstanding at end of year...........................................................    $843,049     $670,362     $459,192
Average interest rate of outstanding borrowings at end of year..............................        5.77%        5.56%        3.22%
Highest amount outstanding as of any month-end during the year..............................    $843,049     $670,362     $489,737
Daily average amount outstanding during the year............................................    $488,042     $435,129     $384,087
Daily average annualized rate of interest...................................................        5.44%        4.02%        3.24%

</TABLE>

     Commercial paper has been sold directly by Bankcorp to a number of
investors, including individuals, partnerships, corporations, banks and other
financial institutions in various amounts with initial terms not exceeding 270
days. The following amounts and rates applied during 1995, 1994 and 1993:

<TABLE>
<CAPTION>
 
Commercial paper
(dollars in thousands)                                                                              1995         1994         1993
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>          <C>          <C>
Amount outstanding at end of year...........................................................    $292,022     $306,737     $326,268
Average interest rate of outstanding commercial paper at end of year........................        5.32%        5.08%        2.95%
Highest amount outstanding as of any month-end during the year..............................    $295,629     $306,737     $326,268
Daily average amount outstanding during the year............................................    $269,569     $295,388     $265,884
Daily average annualized rate of interest...................................................        5.58%        3.89%        2.93%

</TABLE>

                                      22

<PAGE>
Loans
 
Summary

In 1995, significant year-to-year loan growth occurred among the following loan
categories: manufacturing and processing, public and private service industries,
other financial institutions, mortgages secured by commercial and residential
property, charge card and other installment.

Distribution of Loans by Type of Borrower
<TABLE>
<CAPTION>
 
(in millions)                                                December 31     1995        1994         1993         1992        1991
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>         <C>          <C>          <C>
Domestic Loans:
 Manufacturing and processing........................................... $1,437.7    $1,065.5     $  972.9     $  983.0    $1,258.8
 Public and private service industries..................................  1,968.4     1,738.7      1,593.7      1,511.0     1,469.2
 Mining (including oil and gas).........................................     27.8         8.0         25.2         41.1        25.0
 Farmers................................................................     35.5        35.3         28.0         18.8        14.1
 Individuals (single payment)...........................................    344.5       394.3        371.1        488.2       441.0
 Loans to purchase and carry securities.................................     76.4        62.7         92.5        115.1       115.9
 State and political subdivisions, including industrial revenue bonds...     28.5        37.5         53.8         77.2       110.5
 Other commercial.......................................................    607.5       568.4        606.8        513.2       815.0
                                                                         --------    --------     --------     --------    --------
    Total Commercial....................................................  4,526.3     3,910.4      3,744.0      3,747.6     4,249.5
                                                                         --------    --------     --------     --------    --------

 Commercial banks.......................................................     15.8        14.7          7.8          7.6        41.6
 Mortgage companies.....................................................      5.1         4.6         14.3          6.6           -
 Finance companies......................................................    215.4       207.3        188.7        128.3       155.8
 Investment companies...................................................     77.4        66.8         64.5         64.3       296.2
 Other financial institutions...........................................    393.1       247.8        245.3        144.9        86.3
                                                                         --------    --------     --------     --------    --------
    Total Financial Institutions........................................    706.8       541.2        520.6        351.7       579.9
                                                                         --------    --------     --------     --------    --------

    Total Brokers and Dealers...........................................    331.4       392.5        448.8        345.8       346.3
                                                                         --------    --------     --------     --------    --------

 Construction...........................................................    195.7       175.5        197.6        193.5       199.6
 Mortgages secured by residential property..............................  1,511.8     1,252.9      1,185.2      1,027.6     1,005.5
 Mortgages secured by commercial property...............................    485.0       374.6        378.3        351.3       312.8
                                                                         --------    --------     --------     --------    --------
    Total Real Estate...................................................  2,192.5     1,803.0      1,761.1      1,572.4     1,517.9
                                                                         --------    --------     --------     --------    --------

 Charge card............................................................  1,095.8       898.3        708.2        638.4       703.4
 Other installment......................................................    478.4       436.8        312.0        306.7       284.9
                                                                         --------    --------     --------     --------    --------
    Total Installment (to individuals)..................................  1,574.2     1,335.1      1,020.2        945.1       988.3
                                                                         --------    --------     --------     --------    --------
    Total Lease Financing...............................................        -           -            -          1.9         4.2
                                                                         --------    --------     --------     --------    --------
    Total Domestic Loans................................................  9,331.2     7,982.2      7,494.7      6,964.5     7,686.1
                                                                         --------    --------     --------     --------    --------
Foreign Loans:
 Governments and official institutions..................................      1.0         1.0          1.0          1.0        41.6
 Banks and other financial institutions.................................    160.8       250.6        221.6        131.9       189.2
 Other, primarily commercial and industrial.............................     40.9        16.2          8.1          5.4        13.8
                                                                         --------    --------     --------     --------    --------
    Total Foreign Loans.................................................    202.7       267.8        230.7        138.3       244.6
                                                                         --------    --------     --------     --------    --------
Less unearned income....................................................     16.1        20.7         21.4         19.9        23.8
                                                                         --------    --------     --------     --------    --------
 Loans, net of unearned income.......................................... $9,517.8    $8,229.3     $7,704.0     $7,082.9    $7,906.9
                                                                         ========    ========     ========     ========    ======== 
</TABLE> 

     Average loans increased by 15 percent during 1995 compared to 1994. Daily
average loans over the last five years were as follows:
 <TABLE>

<CAPTION>
 
(Daily averages in thousands)                  Years Ended December 31       1995        1994         1993         1992        1991
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C>         <C>         <C>         <C>  
Commercial, financial and agricultural................................ $5,716,282  $5,107,563   $4,762,573   $5,050,436  $5,175,816
Real estate construction..............................................    164,575     185,101      193,104      198,759     203,005
Real estate mortgages.................................................  1,257,370   1,062,828      998,256      959,411     803,447
Installment...........................................................    503,073     418,166      318,405      306,786     308,980
Charge card...........................................................    971,565     740,088      613,931      619,721     696,351
Foreign...............................................................    190,816     180,830      178,215      178,541     240,637
Lease financing.......................................................          -          10          798        2,678       5,685
                                                                       ----------  ----------   ----------   ----------  ----------
    Total loans.......................................................  8,803,681   7,694,586    7,065,282    7,316,332   7,433,921
Less unearned income..................................................     18,110      22,011       20,474       22,206      26,026
                                                                       ----------  ----------   ----------   ----------  ----------
 Loans, net of unearned income........................................ $8,785,571  $7,672,575   $7,044,808   $7,294,126  $7,407,892
                                                                       ==========  ==========   ==========   ==========  ==========
</TABLE>

                                      23
<PAGE>
 
Lending is diversified into several categories at the Corporation.
Concentrations to individual and related customers are monitored and risks
within specific industries are tracked in order to reduce overall expense. When
lending to specialized industries such as Agribusiness or Futures and
Securities, the risks are mitigated by following specifically developed policies
and procedures in the underwriting process as well as obtaining security for
most of these transactions. Secured and unsecured loans totaled $5.87 billion
and $3.65 billion, respectively, of total loans at 1995 year-end.

Risk Management

Summary

     In a commercial banking environment, corporate personnel must identify,
quantify, monitor, evaluate and manage the risks inherent in its businesses,
product lines and other activities. Through its risk management framework which
continued to be enhanced during 1995, the Corporation: 1) maintains a clear
philosophy, approach and accountabilities towards risk taking activities in well
documented policies, directives and procedures; 2) fosters an environment where
risks incurred are commensurate with an individual's qualifications, skills and
expertise; 3) implements risk measures and limits to contain, diversify, or
otherwise mitigate certain risks the Corporation faces; and 4) continuously
enhances information flows and reporting to monitor exposures and ensure timely
responses to any change in risk profiles. The risk management framework helps to
ensure the Corporation employs its capital efficiently and achieves returns
commensurate with the risk undertaken.

     The Corporation's risk management process includes continuous monitoring
and review of the following classes of risk: 1) Credit risk, which is risk of
loss of principal, interest or revenues due to the obligor's inability or
failure to repay a financial obligation. This includes loan loss risk,
replacement risk, and settlement risk. 2) Position risk, which is risk of loss
associated with taking a position in an asset and is inclusive of interest rate
risk, foreign exchange risk and liquidity risk. 3) Operating risk, which is risk
that systems and control environments do not accurately or safely process
transactions or assets. Legal and regulatory risks are included in this
category. 4) Fiduciary risk, which arises when the Corporation, or its employees
acting purportedly on its behalf, take actions which violate the trust and
confidence properly placed in the Corporation by the client.

     The Corporation applies a comprehensive risk assessment framework to
monitor these risks by line of business, customer and product line. The roles
and relationships of the Corporation's Management Committees and the Board
Oversight Committees are well defined and ensure comprehensive risk management
and oversight. The Risk Management and Fiduciary Risk Management Committees are
manned by senior managers from various business units of the Corporation who
bring specialized expertise to bear on risk management issues. Through this risk
management structure, the Corporation evaluates risks, establishes formal
policies, sets risk/return parameters and reviews performance versus objectives.
Management believes that effective policies, procedures, monitoring and review
systems are in place to determine that risk is thoroughly and effectively
analyzed, risk is well diversified, any exceptions are dealt with in a timely
manner and compensation for risk is appropriately established and meets return
objectives.

     Although the majority of the Corporation's customers are located in the
Midwestern region of the United States, this risk is mitigated by a number of
factors (see Note 9 to Financial Statements on page 49 of this Report for a
detailed discussion). Further, the Corporation maintains a watch on the economic
health of the region, primarily to address risk in its consumer lending
business. With the national unemployment rate for the 1995 fourth quarter at 5.6
percent and projected to increase to 5.9 percent in 1996, the unemployment rate
in the various states of the Midwestern region is also expected to be equal to,
or lower than, the national rate due to a resurgence of traditional
manufacturing. Real estate sales of existing housing in Illinois are expected to
remain strong relative to many other areas of the country because of the
strength of the job market and loan rates on adjustable mortgages.

     The level of credit risk inherent in the Corporation's earning assets is
evidenced, in part, by nonperforming assets consisting of loans placed on
nonaccrual status when collection of interest is doubtful, restructured loans on
which interest is being accrued but which have terms that have been renegotiated
to provide for a reduction of interest or principal, and real estate or other
assets which have been acquired in full or partial settlement of defaulted
loans. These assets, as a group, are not earning at rates comparable to other
earning assets. Assets received in satisfaction of debt are recorded by the
Corporation at lower of cost or fair value less estimated sales costs. Losses of
principal on nonperforming assets are charged off when, in management's opinion,
the amounts are uncollectible. Interest on nonaccrual loans is recognized as
income only at the time cash is received, although such interest may be applied
to reduce a loan's carrying value if the collectibility of principal is in
doubt. Information is reported monthly to the Board of Directors regarding
nonperforming loans and other nonperforming assets owned, primarily real estate.
During the first quarter of 1995, the Corporation adopted SFAS No. 114-
Accounting by Creditors for Impairment of a Loan and SFAS No. 118-Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures. For
additional information see Notes 1 and 4 to Financial Statements on pages 39 and
42 of this Report.

     Management places an individual commercial or real estate credit on
nonaccrual status when the collection of interest is doubtful or when principal
or interest is 90 days past due unless the past due amounts are in process of
collection and the loan is adequately collateralized. Consumer loans and charge
card receivables are charged off when 180 and 150 days past due, respectively.
Accrued interest on charge card loans is reversed against interest income when
principal is charged-off. Consumer loans and charge card loans are not normally
placed on nonaccrual status. The purpose of this policy is to avoid excessive
administrative costs for relatively insignificant balances.

                                      24
<PAGE>
 
     The Corporation extends credit to both commercial and retail customers.
Lending activities are centered in those industries in which it has demonstrated
expertise and specialized knowledge. All recognized risks are mitigated, to the
fullest extent possible, through loan structure and the perfection of a security
interest in collateral. The Corporation prescribes, within policy guidelines,
specific advance rates to be used in lending against readily marketable
collateral. These rates take into consideration the collateral type and the
term. Other collateral advances are set to reflect the marketability and
liquidation value of the collateral and normal advance rates are set by
corporate policy with deviations necessitating specific documentation and
approval.

     In addition to risks on earning assets, the Corporation has various
commitments and contingent liabilities outstanding that are not reflected on its
Statement of Condition. Examples of these "off-balance-sheet" items include
foreign exchange and interest rate contracts, assets held in trust, loan
commitments and letters of credit. Virtually all off-balance-sheet items must
conform to the same risk review process as loans and are subject to the
Corporation's preset limits on customer and product risk. Various hedging
strategies are employed to reduce certain types of exposure. Management reviews
the magnitude and quality of outstanding commitments and contingent liabilities.

Nonaccrual, Restructured and Past Due Loans

Management closely monitors nonperforming assets, including assets received in
satisfaction of debt. Nonperforming assets were .58 percent of total loans at
December 31, 1995, compared with 1.15 percent at year-end 1994. All
nonperforming loans are domestic.

     Interest shortfall is the difference between the gross amount of interest
that would have been recorded if all year-end nonperforming loans had been
accruing at their original terms and the cash-basis interest income actually
recognized. Interest shortfall was $2.9 million in 1995 compared to $3.9 million
a year ago.

<TABLE>
<CAPTION>

(dollars in thousands)                                         December 31     1995       1994         1993        1992       1991
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>       <C>        <C>          <C>        <C>
Nonaccrual loans..........................................................  $50,503    $83,803     $ 91,131    $136,340   $148,210
Restructured loans........................................................    2,059      2,889        3,262           -        935
                                                                            -------    -------     --------    --------   --------
Total nonperforming loans.................................................   52,562     86,692       94,393     136,340    149,145
Other assets received in satisfaction of debt.............................    2,470      8,071       19,000      18,086     17,255
                                                                            -------    -------     --------    --------   --------
    Total nonperforming assets............................................  $55,032    $94,763     $113,393    $154,426   $166,400
                                                                            =======    =======     ========    ========   ========

90-day past due loans, still accruing interest (all domestic).............  $28,302    $31,071     $ 33,491    $ 37,483   $ 30,918
                                                                            =======    =======     ========    ========   ========
Gross amount of interest that would have been
  recorded if all year-end nonperforming loans had
  been accruing interest at their original terms..........................  $ 4,500    $ 5,278     $  6,292    $ 10,135   $ 13,502
Interest income actually recognized.......................................    1,572      1,348        2,569       4,164      3,598
                                                                            -------    -------     --------    --------   --------
Interest shortfall, before consideration of any
  income tax effect.......................................................  $ 2,928    $ 3,930     $  3,723    $  5,971   $  9,904
                                                                            =======    =======     ========    ========   ========

Nonperforming loans to total loans at year-end............................      .55%      1.05%        1.23%       1.92 %     1.89%
Nonperforming assets to total loans at year-end...........................      .58       1.15         1.47        2.18       2.10
                                                                            =======    =======     ========    ========   ========
</TABLE>                                                                    

Loan Concentrations

Management monitors industry loan concentrations in an effort to maintain a 
well-diversified loan portfolio. Excluding total residential mortgages and
charge card outstandings, at December 31, 1995 the Corporation's loan portfolio
did not include any single industry concentration in excess of 10 percent of
total consolidated loans.

     The largest category of the Corporation's loans was domestic commercial,
which totaled $4.53 billion, or 48 percent of total outstandings at year-end
1995. Most of these credits were extended to manufacturing and service-related
companies. Outstandings to machinery industries represented 22 percent of all
manufacturing loans and 3 percent of total consolidated loans. The largest
concentration within service-related industries was consumer wholesalers, which
accounted for 38 percent of all service-related credits and 8 percent of total
loans.

     Foreign loans totaled $203 million at year-end 1995, accounting for 2
percent of the Corporation's total outstandings. Further details on the
Corporation's foreign loans can be found in the Foreign Outstandings section on
page 26 of this Report.

     Real estate loans, including residential mortgages, totaled $2.19 billion
at December 31, 1995, or 23 percent of total outstandings. Mortgages
collateralized by residential property totaled $1.51 billion, or 16 percent of
loans. Commercial real estate mortgages and construction loans totaled $681
million at the end of 1995, representing 7 percent of loans. Further details on
the Corporation's commercial real estate outstandings can be found on page 27 of
this Report.

                                      25
<PAGE>
 
Foreign Outstandings

Foreign outstandings consist of loans, acceptances, interest-bearing deposits
with other financial institutions and other interest-bearing investments and
monetary assets. At December 31, 1995, substantially all foreign outstandings
represented U.S.dollar claims. Foreign outstandings of certain countries are net
of: a) written guarantees by domestic or other non-local third parties or b) the
value of tangible, liquid collateral deemed realizable by the Corporation. A
significant portion of the Corporation's foreign outstandings are placed with
major financial institutions and governments and their agencies. The Corporation
continually monitors its risk related to foreign outstandings and imposes
internal limits on its foreign exposure.

     Information provided in the table on foreign outstandings is presented in
accordance with guidelines of the Securities and Exchange Commission and is not
intended to be indicative of prudent lending levels.
<TABLE>
<CAPTION>
 
                                                                                                       Banks and   Other, Primarily
                                                                                                 Other Financial     Commercial and
1995 (in thousands)                                                                       Total     Institutions         Industrial
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>             <C>                  <C>
Outstandings (including accrued interest) to one country in excess of 1% of total
 consolidated assets at year-end:
  Japan............................................................................    $253,987         $246,000             $7,987
 
1994 (in thousands)
-----------------------------------------------------------------------------------------------------------------------------------
Outstandings (including accrued interest) to one country in excess of 1% of total
 consolidated assets at year-end:
  Japan............................................................................    $268,617         $268,588             $   29
 
1993 (in thousands)
-----------------------------------------------------------------------------------------------------------------------------------
Outstandings (including accrued interest) to one country in excess of 1% of total
 consolidated assets at year-end:
  Japan............................................................................    $306,265         $303,047             $3,218

</TABLE>

     At December 31, 1995, the Corporation had no aggregate public and private
sector outstandings to any single country experiencing liquidity problems which
exceeded one percent of the Corporation's consolidated assets.

                                      26
<PAGE>
 
Commercial Real Estate

The commercial real estate market in certain areas of the country has
historically experienced depressed conditions from time to time. Many banks with
loans to borrowers in this industry have reported large increases in
nonperforming assets and corresponding increases in their allowances for credit
losses resulting from commercial real estate transactions. This phenomenon tends
to be cyclical and varies by location.

     As of December 31, 1995, the Corporation, primarily through its banking
subsidiaries, had outstanding commercial real estate loans of approximately $681
million which included both construction loans and commercial credits
collateralized by commercial real estate. The vast majority of these loans are
collateralized by real estate located in the Chicago metropolitan area. Of the
outstanding commercial real estate loans, approximately $6.4 million were
classified as nonperforming assets representing less than 1% of total
consolidated loans. There were no material charge-offs related to commercial
real estate loans during 1995 or 1994. Other real estate owned and other assets
received in satisfaction of debt were $2.5 million at December 31, 1995,
compared to $8.1 million at December 31, 1994, and comprised approximately 4% of
total nonperforming assets. Management does not currently anticipate the need to
increase its allowance for possible credit losses to reflect potential charge-
offs in its commercial real estate loan portfolio.

Highly Leveraged Transactions

The Corporation, primarily through HTSB, selectively engages in highly leveraged
transactions ("HLTs") by originating and participating in financings for highly
leveraged customers. Such financings are generally senior and collateralized.
The Corporation controls the HLT portfolio through its normal credit extension
process with the goal of not materially changing the risk profile of the
Corporation.

     The Corporation internally defines and manages its HLT portfolio using a
total debt to assets ratio exceeding 75 percent as an initial indicator of high
leverage, though other facts and circumstances of a transaction, such as typical
leverage ratios in the customer's industry, may affect that judgment. All loans
and letters of credit extended to a highly leveraged customer represent HLT
exposure, regardless of their purpose. The following discussion of HLTs uses the
Corporation's internal definition.

     All corporate credit policies are strictly applied to HLT credits. The
credit analysis performed on an HLT credit must indicate strong primary debt
repayment sources as well as contingency plans providing secondary sources of
repayment. The primary source of expected repayment for HLTs is typically cash
flow from operations. Most HLT loans are also fully collateralized either by a
direct pledge of operating assets or by the stock of operating subsidiaries.
Cash flows based on contingent events such as asset sales or substantial
operating improvements are not treated as primary repayment sources. If, during
the course of the credit review, sensitivity analysis reveals that the
borrower's ability to generate future cash flows would be significantly impaired
by higher interest rates, the borrower may be required to hedge a meaningful
portion of its debt. Pricing guidelines require HLT relationships to earn a
premium over existing minimum risk relationship return-on-asset standards.

     The Corporation manages its HLT portfolio to obtain proper portfolio
quality and diversification and, to this end, all HLT credits are subject to
periodic review by senior management. Aggregate commitments (including
outstandings) are currently capped at $600 million. Overall, target credit
outstandings are not to exceed 10 percent of total Corporation loans.
Commitments, including outstandings, represented less than 3 percent of the
Corporation's outstanding loans at December 31, 1995.

                                      27
<PAGE>
 
Provision and Allowance for Possible Credit Losses

The provision for credit losses is based upon management's estimate of potential
credit losses and its evaluation of the adequacy of the allowance for possible
credit losses. Factors which influence management's judgment in estimating
credit losses and the adequacy of the allowance include the impact of
anticipated general economic conditions, the nature and volume of the current
loan portfolio, historical loss experience, the balance of the allowance in
relation to total loans outstanding and the evaluation of risks associated with
nonperforming loans.

     In 1994, the Corporation adopted the guidelines set forth under the
December 1993 "Interagency Policy Statement on the Allowance for Loan and Lease
Losses" issued by the Office of the Comptroller of the Currency, the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation and the Federal
Reserve Board. This statement outlines a methodology management should follow in
order to properly measure the adequacy of the allowance for possible credit
losses. It includes specific quantitative measures as well as certain subjective
factors that may cause estimated credit losses to differ from historical loss
experience. The quantitative measures basically require a bank to place its
loans into "separate pools" with like characteristics and then measure the
historical loss experience of these loan pools. In the case of "non-classified
loans," it is sufficient to estimate credit losses for the upcoming 12 months.
But in the case of "classified loans," the losses must be projected for the
remaining effective lives of the loans. The subjective factors that should also
be considered and that could potentially modify some of the conclusions reached
by only looking at the quantitative measures are: significant changes in the
institution's lending policies and procedures; changes in national and local
business and economic conditions; changes in the nature and volume of the loan
portfolio; changes in the experience, ability, and depth of lending management
and staff; changes in the trend of the volume and severity of past due and
classified loans; changes in the quality of the institution's loan review
system; the existence and effect of any concentrations, and changes in the level
of such concentrations; and the effect of external factors such as competition
or any special legal or regulatory changes.

  The Corporation's aggregate allowance for possible credit losses is derived
from the combination of allowances at its individual subsidiaries, primarily
banks. Each subsidiary has a responsibility to maintain an adequate allowance
based on an evaluation of its own loan portfolio and considering the guidelines
set forth in the aforementioned interagency credit statement. Although
allocations of the Corporation's allowance are made for reporting purposes, each
subsidiary's individual allowance for possible credit losses is available for
use against its total loan portfolio.

     On a regular basis, management identifies portions of specific commercial
and real estate credits as "doubtful." These credits include loans where less
than full repayment is reasonably possible, the loan is classified as nonaccrual
and the borrower is experiencing serious financial problems. Approximately 12
percent, 11 percent, 23 percent, 24 percent and 27 percent of the consolidated
allowance for possible credit losses was represented by doubtful portions of
loans at December 31, 1995, 1994, 1993, 1992, and 1991, respectively. At
December 31, 1995, the Corporation had allocated $14.9 million to loans
internally categorized as doubtful, compared to $13.6 million at year-end 1994.

     At December 31, 1995, the Corporation designated all of the allocated
portion of the allowance to cover total domestic credit exposure, compared to
$102.4 million and $3.8 million for domestic and foreign, respectively, at
December 31, 1994 due to declining foreign credit exposure.

     During 1995, the provision for credit losses decreased to $43.0 million,
compared to $45.0 million in 1994. At year-end 1995, the allowance for possible
credit losses was $129.3 million, or 1.36 percent of total loans outstanding,
compared to $124.7 million or 1.52 percent of total loans one year ago. The
provision for credit losses is established and reviewed based on the following
criteria: current economic trends, current status of loan portfolio, federal
regulatory requirements, expected net charge-offs and peer group analysis. With
regard to establishing the provision and as a monitoring tool, the ratio of the
allowance for possible credit losses to total loans and the ratio of the
allowance for possible credit losses to nonperforming loans are evaluated on a
regular basis. At year-end 1995, the ratios of the allowance for possible credit
losses to total loans and to nonperforming loans were 1.36% and 246%,
respectively. Both ratios are acceptable when compared to peers and are adequate
when considered in conjunction with the previously-mentioned criteria.
Accordingly, the 1995 provision for credit losses was established, in part, to
achieve these ratios.

     Net charge-offs in 1995 were $38.5 million, or .44 percent of average loans
outstanding as compared to $52.0 million, or .68 percent of average loans
outstanding in 1994. Net charge-offs of domestic commercial loans amounted to
$9.9 million in 1995, or .17 percent of average domestic commercial loans
outstanding, down from $24.7 million, or .48 percent of average domestic
commercial loans outstanding in 1994. The charge card portfolio experienced net
charge-offs of $27.4 million and $21.3 million in 1995 and 1994, respectively,
or 2.82 percent and 2.88 percent, respectively, of average outstandings.
Installment loans, including real estate mortgages, had net charge-offs of $1.3
million in 1995, or 0.8 percent of average outstandings, down from $5.9 million,
or .40 percent of average outstandings in 1994. Over the five-year period ending
December 31, 1995, combined net charge-offs were .81 percent of average total
loans outstanding.

     The Board of Governors of the Federal Reserve System has established rules
requiring banking institutions to establish special reserves against the risks
presented in certain international assets, as determined by the Federal Reserve
Board. At December 31, 1995 and 1994, the Corporation was not required to
maintain any special reserve under the aforementioned regulation.

                                      28
<PAGE>

The following table sets forth the Corporation's allocation of the allowance for
possible credit losses. This allocation is based on management's subjective
estimates. The amount allocated to a particular category should not be
interpreted as the only amount available for future charge-offs that may occur
within that category; it may not be indicative of future charge-off trends and
it may change from year to year based on management's assessment of the risk
characteristics of the loan portfolio.
<TABLE>
<CAPTION>
Allocation Of The Allowance For Possible Credit Losses
                                                                         1995                       1994
                                                               ------------------------     ------------------------
                                                                          Loan category                Loan category
                                                                              as a % of                    as a % of
(dollars in thousands)                    December 31          Allowance    Total Loans     Allowance    Total Loans
--------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>        <C>               <C>        <C>          
Allocated Portion:
 Commercial..........................................          $ 59,255            65.5%    $ 60,897            65.4%
 Retail, including charge card.......................            39,227            32.4       41,523            31.4
 Foreign.............................................                 -             2.1        3,819             3.2
                                                               --------           -----     --------           -----
Total Allocated Portion..............................            98,482           100.0%     106,239           100.0%
                                                                                  =====                        =====
Unallocated Portion..................................            30,777             N/A       18,495             N/A
                                                               --------                     --------
Total................................................          $129,259                     $124,734
                                                               ========                     ========
</TABLE> 
<TABLE> 
<CAPTION>  
Analysis of Allowance for Possible Credit Losses

(dollars in thousands)      Years Ended December 31          1995          1994            1993            1992          1991
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>             <C>             <C>           <C>
Beginning balance..................................    $  124,734    $  131,676      $  130,123      $  125,091    $  124,829
                                                       ----------    ----------      ----------      ----------    ----------

Charge-offs:
 Commercial, financial and agricultural............        20,967        31,900          43,537          54,565        43,114
 Real estate construction..........................         2,644            65               -              29             -
 Installment and real estate mortgages.............         2,442         7,581           3,446           3,414         3,460
 Charge card*......................................        35,914        30,360          35,145          39,048        44,004
 Foreign...........................................             -             -               -               -             -
                                                       ----------    ----------      ----------      ----------    ----------
  Total charge-offs................................        61,967        69,906          82,128          97,056        90,578
                                                       ----------    ----------      ----------      ----------    ----------

Recoveries:
 Commercial, financial and agricultural............        11,063         7,216          10,657           3,859         2,853
 Real estate construction..........................         2,867            21               -               -             -
 Installment and real estate mortgages.............         1,093         1,646             783           1,136         1,135
 Charge card.......................................         8,474         9,041           9,378           9,295         5,434
 Foreign...........................................             -             -              28          10,238         2,108
                                                       ----------    ----------      ----------      ----------    ----------
  Total recoveries.................................        23,497        17,924          20,846          24,528        11,530
                                                       ----------    ----------      ----------      ----------    ----------
  Net charge-offs..................................        38,470        51,982          61,282          72,528        79,048
                                                       ----------    ----------      ----------      ----------    ----------

Provisions charged (credited) to expense:
 Domestic..........................................        46,814        44,922          61,707          89,083        82,063
 Foreign...........................................        (3,819)          118           1,128         (11,523)       (2,753)
                                                       ----------    ----------      ----------      ----------    ----------
  Total provisions.................................        42,995        45,040          62,835          77,560        79,310
                                                       ----------    ----------      ----------      ----------    ----------
Ending balance.....................................    $  129,259    $  124,734      $  131,676      $  130,123    $  125,091
                                                       ==========    ==========      ==========      ==========    ==========

Net loans, end of period...........................    $9,517,797    $8,229,254      $7,703,957      $7,082,861    $7,906,892
                                                       ==========    ==========      ==========      ==========    ==========

Net loans, daily averages..........................    $8,785,571    $7,672,575      $7,044,808      $7,294,126    $7,407,892
                                                       ==========    ==========      ==========      ==========    ==========
Ratios:
 Net charge-offs to average
  loans outstanding................................           .44%          .68%            .87%            .99%         1.07%
 Allowance for possible credit losses to
  loans outstanding (end of period)................          1.36          1.52            1.71            1.84          1.58
 Allowance for possible credit losses to
  nonperforming loans (end of period)..............           246           144             139              95            84
 Allowance for possible credit losses
  to nonperforming assets..........................           235           132             116              84            75
 Net charge-offs to allowance for possible
  credit losses (beginning of period)..............            31            39              47              58            63
                                                       ==========    ==========      ==========      ==========    ==========  
</TABLE>
*Prior to 1992, the Corporation charged off past-due charge card interest to 
the allowance for possible credit losses. In 1995, 1994, 1993, and 1992, 
$1.9 million, $2.0 million, $2.6 million and $3.0 million, respectively, of 
such interest was recorded as a reduction of interest income.

                                      29
<PAGE>
 

International Banking

Summary

International banking services of the Corporation include extension of foreign
credits, foreign exchange trading activities and dealings in Eurocurrencies.
These services are conducted through the Chicago headquarters; the London and
Nassau branch offices; representative offices in Los Angeles and Tokyo; Bank of
Montreal Trust Company (Channel Islands), Ltd.; and Harris Bank International
Corporation, a wholly-owned Edge Act subsidiary of HTSB located in New York
City.

     International banking services contributed $15.3 million, or 10 percent, of
the Corporation's 1995 consolidated net income, compared to $18.0 million or 18
percent in 1994. International operating income decreased $4.1 million, or 8
percent, to $49.3 million in 1995 and represented 4 percent of the Corporation's
total operating income. In 1994 and 1993, international operating income
represented 5 percent of the Corporation's total operating income. Assets and
liabilities associated with foreign domiciled customers are summarized as
follows:

<TABLE>
<CAPTION>
Foreign assets and liabilities
(in thousands)                              December 31             1995             1994         1993
------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>            
Loans:
 Governments and official institutions.................         $    984       $      984     $    984
 Banks and other financial institutions................          160,808          250,563      221,603
 Other, primarily commercial and industrial............           40,900           16,210        8,074
                                                                --------       ----------     --------
  Total loans..........................................          202,692          267,757      230,661
                                                                --------       ----------     --------
 Allowance for possible credit losses..................                -           (3,819)      (3,701)
                                                                --------       ----------     --------
Deposits in banks located outside the United States:
 Interest-bearing......................................          447,700          660,083      525,329
 Other.................................................           64,499           78,745       53,690
                                                                --------       ----------     --------
  Total deposits in banks..............................          512,199          738,828      579,019
                                                                --------       ----------     --------
Acceptances and other identifiable assets..............          102,337           40,018       30,289
                                                                --------       ----------     --------
  Total identifiable foreign assets....................         $817,228       $1,042,784     $836,268
                                                                ========       ==========     ========

Deposit liabilities:
 Banks located in foreign countries....................         $346,832       $  335,370     $352,042
 Foreign governments and official institutions.........           15,000          100,139       21,405
 Other demand..........................................           72,145           39,510       29,531
 Other time and savings................................          176,466          111,524       54,419
                                                                --------       ----------     --------
  Total deposit liabilities............................          610,443          586,543      457,397
Short-term borrowings..................................          107,645          249,536       53,104
Acceptances outstanding................................           55,898           14,782        5,000
                                                                --------       ----------     --------
  Total identifiable foreign liabilities...............         $773,986       $  850,861     $515,501
                                                                ========       ==========     ========
</TABLE>

                                       30
<PAGE>
  
Geographic Distribution

As of year-end 1995, substantially all international loans, interest-bearing
deposits at banks and deposits in foreign offices represented U.S. dollar
claims. The geographical distribution of international loans and interest-
bearing deposits at banks is presented in the following
table:
<TABLE>
<CAPTION>
                                                      International Loans
International banking by domicile                    --------------------  Interest-Bearing
of obligor                                           Domestic     Foreign       Deposits at
(dollars in thousands)                                Offices     Offices             Banks         Total         %
-------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>        <C>                <C>            <C>            <C>
December 31, 1995                               
Continental Europe..............................     $ 24,468    $ 14,289          $152,700      $191,457        29
Pacific and Far East............................      114,082           -           270,000       384,082        59
United Kingdom and Ireland......................          537         702            25,000        26,239         4
Western Hemisphere (excluding U.S. and Canada)..           27      10,479                 -        10,506         2
Canada..........................................       38,108           -                 -        38,108         6
                                                     --------    --------          --------      --------       --- 
 Total international banking....................     $177,222    $ 25,470          $447,700      $650,392       100
                                                     ========    ========          ========      ========       === 
                                                                                                          
December 31, 1994                                                                                         
Continental Europe..............................     $ 32,157    $  6,784          $409,375      $484,316        48
Pacific and Far East............................      113,266      99,794           177,208       390,268        42
United Kingdom and Ireland......................        1,000         218                 -         1,218         -
Western Hemisphere (excluding U.S. and Canada)..        7,666         984            41,000        49,650         6
Canada..........................................        5,888           -            32,500        38,388         4
                                                     --------    --------          --------      --------       --- 
 Total international banking....................     $159,977    $107,780          $660,083      $927,840       100
                                                     --------    --------          --------      --------       --- 
                                                                                                          
December 31, 1993                                                                                         
Continental Europe..............................     $ 55,152    $  1,160          $205,700      $262,012        35
Pacific and Far East............................      150,985       6,920           238,629       396,534        52
United Kingdom and Ireland......................            -       3,101            10,000        13,101         2
Western Hemisphere (excluding U.S. and Canada)..        4,410       1,008            16,000        21,418         3
Canada..........................................        7,925           -            55,000        62,925         8
                                                     --------    --------          --------      --------       --- 
 Total international banking....................     $218,472    $ 12,189          $525,329      $755,990       100
                                                     ========    ========          ========      ========       ===
</TABLE>

Vision 2002

The Corporation and its parent company, Bank of Montreal, have developed a
joint, long-term strategic plan with the goal of becoming, over a period of 10
years, a North American financial services organization with comprehensive
capabilities in both Canada and the United States. This plan, called Vision
2002, envisions Harris as one of four main operating entities within the Bank of
Montreal organization, with the responsibility for serving individuals and small
to mid-sized businesses in the Midwest while providing trust, cash management,
investment management and special industries services nationally.

     Vision 2002 will lead to a substantially larger Bank of Montreal presence
in the United States, principally focused in the Harris organization and its
subsidiaries. The Corporation's services to individuals, small businesses and
mid-market corporations will be expanded throughout Chicago, Illinois and
neighboring states. Additionally, trust, cash management, investment management
and special industries services will continue to grow nationwide.

     Over a period of 10 years, Bank of Montreal plans to invest up to $700
million in the Corporation with the purpose of expanding, through acquisition
and de novo branching, its distribution network within the City of Chicago, Cook
County and surrounding counties. As part of this expansion, in October 1994,
Bank of Montreal and Suburban Bancorp, Inc. completed their merger. The merger
was effected using Bank of Montreal stock valued at approximately $237 million.
Suburban Bancorp, now known as Harris Bankmont, Inc., became a wholly-owned
subsidiary of Bankmont Financial Corp. The transaction added 13 banks with 30
locations in Cook and surrounding counties, thereby doubling the number of
community banks in the Chicago area and making Harris (the Corporation and
Harris Bankmont, Inc.) the area's third largest community bank network with 86
locations opened or announced at year end 1995. The Corporation and its sister
company, Harris Bankmont, Inc., plan to open approximately 10 new branches in
1996. The two-to-three year process of building a cost-effective operations and
staff support infrastructure, started in 1994, continued in 1995, with over $20
million in infrastructure costs reduced and redeployed into marketing, sales,
and service. The goal is to obtain North American scale advantages and reduce
fixed costs. Building broad-based centers of competence within corporate
services and operations will eliminate duplication, create scale efficiencies
and improve quality and responsiveness. Additionally, the use of advanced
technology to auto-

                                      31
<PAGE>
  
mate processing activities at the point of customer contact will lower costs and
increase quality. To this end, the consolidation of processing functions for
Harris' and Bank of Montreal's U.S.-based foreign currency operations at a
single location in Montreal was completed in 1995 as was the consolidation of
credit card remittance processing in suburban Chicago. The new community bank
operations center, which provides centralized customer support functions, opened
at 1994 year-end. Customer support functions include stop payments, overdrafts,
application balancing, customer account set-up and maintenance and proofing and
encoding. The center consolidated all bookkeeping and proofing functions during
1995. Bank of Montreal and Harris loan administration functions will be
consolidated in 1996. Management believes that new and existing customers will
have even better access to the wide range of services that the Corporation has
built over its 114 years, as well as to the additional services it will provide
in the years ahead.

Fourth Quarter 1995 Compared with Fourth Quarter 1994

Net income for the fourth quarter of 1995 was $38.8 million, up 9 percent from
fourth quarter 1994 earnings of $35.6 million. The earnings growth is
attributable primarily to an improvement in net interest income, securities
gains, increased other income and lower FDIC insurance premiums. The Corporation
recorded returns on average assets and average common equity of 0.94 percent and
13.7 percent, respectively, in fourth quarter 1995, compared to returns of 0.96
percent and 14.0 percent in last year's fourth quarter.

     FTE net interest income was $127.7 million during the 1995 fourth quarter,
an increase of 1 percent from $126.8 million for the same quarter one year ago.
Net interest margin fell from 4.03% to 3.62%, reflecting rate compression in
certain asset categories, a lower mix of noninterest-bearing deposits, and the
relationship which existed in the markets between short and longer term rates.
Average earning assets rose 12% from $12.5 billion to $14.0 billion and average
loans increased by $1.5 billion or 19% with commercial loans, real estate loans
and charge card outstandings being the strongest contributors to this growth.
Average portfolio securities increased $226 million in fourth quarter 1995
compared to 1994, offset by a $227 million decrease in money market assets and
interest bearing deposits at banks.

     Funding for the quarter's asset growth came from interest-bearing
liabilities, which rose $1.6 billion from last year's fourth quarter. Average
interest-bearing deposits increased $334 million, or 5 percent to $7.31 billion,
reflecting increased savings and certificates of deposits as well as time
deposits in foreign offices. Short-term borrowings were up $503 million or 18
percent and senior notes increased $739 million from the prior year as described
in the "Liquidity and Sources of Funds" section of this Report. Noninterest-
bearing supporting funds were virtually unchanged, representing 16 percent of
supporting liabilities in fourth quarter 1995, down from 19 percent in the 1994
fourth quarter.

     The fourth quarter provision for credit losses of $11.6 million was up from
$10.5 million provided in the fourth quarter of 1994. Net loan charge-offs
during the current quarter were $11.7 million, compared to $12.9 million in the
same period last year.

     In the fourth quarter of 1995, noninterest revenue increased $9.3 million
or 12% to $86.3 million. Net gains from the sale of debt securities amounted to
$2.8 million compared to a $0.4 million loss in the fourth quarter of 1994.
Money market and bond trading profits rose $1.4 million, while other sources of
noninterest income increased $4.9 million.

     Noninterest expenses for the fourth quarter of 1995 of $141.7 million were
2% higher than the comparable quarter a year ago, primarily reflecting normal
salary increases and higher variable compensation attributable to substantially
stronger earnings performance. FDIC insurance premiums declined by $3.1 million
while other expense categories approximated last year's levels.

     Income tax expense increased $6.0 million or 48 percent, quarter to
quarter, attributable to higher pretax income and a smaller tax-exempt municipal
bond portfolio.

                                      32
<PAGE>
<TABLE>
<CAPTION>
 
ITEM 8-FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                  Harris Bankcorp, Inc. and Subsidiaries

SUPPLEMENTARY DATA

Quarterly Financial Data (unaudited)
Summary of Earnings and Net Interest Income

(Fully taxable equivalent                             1995                            1994                            1993
(FTE) basis, dollars in     ------------------------------  ------------------------------  ------------------------------ 
millions, except per          4th     3rd     2nd     1st     4th     3rd     2nd     1st     4th     3rd     2nd     1st
share data)                   Qtr.    Qtr.    Qtr.    Qtr.    Qtr.    Qtr.    Qtr.    Qtr.    Qtr.    Qtr.    Qtr.    Qtr.
--------------------------------------------------------------------------------------------------------------------------
<S>                         <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>    <C>     <C>     <C>     <C>
Interest income............ $279.8  $272.1  $260.0  $252.3  $237.8  $217.8  $201.3  $177.7  $179.2  $182.4  $186.7  $185.0
Interest expense...........  155.5   151.1   140.2   134.9   117.1   101.1    87.7    72.1    72.7    74.1    77.4    75.3
                            ------------------------------  ------------------------------  ------------------------------
Net Interest Income........  124.3   121.0   119.8   117.4   120.7   116.7   113.6   105.6   106.5   108.3   109.3   109.7
FTE adjustment.............    3.4     3.9     5.0     5.4     6.1     5.9     6.0     5.8     6.0     7.3     6.1     6.1
                            ------------------------------  ------------------------------  ------------------------------
Net interest income--                                                                                               
 FTE basis.................  127.7   124.9   124.8   122.8   126.8   122.6   119.6   111.4   112.5   115.6   115.4   115.8
Provision for credit losses   11.6    11.0    11.8     8.6    10.5     9.0    12.0    13.4    16.6    15.5    15.3    15.5
                            ------------------------------  ------------------------------  ------------------------------
Net Interest Income after                                                                                           
 Provision for Credit                                                                                               
 Losses....................  116.1   113.9   113.0   114.2   116.3   113.6   107.6    98.0    95.9   100.1   100.1   100.3
                            ------------------------------  ------------------------------  ------------------------------
Noninterest Income                                                                                                  
 Trust and investment                                                                                               
  management fees..........   36.9    38.0    36.3    38.7    36.7    36.2    37.7    37.6    38.8    36.8    37.5    35.7
 Trading account...........    2.1      .4      .7     1.9      .7      .1     (.1)   (1.2)     .2     1.1      .8     3.1
 Foreign exchange..........    4.1     2.4     3.2     4.6     4.3     4.0     5.2     6.2     5.3     4.1     7.8     7.1
 Charge card...............   11.2    10.9    10.5     9.2    10.5     9.9     8.9     8.1    10.5     9.5     8.5     8.0
 Service fees and charges..   17.9    16.2    17.5    17.7    17.7    18.5    18.5    19.0    18.5    19.6    18.9    20.8
 Securities (losses) gains.    2.8     1.7    16.8     2.1     (.4)    2.4      .1     3.1     5.5      .3     6.9      .3
 Other.....................   11.3    10.4     6.4     6.4     7.5     5.1    10.3     7.7     5.2    10.7     7.9     7.6
                            ------------------------------  ------------------------------  ------------------------------
  Total noninterest                                                                                                 
    income.................   86.3    80.0    91.4    80.6    77.0    76.2    80.6    80.5    84.0    82.1    88.3    82.6
                            ------------------------------  ------------------------------  ------------------------------
Noninterest Expenses                                                                                                
 Employment................   79.8    78.9    79.3    80.2    74.1    77.2    79.6    81.7    74.5    74.3    83.7    73.2
 Net occupancy.............   11.0    11.7    12.0    11.4    11.7    11.0    11.3    11.1    11.4    12.5    11.8    11.0
 Equipment.................   11.4    10.9    10.4     9.8    11.2    10.4    10.0    10.7    11.5    10.6    10.9    10.4
 Marketing.................    6.5     6.6     6.7     5.8     6.9     5.8     6.4     5.5     7.5     5.1     5.3     4.7
 Communication and                                                                                                  
   delivery................    5.3     5.1     5.2     4.7     4.6     4.7     4.3     4.2     4.5     4.2     4.4     4.8
 Deposit insurance.........     .8     (.3)    3.8     3.8     3.9     3.9     3.9     3.9     3.1     3.8     3.8     4.4
 Trust customer charge.....      -       -       -       -       -       -    51.3       -       -       -       -       -
 Other.....................   26.9    24.3    25.6    22.6    26.7    23.7    22.9    21.5    29.6    28.1    11.6    31.5
                            ------------------------------  ------------------------------  ------------------------------
  Total noninterest                                                                                                 
    expenses...............  141.7   137.2   143.0   138.3   139.1   136.7   189.7   138.6   142.1   138.6   131.5   140.0
                            ------------------------------  ------------------------------  ------------------------------
FTE income (loss)--                                                                                                 
 pretax....................   60.7    56.7    61.4    56.5    54.2    53.1    (1.5)   39.9    37.8    43.6    56.9    42.9
Applicable income taxes                                                                                             
 (benefit).................   18.5    17.0    18.2    16.4    12.5    13.4    (8.0)    6.7     6.8     7.3    15.4    10.4
FTE adjustment.............    3.4     3.9     5.0     5.4     6.1     5.9     6.0     5.8     6.0     7.3     6.1     6.1
                            ------------------------------  ------------------------------  ------------------------------
Income before cumulative                                                                                            
 effect of a change in                                                                                              
 accounting principle......   38.8    35.8    38.2    34.7    35.6    33.8      .5    27.4    25.0    29.0    35.4    26.4
Cumulative effect on prior 
 years (to December 31, 
 1992) of changing the 
 accounting method for 
 income taxes..............      -       -       -       -       -       -       -       -       -       -       -     1.8
                            ------------------------------  ------------------------------  ------------------------------
Net Income................. $ 38.8  $ 35.8  $ 38.2  $ 34.7  $ 35.6  $ 33.8  $   .5  $ 27.4  $ 25.0  $ 29.0  $ 35.4  $ 28.2
                            ==============================  ==============================  ==============================
Earnings per common                                                                                                 
 share (based on average                                                                                            
 shares outstanding)....... $ 5.83  $ 5.36  $ 5.72  $ 5.21  $ 5.34  $ 5.07  $  .08  $ 4.11  $ 3.75  $ 4.35  $ 5.30  $ 4.24
                            ==============================  ==============================  ==============================
Net Interest Margin                                                                                                 
 Yield on earning assets...   8.02%   8.02%   8.27%   8.18%   7.75%   7.26%   6.82%   6.33%   6.40%   6.66%   6.73%   6.99%
 Rate on supporting                                                                                                 
  liabilities..............   4.40    4.37    4.38    4.28    3.72    3.28    2.89    2.50    2.51    2.60    2.71    2.76
                            ------------------------------  ------------------------------  ------------------------------
 Net interest margin.......   3.62%   3.65%   3.89%   3.90%   4.03%   3.98%   3.93%   3.83%   3.89%   4.06%   4.02%   4.23%
                            ==============================  ==============================  ==============================
</TABLE>

Rows may not add to annual amounts because of rounding.

                                       33

<PAGE>
 
FINANCIAL STATEMENTS

Consolidated Statement of Income          Harris Bankcorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>

(dollars in thousands except per share data)        For the Years Ended December 31       1995           1994            1993
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>             <C>              <C> 
Interest Income
Loans, including fees.............................................................. $  776,226       $591,532        $512,491
Money market assets:
 Deposits at banks.................................................................     38,617         30,739          25,212
 Federal funds sold and securities purchased under agreement to resell.............     19,330         21,523          17,436
Trading account....................................................................      3,842          2,190           5,671
Securities available for sale:
 U.S. Treasury and federal agency..................................................    152,508        115,489               -
 Other.............................................................................      9,671          5,754               -
Securities held to  maturity:
 U.S. Treasury and federal agency..................................................     36,641         27,362         129,337
 State and municipal...............................................................     27,072         37,432          38,647
 Other.............................................................................        353          2,584           4,383
                                                                                    ----------       --------        --------
 Total interest income.............................................................  1,064,260        834,605         733,177
                                                                                    ----------       --------        --------
Interest Expense
Deposits...........................................................................    358,586        250,002         200,172
Short-term borrowings..............................................................    168,993        108,485          73,043
Senior notes.......................................................................     31,125              -               -
Long-term notes....................................................................     23,005         19,520          26,406
                                                                                    ----------       --------        --------
 Total interest expense............................................................    581,709        378,007         299,621
                                                                                    ----------       --------        --------

Net Interest Income................................................................    482,551        456,598         433,556
Provision for credit losses........................................................     42,995         45,040          62,835
                                                                                    ----------       --------        --------
Net Interest Income after Provision for Credit Losses..............................    439,556        411,558         370,721
                                                                                    ----------       --------        --------
Noninterest Income
Trust and investment management fees...............................................    149,979        148,094         148,809
Trading account....................................................................      5,110           (396)          5,258
Foreign exchange...................................................................     14,248         19,769          24,302
Charge card........................................................................     41,788         37,402          36,516
Service fees and charges...........................................................     69,333         73,621          77,774
Securities gains...................................................................     23,379          5,254          13,038
Other..............................................................................     34,436         30,700          31,391
                                                                                    ----------       --------        --------
 Total noninterest income..........................................................    338,273        314,444         337,088
                                                                                    ----------       --------        --------

Noninterest Expenses
Salaries and other compensation....................................................    260,539        246,200         243,739
Pension, profit sharing and other employee benefits................................     57,763         66,370          62,019
Net occupancy......................................................................     46,099         45,052          46,676
Equipment..........................................................................     42,541         42,284          43,396
Marketing..........................................................................     25,583         24,632          22,613
Communication and delivery.........................................................     20,251         17,732          17,916
Deposit insurance..................................................................      8,124         15,684          15,047
Trust customer charge..............................................................          -         51,335               -
Other..............................................................................     99,203         94,839         100,681
                                                                                    ----------       --------        --------
 Total noninterest expenses........................................................    560,103        604,128         552,087
                                                                                    ----------       --------        --------

Income before income taxes.........................................................    217,726        121,874         155,722
Applicable income taxes............................................................     70,175         24,528          39,879
                                                                                    ----------       --------        --------
 Income before cumulative effect of a change in accounting principle...............    147,551         97,346         115,843
Cumulative effect on prior years (to December 31, 1992) of changing the
 accounting method for income taxes................................................          -              -           1,782
                                                                                    ----------       --------        --------
Net Income......................................................................... $  147,551       $ 97,346        $117,625
                                                                                    ==========       ========        ========

Earnings per Common Share (based on 6,667,490 average shares outstanding)
Income before cumulative effect of a change in accounting principle................ $    22.13       $  14.60        $  17.37
Cumulative effect on prior years (to December 31, 1992) of changing the
 accounting method for income taxes................................................          -              -             .27
                                                                                    ----------       --------        --------
Net Income......................................................................... $    22.13       $  14.60        $  17.64
                                                                                    ==========       ========        ========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.

                                      34
<PAGE>
 
<TABLE>
<CAPTION>
Consolidated Statement of Condition                                                          Harris Bankcorp, Inc. and Subsidiaries


(in thousands except share data)                                                             December 31         1995          1994
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                       <C>           <C>
ASSETS
Cash and demand balances due from banks.................................................................  $ 1,522,418   $ 1,399,781
Money market assets:                                                                                                               
  Interest-bearing deposits at banks....................................................................      457,702       757,227
  Federal funds sold and securities purchased under agreement to resell.................................      179,692       404,226
Portfolio securities:                                                                                                              
  Held to maturity (market value of $1,101,927 in 1994).................................................           --     1,107,659
  Available for sale....................................................................................    3,389,967     2,581,293
Trading account assets..................................................................................       98,638        36,067
Loans, net of unearned income of $16,091 in 1995 and $20,724 in 1994....................................    9,517,797     8,229,254
Allowance for possible credit losses....................................................................     (129,259)     (124,734)
Premises and equipment..................................................................................      225,540       221,494
Customers' liability on acceptances.....................................................................       95,326       125,113
Other assets............................................................................................      318,380       594,159 
                                                                                                          -----------   -----------
  TOTAL ASSETS..........................................................................................  $15,676,201   $15,331,539
                                                                                                          ===========   ===========
                                                                                                                     
LIABILITIES                                                                                                          
Deposits in domestic offices--noninterest-bearing.......................................................  $ 3,003,088   $ 3,222,043
                            --interest-bearing..........................................................    4,859,939     4,214,273
Deposits in foreign offices--noninterest-bearing........................................................       41,004        31,903
                           --interest-bearing...........................................................    2,324,751     2,451,513
                                                                                                          -----------   -----------
      Total deposits....................................................................................   10,228,782     9,919,732 
Federal funds purchased and securities sold under agreement to repurchase...............................    1,896,817     2,632,167
Commercial paper outstanding............................................................................      292,022       306,737
Short-term borrowings...................................................................................      843,049       670,362
Senior notes............................................................................................      478,000            --
Acceptances outstanding.................................................................................       95,326       125,113
Accrued interest, taxes and other expenses..............................................................      143,580       126,723
Other liabilities.......................................................................................      188,897       230,741
Long-term notes.........................................................................................      363,952       298,810
                                                                                                          -----------   -----------
    TOTAL LIABILITIES...................................................................................   14,530,425    14,310,385 
                                                                                                          -----------   -----------
 
STOCKHOLDER'S EQUITY
Series A Non-voting Preferred stock (no par value); authorized 1,000,000 shares;
  issued and outstanding 180 shares ($1,000,000 stated value)...........................................      180,000            --
Common stock ($8 par value); authorized 10,000,000 shares;                                                                          
  issued and outstanding 6,667,490 shares...............................................................       53,340        53,340 
Surplus.................................................................................................      203,897       203,897 
Retained earnings.......................................................................................      681,468       796,617 
Unrealized holding gains (losses), net of deferred taxes of $17,787 in 1995 and $(21,535) in 1994.......       27,071       (32,700)
                                                                                                          -----------   -----------
    TOTAL STOCKHOLDER'S EQUITY..........................................................................    1,145,776     1,021,154 
                                                                                                          -----------   -----------
                                                                                                                                    
    TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY..........................................................  $15,676,201   $15,331,539 
                                                                                                          ===========   ===========


The accompanying notes to financial statements are an integral part of this statement.
</TABLE>
                                       35

<PAGE>
<TABLE>
<CAPTION>
 
Statement of Changes in Stockholder's Equity                    Harris Bankcorp, Inc. (Consolidated and Parent Company only)


                                                                                                 Unrealized           Total
                                         Preferred      Common                   Retained     Holding Gains    Stockholders
(in thousands except per share data)         Stock       Stock      Surplus      Earnings          (Losses)          Equity
---------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>        <C>          <C>           <C>              <C> 
Balance at December 31, 1992............  $     --      $53,340    $203,897     $ 672,954         $      --      $  930,191
 Net income.............................        --           --          --       117,625                --         117,625
 Dividends ($8.48 per share)............        --           --          --       (56,570)               --         (56,570)
 Implementation of change in
  accounting for marketable debt
  and equity securities, net of
  tax effect of $17,441.................        --           --          --            --            26,426          26,426
                                          --------      -------    --------     ---------         ---------      ----------
Balance at December 31, 1993............        --       53,340     203,897       734,009            26,426       1,017,672
 Net income.............................        --           --          --        97,346                --          97,346
 Dividends ($5.21 per share)............        --           --          --       (34,738)               --         (34,738)
 Change in unrealized holding gains
  (losses) on available for sale
  securities, net of tax effect of
  $(38,976).............................        --           --          --            --           (59,126)        (59,126)
                                          --------      -------    --------     ---------         ---------      ----------
Balance at December 31, 1994............        --       53,340     203,897       796,617           (32,700)      1,021,154
 Issuance of preferred stock............   180,000           --          --            --                --         180,000
 Net income.............................        --           --          --       147,551                --         147,551
 Dividends ($39.40 per common share)....        --           --          --      (262,700)               --        (262,700)
 Change in unrealized holding gains
 (losses) on available for sale
 securities, net of tax effect of
 ($39,322)..............................        --           --          --            --            59,771          59,771
                                          --------      -------    --------     ---------          --------      ----------
Balance at December 31, 1995............  $180,000      $53,340    $203,897     $ 681,468          $ 27,071      $1,145,776
                                          ========      =======    ========     =========          ========      ==========
</TABLE> 








                                       36
<PAGE>
<TABLE> 
<CAPTION>  
 
Consolidated Statement of Cash Flows                                                  Harris Bankcorp, Inc. and Subsidiaries

(in thousands)                                     For the Years Ended December 31          1995          1994          1993
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>           <C>           <C>  
Operating Activities:                                                                                            
 Net Income.......................................................................   $   147,551   $    97,346   $   117,625
                                                                                                                 
 Adjustments to reconcile net income to net cash provided by operating activities:                               
  Provision for credit losses.....................................................        42,995        45,040        62,835
  Depreciation and amortization, including intangibles............................        48,492        49,873        52,686
  Deferred tax benefit............................................................        (1,380)       (3,818)      (12,829)
  Gain on sales of portfolio securities...........................................       (23,379)       (5,254)      (13,038)
  Trading account net cash (purchases) sales......................................       (62,571)       13,994        (5,377)
  (Increase) decrease in interest receivable......................................          (243)      (40,721)       15,759
  Increase (decrease) in interest payable.........................................         8,270         9,403        (6,535)
  (Increase) decrease in loans held for sale......................................       (21,314)      245,445      (101,287)  
  Other, net......................................................................        43,912       (18,673)        4,588
                                                                                     -----------   -----------   -----------
    Net cash provided by operating activities.....................................       182,333       392,635       114,427
                                                                                     -----------   -----------   -----------
                                                                                                                 
Investing Activities:                                                                                            
  Net decrease (increase) in interest-bearing deposits at banks....................      299,525      (229,747)      405,395
  Net decrease (increase) in Federal funds sold and securities purchased                                         
    under agreement to resell......................................................      224,534        98,304      (304,964)  
  Proceeds from sales of securities held to maturity...............................            -             -       211,371
  Proceeds from maturities of securities held to maturity..........................      713,897       482,378     4,878,735
  Purchases of securities held to maturity.........................................     (445,371)     (842,817)   (5,628,180)
  Proceeds from sales of securities available for sale.............................    2,025,099       146,114             -
  Proceeds from maturities of securities available for sale........................    5,219,361     4,198,226             -
  Purchases of securities available for sale.......................................   (7,091,515)   (4,595,187)            -
  Net increase in loans............................................................   (1,305,639)     (822,724)     (581,091)
  Proceeds from sales of premises and equipment....................................       28,270        42,045        41,301
  Purchases of premises and equipment..............................................      (72,501)      (76,174)      (81,479)
  Other, net.......................................................................      152,672         1,969        46,127   
                                                                                     -----------   -----------   -----------
  Net cash used by investing activities............................................     (251,668)   (1,597,613)   (1,012,785)
                                                                                     -----------   -----------   -----------
Financing Activities:                                                                                            
  Net increase in deposits.........................................................      309,050       543,861       599,137
  Net (decrease) increase in Federal funds purchased and securities sold under                                   
   agreement to repurchase.........................................................     (735,350)      771,106       (55,558)  
  Net (decrease) increase in commercial paper outstanding..........................      (14,715)      (19,531)       39,123  
  Net increase in other short-term borrowings......................................      172,687       211,170       138,095  
  Proceeds from issuance of senior notes...........................................    2,978,345             -             -
  Repayment of senior notes........................................................   (2,500,345)            -             -
  Proceeds from issuance of long-term notes........................................       65,000             -             -
  Repayment of long-term notes.....................................................            -             -          (250)
  Proceeds from issuance of preferred stock........................................      180,000             -             -
  Cash component of dividend-in-kind of Harris Futures Corporation.................            -             -        (1,331)
  Cash dividends paid on common stock..............................................     (262,700)      (34,738)      (49,355)
                                                                                     -----------   -----------   -----------
    Net cash provided by financing activities......................................      191,972     1,471,868       669,861
                                                                                     -----------   -----------   -----------
  Net  increase (decrease) in cash and demand balances due from banks..............      122,637       266,890      (228,497)

  Cash and demand balances due from banks at January 1.............................    1,399,781     1,132,891     1,361,388
                                                                                     -----------   -----------   -----------
  Cash and demand balances due from banks at December 31...........................  $ 1,522,418   $ 1,399,781   $ 1,132,891
                                                                                     ===========   ===========   ===========
Supplemental Disclosures of Cash Flow Information:                                                               
 Cash paid during the year for:                                                                                  
  Interest (net of amount capitalized).............................................  $   573,439   $   368,605   $   319,227
  Income taxes.....................................................................       74,269        34,047   $    35,058
</TABLE>                                                 
                                                         
The accompanying notes to financial statements are an integral part of this
statement.

                                       37
<PAGE>
 
Notes to Financial Statements

1. Summary Of Significant Accounting Policies

Principles of consolidation and nature of operations

Harris Bankcorp, Inc. ("Bankcorp"), a Delaware corporation, is a wholly-owned
subsidiary of Bankmont Financial Corp. ("Bankmont"), a Delaware corporation and
a wholly-owned subsidiary of Bank of Montreal ("BMO"). Throughout these Notes to
Financial Statements, the term "Corporation" refers to Bankcorp and
subsidiaries.

     The consolidated financial statements include the accounts of Bankcorp and
its wholly-owned subsidiaries including Harris Trust and Savings Bank ("HTSB").
Significant intercompany accounts and transactions have been eliminated. Certain
reclassifications were made to conform prior years' financial statements to the
current year's presentation. See Note 17 for additional information on business
combinations and Note 18 for additional information on related party
transactions.

     The Corporation provides banking, trust and other services domestically and
internationally through 14 bank and 17 active nonbank subsidiaries. HTSB and the
Corporation's other banking and non-bank subsidiaries provide a variety of
banking and financial services to commercial and industrial companies, financial
institutions, governmental units, not-for-profit organizations and individuals
throughout the U.S., primarily the Midwest, and abroad. Services rendered and
products sold to customers include demand and time deposit accounts and
certificates; various types of loans; sales and purchases of foreign currencies;
interest rate management products; cash management services; underwriting of
municipal bonds; and financial consulting.

Basis of accounting

The accompanying financial statements are prepared in accordance with generally
accepted accounting principles and conform to practices within the banking
industry.

Foreign currency and foreign exchange contracts

Assets and liabilities denominated in foreign currencies have been translated
into United States dollars at respective year-end rates of exchange. Monthly
translation gains or losses are computed at rates prevailing at month-end. There
were no material translation gains or losses during any of the years presented.
Foreign exchange trading positions including spot, forward, futures and options
contracts are revalued monthly using prevailing market rates. Exchange
adjustments are included with foreign exchange income in the Consolidated
Statement of Income.

Interest rate futures, forward rate agreements, options and guarantees

Interest rate futures contracts can be used in the management of the
Corporation's risk strategy or as part of its dealer and trading activities.
Open positions on such contracts not designated as hedges of existing positions
or anticipated transactions are marked to market daily and the resulting gains
and losses are recognized in noninterest income. Deferred gains and losses on
futures contracts used to hedge existing assets and liabilities are included in
the basis of the item being hedged. For hedges of anticipated transactions, the
Corporation recognizes deferred gains or losses on futures transactions as
adjustments to the cash position eventually taken. Interest rate forward rate
agreements, options and guarantees, including caps, floors and collars, are
marked to market with the resulting gains and losses recorded in trading account
profits.

Interest rate swaps

The Corporation engages in interest rate swaps in order to manage its interest
rate risk exposure, generate fee income and as a trading vehicle. Gains and
losses on swaps designated as hedges are deferred and recognized over the lives
of the related hedged positions. Contractual payments under interest rate swaps
designated as hedges are recognized in the Statement of Income. Swaps not
designated as hedges are marked to market with realized and unrealized gains and
losses included with trading account profits.

Securities

In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 115-Accounting for Certain
Investments in Debt and Equity Securities, which the Corporation elected to
adopt as of December 31, 1993. As required by the Statement, securities are
classified as either trading account assets, held to maturity or available for
sale. Trading account assets include securities acquired as part of trading
activities and are typically purchased with the expectation of near-term profit.
These assets consist primarily of municipal bonds and U.S. government
securities. Securities are classified as held to maturity when the Corporation
has both the positive intent and ability to hold them to maturity. All other
securities are classified as available for sale, even if the Corporation has no
current plans to divest. Trading account assets are reported at fair value with
unrealized gains and losses included in trading account results, which also
includes realized gains and losses from closing such positions. Held-to-maturity
securities are stated at cost, adjusted for amortization of premium and
accretion of discount. Available-for-sale securities are reported at fair value
with unrealized gains and losses included, on an after-tax basis, in a separate
component of stockholder's equity. For comparative purposes (primarily for
periods prior to the adoption of SFAS No. 115), the Corporation considers
"portfolio securities" to include both held to maturity and available for sale
securities.

                                       38
<PAGE>
 
     Application of SFAS No. 115 to prior periods is not permitted and,
accordingly, prior-period financial statements have not been restated to reflect
the change in accounting principle. There is no cumulative effect on the
Corporation's Consolidated Statement of Income as of December 31, 1993, from
adopting SFAS No. 115. However, the December 31, 1993 balance of stockholder's
equity was increased by $26.4 million (net of $17.4 million in deferred taxes)
to reflect the net unrealized holding gains on securities classified as
available for sale which were previously carried at amortized cost or lower of
cost or market. On December 29, 1995, the Corporation transferred all held-to-
maturity securities to available for sale. See Note 2 on page 41 for further
information.

     Interest income on securities, including amortization of discount or
premium, is included in earnings. Realized gains and losses, as a result of
portfolio securities sales, are included in securities gains and losses, with
the cost of securities sold determined on the specific identification basis.

Loans, loan fees and commitment fees

Loans not held for sale are recorded at the principal amount outstanding, net of
unearned income, deferred fees and origination costs. Origination fees collected
on commercial loans, loan commitments, mortgage loans and standby letters of
credit, which are not held for sale, are generally deferred and amortized over
the life of the related facility. Other loan-related fees that are not the
equivalent of yield adjustments are recognized as income when received or
earned. At December 31, 1995 and 1994, the Corporation's Consolidated Statement
of Condition included approximately $13.8 million and $11.0 million,
respectively, of deferred loan-related fees net of deferred origination costs.

     In conjunction with its mortgage and commercial banking activities, the
Corporation will originate loans with the intention of selling them in the
secondary market. These loans are carried at the lower of original cost or
current market value, on a portfolio basis. Deferred origination fees and costs
associated with these loans are not amortized, and are included as part of the
basis of the loan at time of sale. Realized gains and unrealized losses are
included with other noninterest income.

     Commercial and real estate loans are placed on nonaccrual status when the
collection of interest is doubtful or when principal or interest is 90 days past
due, unless the credit is adequately collateralized and the past due amount is
in process of collection. When a loan is placed on nonaccrual status, all
interest accrued but not yet collected which is deemed uncollectible is charged
against interest income in the current year. Interest on nonaccrual loans is
recognized as income only when cash is received and the Corporation expects to
collect the entire principal balance of the loan. Interest income on
restructured loans is accrued according to the most recently agreed upon
contractual terms.

     Commercial and real estate loans are charged off when, in management's
opinion, the loan is deemed uncollectible. Charge card and consumer installment
loans are charged off when 150 and 180 days past due, respectively. Accrued
interest on these loans is charged to interest income. Such loans are not
normally placed on nonaccrual status.

     Loan commitments and letters of credit are executory contracts and are not
reflected on the Corporation's Consolidated Statement of Condition. Fees
collected are generally deferred and recognized over the life of the facility.

     During the first quarter of 1995, the Corporation adopted SFAS No. 114-
Accounting by Creditors for Impairment of a Loan and SFAS No. 118-Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures. SFAS No.
114 addresses accounting by creditors for impairment of certain loans. It
requires that impaired loans within the scope of the statement (primarily
commercial credits) be measured based on the present value of expected future
cash flows (discounted at the loan's effective interest rate) or, alternatively,
at the loan's observable market price or the fair value of supporting
collateral. Impaired loans are defined as those where it is probable that
amounts due according to contractual terms, including principal and interest,
will not be collected. Both nonaccrual and certain restructured loans meet this
definition. Large groups of smaller-balance, homogeneous loans, primarily charge
card, residential real estate and consumer installment loans, are excluded from
the scope of these Statements. The Corporation determines loan impairment when
assessing the adequacy of the allowance for possible credit losses. SFAS No. 118
permits existing income recognition practices to continue. The adoption of these
Statements did not have a material impact on the Corporation's net income or
financial position.

Allowance for possible credit losses

The allowance for possible credit losses is maintained at a level considered
adequate to provide for potential credit losses. The allowance is increased by
provisions charged to operating expense and reduced by net charge-offs. Known
losses of principal on impaired loans are charged off. The provision for credit
losses is based on past loss experience, management's evaluation of the loan
portfolio under current economic conditions and management's estimate of
anticipated, but as yet not specifically identified, credit losses. Such
estimates are reviewed periodically and adjustments, if necessary, are recorded
during the periods in which they become known.

                                       39
<PAGE>
 
Premises and equipment

Premises and equipment are stated at cost less accumulated depreciation and
amortization. Interest costs associated with long-term construction projects are
capitalized and then amortized over the life of the related asset after the
project is completed. For financial reporting purposes, the provision for
depreciation and amortization is computed on the straight-line basis over the
estimated useful lives of the assets.

Other assets

The Corporation records specifically identifiable and unidentifiable (goodwill)
intangibles in connection with the acquisition of assets from unrelated parties
or the acquisition of new subsidiaries. Original lives range from 3 to 15 years.
Goodwill is amortized on the straight-line basis. Identifiable intangibles are
amortized on either an accelerated or straight-line basis depending on the
character of the acquired asset.

     Property or other assets received in satisfaction of debt are included in
"Other Assets" on the Corporation's Consolidated Statement of Condition and are
recorded at the lower of remaining cost or fair value. Fair values for other
real estate owned generally are reduced by estimated costs to sell. Losses
arising from subsequent write-downs to fair value are charged directly to
expense.

Retirement and other postemployment benefits

The Corporation has noncontributory defined benefit pension plans covering
virtually all its employees. For its primary plan, the policy of the Corporation
is to, at a minimum, fund annually an amount necessary to satisfy the
requirements under the Employee Retirement Income Security Act ("ERISA"),
without regard to prior years' contributions in excess of the minimum.

     SFAS No. 106-Employers' Accounting for Postretirement Benefits Other Than
Pensions, requires that certain retiree benefit plans, including health care
plans for retirees and their dependents, be treated as a form of deferred
compensation that should be recognized on an accrual basis over the employment
period.  The Corporation adopted SFAS No. 106 in the first quarter of 1993, and
elected to defer its accumulated postretirement benefit obligation of
approximately $42 million and amortize it on a straight-line basis over 20
years.

     The Corporation adopted SFAS No. 112, Employers' Accounting for
Postemployment Benefits, in the first quarter of 1994. As required by the
Statement, postemployment benefits provided to former or inactive employees
after employment but before retirement are accrued in accordance with SFAS No.
43, Accounting for Compensated Absences, if they meet the conditions for accrual
of compensated absences. Otherwise, postemployment benefits are accrued or
disclosed in accordance with SFAS No. 5, Accounting for Contingencies. The
effect of initially adopting SFAS No. 112 was not material.

Cash flows

On December 29, 1995, the Corporation transferred all held to maturity
securities to available for sale. See Note 2 on page 41 for further information.
On December 31, 1993, the Corporation adopted SFAS No. 115-Accounting for
Certain Investments in Debt and Equity Securities. In compliance with this
Statement, portfolio securities designated as available for sale were marked to
market on the Corporation's Consolidated Statement of Condition. On July 1,
1993, the Corporation paid a $7.2 million dividend-in-kind to Bankmont related
to the transfer of Harris Futures Corporation. Non-cash portions of these
transactions were excluded from the Corporation's Consolidated Statement of Cash
Flows.

Income taxes

Bankmont, Bankcorp and their wholly-owned subsidiaries file a consolidated
Federal income tax return. Accordingly, no Federal income tax is applicable to
dividends received by Bankmont from Bankcorp, or to dividends received by
Bankcorp from its subsidiaries. Income tax return liabilities for the
Corporation are not materially different than they would have been if computed
on a separate return basis.

Management's estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The accounts within the
consolidated financial statements of the Corporation requiring significant
management judgment include: provision and allowance for possible credit losses,
income taxes, pension cost, post employment benefits, fair values and temporary
- vs - other than temporary impairment.

                                       40
<PAGE>
 
2. Portfolio Securities

The amortized cost and estimated market value of "held to maturity" and
"available for sale" securities were as follows:

<TABLE>
<CAPTION>
                                                           December 31, 1995                                 December 31, 1994
                             -----------------------------------------------   -----------------------------------------------
                              Amortized  Unrealized  Unrealized         Fair    Amortized  Unrealized  Unrealized         Fair
(in thousands)                     Cost       Gains      Losses        Value         Cost       Gains      Losses        Value
------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>         <C>         <C>          <C>          <C>         <C>         <C>         <C>
Held to Maturity:                                                 
U.S. Treasury..............  $        -    $      -      $    -   $        -   $  536,480     $    16     $13,163   $  523,333
Federal agency.............           -           -           -            -       68,278          29       3,055       65,252
State and municipal........           -           -           -            -      466,965      16,310       3,983      479,292
Other, including Federal                                          
 Reserve Bank stock........           -           -           -            -       35,936          39       1,925       34,050
  Total securities                                                             ----------     -------     -------   ----------
    held to maturity.......           -           -           -            -    1,107,659      16,394      22,126    1,101,927
                                                                               ----------     -------     -------   ----------
Available for Sale:                                               
U.S. Treasury..............   1,189,605      15,967         405    1,205,167    1,480,278         788      37,897    1,443,169
Federal agency.............   1,726,694      15,968       2,084    1,740,578    1,055,709         118      17,367    1,038,460
State and municipal........     294,120      14,973         288      308,805       12,114           1         198       11,917
Other......................     134,690         929         202      135,417       87,427         843         523       87,747
                             ----------     -------      ------   ----------   ----------     -------     -------   ----------
  Total securities                                                
    available for sale.....   3,345,109      47,837       2,979    3,389,967    2,635,528       1,750      55,985    2,581,293
                             ----------     -------      ------   ----------   ----------     -------     -------   ----------
Total portfolio securities.  $3,345,109     $47,837      $2,979   $3,389,967   $3,743,187     $18,144     $78,111   $3,683,220
                             ==========     =======      ======   ==========   ==========     =======     =======   ==========
</TABLE>

  At December 31, 1995 and 1994, portfolio and trading account securities having
a par value of $1.7 billion and $2.7 billion, respectively, were pledged as
collateral for certain liabilities, securities sold under agreement to
repurchase, public and trust deposits, trading account activities and for other
purposes where permitted or required by law. Securities carried at approximately
$1.1 billion and $1.4 billion were sold under agreement to repurchase at
December 31, 1995 and 1994, respectively.

  On November 15, 1995, the FASB issued a Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. In accordance with that report, the Corporation conducted
a one-time reassessment of the classifications of securities held. As a result,
the Corporation reclassified all held-to-maturity securities to available-for-
sale on December 29, 1995. The amortized cost of the transferred securities was
$839 million and the related unrealized holding gain was $20 million.

  The amortized cost and estimated market value of available-for-sale securities
at December 31, 1995, by contractual maturity, are shown below. Expected
maturities can differ from contractual maturities since borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
                                                           Amortized        Fair
(in thousands)                         December 31, 1995        Cost       Value
--------------------------------------------------------------------------------
<S>                                                       <C>         <C>
Maturities:                                      
 Within 1 year..........................................  $1,296,068  $1,297,331
 1 to 5 years...........................................   1,017,482   1,037,136
 5 to 10 years..........................................     459,654     470,801
 Over 10 years..........................................     478,594     488,555
Other securities without stated maturity................      93,311      96,144
                                                          ----------  ----------
    Total securities....................................  $3,345,109  $3,389,967
                                                          ==========  ==========
</TABLE>

     In 1995 and 1994, proceeds from the sale of securities available for sale
amounted to $2,025 million and $146 million.  Proceeds from sales of portfolio
securities during 1993 were $211 million.  Gross gains of $26,284,000 and gross
losses of $2,905,000 were realized on these sales in 1995, while gains of
$6,032,000 and losses of $778,000 were realized in 1994, and gains of
$13,204,000 and losses of $166,000 were realized in 1993. Net unrealized holding
gain or loss on trading securities included in earnings during 1995 changed by
$833,000 from an unrealized loss of $72,000 at December 31, 1994 to an
unrealized gain of $761,000 at December 31, 1995.

                                       41
<PAGE>
 
3. Loans

The following table summarizes loan balances by category:


<TABLE>
<CAPTION>
(in thousands)                                                                               December 31        1995          1994
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                       <C>           <C>
Domestic loans:
  Commercial, financial, agricultural, brokers and dealers..............................................  $5,564,489    $4,844,124
  Real estate construction..............................................................................     195,699       175,542
  Real estate mortgages.................................................................................   1,996,670     1,627,492
  Installment...........................................................................................     478,441       436,748
  Charge card...........................................................................................   1,095,897       898,315
Foreign loans:
  Governments and official institutions.................................................................         984           984
  Banks and other financial institutions................................................................     160,808       250,563
  Other, primarily commercial and industrial............................................................      40,900        16,210
                                                                                                          ----------    ----------
    Total loans.........................................................................................   9,533,888     8,249,978
Less unearned income....................................................................................      16,091        20,724
                                                                                                          ----------    ----------
    Loans, net of unearned income.......................................................................   9,517,797     8,229,254
Less allowance for possible credit losses...............................................................     129,259       124,734
                                                                                                          ----------    ----------
      Loans, net of allowance for possible credit losses................................................  $9,388,538    $8,104,520
                                                                                                          ==========    ==========
</TABLE> 

      The Corporation had approximately $103 million and $82 million of loans
classified as held for sale at December 31, 1995 and 1994, respectively.
Approximately 80 percent and 58 percent of these respective amounts were real
estate mortgages 

      Nonaccrual loans, restructured loans and other nonperforming assets are 
summarized below:
<TABLE>
(in thousands)                                                                          December 31      1995        1994       1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                   <C>         <C>       <C>
Nonaccrual loans...................................................................................   $50,503     $83,803   $ 91,131
Restructured loans.................................................................................     2,059       2,889      3,262
                                                                                                      -------     -------   --------
    Total nonperforming loans......................................................................    52,562      86,692     94,393
Other assets received in satisfaction of debt......................................................     2,470       8,071     19,000
                                                                                                      -------     -------   --------
    Total nonperforming assets.....................................................................   $55,032     $94,763   $113,393
                                                                                                      =======     =======   ========
Gross amount of interest income that would have been recorded if year-end nonperforming
 loans had been accruing interest at their original terms..........................................   $ 4,500     $ 5,278   $  6,292
Interest income actually recognized................................................................     1,572       1,348      2,569
                                                                                                      -------     -------   --------
  Interest shortfall, before consideration of any income tax effect................................     2,928     $ 3,930   $  3,723
                                                                                                      =======     =======   ========
</TABLE>

  At December 31, 1995 and 1994, the Corporation had no aggregate public and
private sector outstandings to any single country experiencing liquidity
problems which exceeded one percent of the Corporation's consolidated assets.
Additional information on foreign outstandings is provided in the Foreign
Outstandings section on page 26 of this Report.

4. Allowance For Possible Credit Losses
The changes in the allowance for possible credit losses were as follows:
<TABLE>
<CAPTION>
 
(in thousands)                                      Years Ended December 31      1995                    1994                  1993
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                     <C>                   <C>
Balance, beginning of year.................................................  $124,734                $131,676              $130,123
                                                                             --------                --------              --------
Charge-offs................................................................   (61,967)                (69,906)              (82,128)
Recoveries.................................................................    23,497                  17,924                20,846
                                                                             --------                --------              --------
 Net charge-offs...........................................................   (38,470)                (51,982)              (61,282)
Provisions charged to operations...........................................    42,995                  45,040                62,835
                                                                             --------                --------              --------
Balance, end of year......................................................   $129,259                $124,734              $131,676
                                                                             ========                ========              ========
 
Details on impaired loans and related allowance are as follows:
 
                                                                             Impaired Loans         Impaired Loans   
                                                                         For Which There Is     For Which There Is    Total Impaired
(in thousands)                                 December 31, 1995        A Related Allowance   No Related Allowance             Loans
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                    <C>               <C>
Balance.........................................................                    $19,820                $30,683           $50,503
Related allowance...............................................                     12,967                      -            12,967
                                                                                    -------                -------           -------
Balance, net of allowance.......................................                    $ 6,853                $30,683           $37,536
                                                                                    =======                =======           =======
 
(in thousands)                                                                               Year Ended December 31             1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                                          <C>
Average impaired loans.............................................................................................          $67,874
                                                                                                                             =======
Total interest income on impaired loans............................................................................          $ 1,572
                                                                                                                             =======
Interest income on impaired loans recorded on a cash basis.........................................................          $ 1,572
                                                                                                                             =======
</TABLE> 

                                       42
<PAGE>
 
5. Premises And Equipment

Premises and equipment are stated at cost less accumulated depreciation and
amortization. A summary of these accounts is stated below:

<TABLE>
<CAPTION>
(in thousands)                              December 31         1995       1994
-------------------------------------------------------------------------------
<S>                                                         <C>        <C>
Land                                                        $ 28,039   $ 26,148
Premises...............................................      266,815    260,283
Equipment..............................................      255,271    238,348
Leasehold improvements.................................       27,731     24,077
                                                            --------   --------
    Total..............................................      577,856    548,856
Accumulated depreciation and amortization..............      352,316    327,362
                                                            --------   --------
    Premises and equipment.............................     $225,540   $221,494
                                                            ========   ========
</TABLE>

     The provision for depreciation and amortization was $39,142,000 in 1995,
$39,524,000 in 1994, and $41,018,000 in 1993.

     In 1990 and 1991, HTSB purchased a 72,000 square foot parcel of vacant land
in Chicago's downtown business district. Construction plans for a new operations
and office building complex on this site were deferred, pending strategic
clarification as to the appropriate size and functional characteristics of this
facility.

     During the second quarter of 1992, management determined that a writedown
was necessary because of the uncertainty of proceeding with this project in the
near future. Therefore, all capitalized expenditures associated with this
project, totaling $8.8 million were written off. In addition, the land was
written down by $3.0 million, leaving the Corporation's December 31, 1995 and
1994 Consolidated Statement of Condition reflecting a value of $8.5 million for
this property.

6. Short, Medium and Long-Term Notes and Unused Lines Of Credit

The following table summarizes the Corporation's long-term notes:

<TABLE>
<CAPTION>
(in thousands)                                                    December 31      1995      1994
-------------------------------------------------------------------------------------------------
<S>                                                                          <C>       <C>
 Fixed rate 9 3/8% subordinated notes due June 1, 2001 ($100,000 par value)..  $ 98,952  $ 98,810
 Floating rate subordinated note to Bankmont due March 31, 2005..............    50,000    50,000
 Floating rate subordinated note to Bankmont due December 1, 2006............    50,000    50,000
 Floating rate subordinated note to Bankmont due December 1, 2004............   100,000   100,000
 Fixed rate 6 1/2% subordinated note to Bankmont due December 27, 2007.......    65,000        --
                                                                               --------  --------
    Total....................................................................  $363,952  $298,810
                                                                               ========  ========
</TABLE>

     On December 27, 1995 in connection with a capital restructuring, Bankcorp
issued a $65 million par value 6-1/2% subordinated note to Bankmont that matures
on December 27, 2007. All of the Bankcorp notes are unsecured obligations,
ranking on a parity with all unsecured and subordinated indebtedness of the
Corporation and are not subject to redemption prior to maturity at the election
of the debtholders. The interest rate on the floating rate notes reprices
semiannually and floats at 50 basis points above 180 day LIBOR. At year-end
1995, 180 day LIBOR stood at 5.51 percent.

     In connection with the issuance of commercial paper and for other corporate
purposes, Bankcorp has a revolving credit agreement with a group of five
nonaffiliated banks and BMO. On December 18, 1995, this revolving credit
agreement was amended to increase the credit limit from $130 million to $150
million and to extend the maturity date to December 18, 1999. There were no
borrowings under this credit agreement during 1995 or 1994.

     HTSB offers to institutional investors from time to time, unsecured short-
term and medium-term bank notes in an aggregate principal amount of up to $1.5
billion outstanding at any time. The term of each note could range from fourteen
days to fifteen years. The notes are subordinated to deposits and rank pari
passu with all other unsecured senior indebtedness of HTSB. As of December 31,
1995, $478 million of short-term notes were outstanding with maturities and
interest rates ranging from 29 to 180 days and 5.50 to 5.79 percent,
respectively. There were no outstandings under this program at December 31,
1994.

7.  Fair Value of Financial Instruments

Generally accepted accounting principles require the disclosure of estimated
fair values for both on- and off-balance-sheet financial instruments. The
Corporation's fair values are based on quoted market prices when available. For
financial instruments not actively traded, such as certain loans, deposits, off-
balance-sheet transactions and long term borrowings, fair values have been
estimated using various valuation methods and assumptions. Although management
used its best judgement in estimating these values, there are inherent
limitations in any estimation methodology. In addition, accounting
pronouncements require that fair values be estimated on an item-by-item basis,
thereby ignoring the impact a large sale would have on a thin market and
intangible values imbedded in established lines of business. Therefore, the fair
value estimates presented herein are not necessarily indicative of the amounts
the Corporation could realize in an actual transaction. The fair value
estimation methodologies employed by the Corporation were as follows:

     The carrying amounts for cash and demand balances due from banks along with
short-term money market assets and liabilities reported on the Corporation's
Consolidated Statement of Condition were considered to be the best estimates of
fair value for these financial instruments. Fair values of trading account
assets and portfolio securities were based on quoted market prices.

                                       43
<PAGE>
 
     A variety of methods were used to estimate the fair value of loans. Changes
in estimated fair value of loans reflect changes in credit risk and general
interest rates which have occurred since the loans were originated. Fair values
of floating rate loans, including commercial, broker dealer, financial
institution, construction, charge card, consumer and home equity, were assumed
to be the same as book value as the loans' interest rates automatically reprice
to market. Fair values of residential mortgages were based on current prices for
securities backed by similar loans. For long-term fixed rate loans, including
consumer installment and commercial mortgage loans, fair values were estimated
based on the present value of future cash flows with current market rates as
discount rates. A fair-value discount related to nonperforming loans included in
the above categories, along with a discount for future credit risk throughout
the portfolio, was based on an analysis of expected and unidentified future
losses. Accordingly, the fair value estimate for total loans was reduced by
these discounts, which in total approximated the allowance for possible credit
losses on the Corporation's Consolidated Statement of Condition. Additionally,
management considered appraisal values of collateral when nonperforming loans
were secured by real estate.

     The fair values of demand deposits, savings accounts, interest checking
deposits, and money market accounts were the amounts payable on demand at the
reporting date, or the carrying amounts. The fair value of time deposits was
estimated using a discounted cash flow calculation with current market rates
offered by the Corporation as discount rates.

     The fair value of long-term notes was determined using a discounted cash
flow calculation with current rates available to the Corporation for similar
debt as discount rates.

     The estimated fair values of the Corporation's financial instruments at
December 31, 1995 and 1994 are presented in the following table. See Note 8 for
additional information regarding fair values of off-balance-sheet financial
instruments.

<TABLE>
<CAPTION>
                                                                   1995                        1994
                                               ------------------------   ------------------------- 
                                                 Carrying          Fair      Carrying          Fair
(in thousands)                  December 31         Value         Value         Value         Value
---------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>           <C>
Assets                                                                                  
Cash and demand balances due from banks....   $ 1,522,418   $ 1,522,418   $ 1,399,781   $ 1,399,781
Money market assets:                                                                    
 Interest-bearing deposits at banks........       457,702       457,702       757,227       757,227
 Federal funds sold and securities                                                      
  purchased under agreement to resell......       179,692       179,692       404,226       404,226
Portfolio securities:                                                                   
 Held to maturity..........................             -             -     1,107,659     1,101,927
 Available for sale........................     3,389,967     3,389,967     2,581,293     2,581,293
Trading account assets.....................        98,638        98,638        36,067        36,067
Loans, net of unearned income and                                                       
 allowance for possible credit losses......     9,388,538     9,391,070     8,104,520     8,093,360
Customers' liability on acceptances........        95,326        95,326       125,113       125,113
                                              -----------   -----------   -----------   -----------
   Total on-balance-sheet financial assets.   $15,132,281   $15,134,813   $14,515,886   $14,498,994
                                              ===========   ===========   ===========   ===========
Liabilities                                                                             
Deposits:                                                                               
 Demand deposits...........................   $ 5,638,268   $ 5,638,268   $ 5,849,935   $ 5,849,935
 Time deposits.............................     4,590,514     4,596,441     4,069,797     4,069,834
Federal funds purchased and securities sold                                             
 under agreement to repurchase.............     1,896,817     1,896,817     2,632,167     2,632,167
Commercial paper outstanding...............       292,022       292,022       306,737       306,737
Other short-term borrowings................       843,049       843,049       670,362       670,362
Acceptances outstanding....................        95,326        95,326       125,113       125,113
Senior notes...............................       478,000       478,000             -             -
Long-term notes............................       363,952       379,819       298,810       302,483
   Total on-balance-sheet financial           -----------   -----------   -----------   -----------
    liabilities............................   $14,197,948   $14,219,743   $13,952,921   $13,956,631
                                              ===========   ===========   ===========   ===========
Off-Balance-Sheet Financial Instruments                                                 
 (positive positions/(obligations))                                                     
Credit facilities..........................   $   (13,753)  $   (13,753)  $   (11,013)  $   (11,013)
Interest rate contracts:                                                                
 Dealer and trading contracts                       1,041         1,041         2,786         2,786
 Risk management contracts.................        (5,521)      (11,784)       (8,783)      (16,448)
Foreign exchange contracts:                                                             
 Dealer contracts..........................             -             -       (15,656)      (15,656)
   Total off-balance-sheet financial          -----------   -----------   -----------   -----------
    instrument.............................   $   (18,233)  $   (24,496)  $   (32,666)  $   (40,331)
                                              ===========   ===========   ===========   ===========
</TABLE>

8. Financial Instruments With Off-Balance-Sheet Risk

The Corporation utilizes various financial instruments with off-balance-sheet
risk in the normal course of business to a) meet its customers' financing and
risk management needs, b) reduce its own risk exposure, and c) produce fee
income and trading profits. The Corporation's major categories of financial
instruments with off-balance-sheet risk include credit facilities, interest rate
and foreign exchange contracts, and various securities-related activities. Fair
values of off-balance-sheet instruments were based on fees currently charged to
enter into similar agreements, market prices of comparable instruments, pricing
models using year-end rates and counterparty credit ratings.

Credit facilities

Credit facilities with off-balance-sheet risk include commitments to extend
credit, standby letters of credit and commercial letters of credit.

                                       44
<PAGE>
 
     Commitments to extend credit are contractual agreements to lend to a
customer as long as contract terms have been met. They generally require payment
of a fee and have fixed expiration dates. The Corporation's commitments serve
both business and individual customer needs, and include commercial loan
commitments, credit card lines, home equity lines, commercial real estate loan
commitments and mortgage loan commitments. The Corporation's maximum risk of
accounting loss is represented by the total contractual amount of commitments
which was $8.20 billion and $7.43 billion at December 31, 1995 and 1994,
respectively. Since only a portion of commitments will ultimately be drawn down,
the Corporation does not expect to provide funds for the total contractual
amount. Risks associated with certain commitments are reduced by participations
to third parties, which at December 31, 1995, totaled $244 million and at
December 31, 1994, totaled $217 million.

     Standby letters of credit are unconditional commitments which guarantee the
obligation of a customer to a third party should that customer default. They are
issued to support financial and performance-related obligations including
brokers' margin maintenance, industrial revenue bond repayment, debt repayment,
construction contract performance and trade agreement performance. The
Corporation's maximum risk of accounting loss for these items is represented by
the total commitments outstanding of $1.59 billion at December 31, 1995 and
$1.23 billion at December 31, 1994. Risks associated with standby letters of
credit are reduced by participations to third parties which totaled $270 million
at December 31, 1995 and $168 million at December 31, 1994.

     Commercial letters of credit are commitments to make payments on behalf of
customers when letter of credit terms have been met. Maximum risk of accounting
loss is represented by total commercial letters of credit outstanding of $131
million at December 31, 1995 and $148 million at December 31, 1994.

     Credit risks associated with all of these facilities are mitigated by
reviewing customers' creditworthiness on a case-by-case basis, obtaining
collateral, limiting loans to individual borrowers, setting restrictions on
long-duration maturities and establishing stringent covenant terms outlining
performance expectations which, if not met, may cause the Corporation to
terminate the contract. Credit risks are further mitigated by monitoring and
maintaining portfolios that are well diversified.

     Collateral is required to support certain of these credit facilities when
they are drawn down and may include equity and debt securities, commodities,
inventories, receivables, certificates of deposit, savings instruments, fixed
assets, real estate, life insurance policies and seats on national or regional
exchanges. Requirements are based upon the risk inherent in the credit and are
more stringent for firms and individuals with greater default risks. The
Corporation monitors collateral values and appropriately perfects its security
interest. Periodic evaluations of collateral adequacy are performed by
Corporation personnel.

     The fair value of credit facilities (i.e. deferred income) is approximately
equal to their carrying value of $13.8 million at December 31, 1995 and $11.0
million at December 31, 1994.

Interest rate contracts

Interest rate contracts include futures, forward rate agreements, option
contracts, guarantees (caps, floors and collars) and swaps. The Corporation
enters into these contracts for dealer, trading and risk management purposes.

Dealer and trading activity

As dealer, the Corporation serves customers seeking to manage interest rate risk
by entering into contracts as a counterparty to their (customer) transactions.
In its trading activities, the Corporation uses interest rate contracts to
profit from expected future market movements.

     These contracts may create exposure to both credit and market risk.
Replacement risk, the primary component of credit risk, is the risk of loss
should a counterparty default following unfavorable market movements and is
measured as the Corporation's cost of replacing contracts at current market
rates. The Corporation manages credit risk by establishing credit limits for
customers and products through an independent corporate-wide credit review
process and continually monitoring exposure against those limits to ensure they
are not exceeded. Credit risk is, in many cases, further mitigated by the
existence of netting agreements which provide for netting of contractual
receivables and payables in the event of default or bankruptcy.

     Market risk is the risk of loss as a result of changes in interest rates.
The Corporation manages market risk by establishing limits which are based on
dollars at risk given a parallel shift in the yield curve. Limits are
established by product, maturity and volatility. Limits are approved by
management and monitored independently of the traders on a regular basis. Market
risk is further diminished by entering into offsetting positions. Senior
management oversees all dealer risk-related activities.

     Futures and forward contracts are agreements in which the Corporation is
obligated to make or take delivery, at a specified future date, of a specified
instrument, at a specified price or yield. Futures contracts are exchange traded
and, because of exchange requirements that gains and losses be settled daily,
create negligible exposure to credit risk.

     Forward rate agreements are arrangements between two parties to exchange
amounts, at a specified future date, based on the difference between an agreed
upon interest rate and reference rate applied to a notional principal amount.
These agreements enable purchasers and sellers to fix interest costs and
returns.

     Options are contracts that provide the buyer the right (but not the
obligation) to purchase or sell a financial instrument, at a specified price,
either within a specified period of time or on a certain date. Interest rate
guarantees (caps, floors and collars) are agreements between two parties that,
in general, establish for the purchaser a maximum level of interest expense or
a minimum level of interest revenue based on a notional principal amount for a
specified term. Options and guarantees written create exposure to market risk.
As a writer of interest rate options and guarantees, the Corporation receives a
premium at the 

                                       45
<PAGE>
 
outset of the agreement and bears the risk of an unfavorable change in the price
of the financial instrument underlying the option or guarantee. Options and
guarantees purchased create exposure to credit risk and, to the extent of the
premium paid, market risk.

     Interest rate swaps are contracts involving the exchange of interest
payments based on a notional amount for a specified period. Most of the
Corporation's activity in swaps is as intermediary in the exchange of interest
payments between customers, although the Corporation also uses swaps to manage
its own interest rate exposure (see discussion of risk management activity
below).

     The following table summarizes the Corporation's dealer/trading interest
rate contracts and their related contractual or notional amounts and maximum
replacement costs. Contractual or notional amount gives an indication of the
volume of activity in the contract. Maximum replacement cost reflects the
potential loss resulting from customer defaults and is computed as the cost of
replacing, at current market rates, all outstanding contracts with unrealized
gains.
<TABLE>
<CAPTION>
                                          Contractual or                Maximum
                                                Notional            Replacement
                                                  Amount                   Cost
                              -------------------------------------------------
(in thousands) December 31          1995            1994      1995         1994
-------------------------------------------------------------------------------
<S>                           <C>         <C>              <C>       <C>
Interest Rate Contracts:
 Futures and forwards.....    $   56,175      $  490,499   $     -      $    69
 Forward rate agreements..         5,000       1,006,000         2        1,609
 Options written..........             -         275,000         -            -
 Options purchased........             -         325,000         -          161
 Guarantees written.......     1,632,121         930,143         -            -
 Guarantees purchased.....     1,638,157         879,684     5,801       16,921
 Swaps....................       876,320       1,155,165    12,585       14,074
</TABLE>

     The following table summarizes average and end of period fair values of
dealer/trading interest rate contracts for the years ended December 31, 1995 and
1994:
<TABLE>
<CAPTION>
                                               1995            1995            1994            1994
                                      -------------------------------------------------------------
                                      End of Period         Average   End of Period         Average
                                             Assets          Assets          Assets          Assets
(in thousands)                        (Liabilities)   (Liabilities)   (Liabilities)   (Liabilities)
---------------------------------------------------------------------------------------------------
<S>                                   <C>             <C>             <C>             <C>
Interest Rate Contracts:
 Futures and forwards
  Unrealized gains...................      $      -        $     -         $     69       $     35
  Unrealized losses..................             -              -              (34)           (19)
 Forward rate agreements
  Unrealized gains...................             2            357            1,609            142
  Unrealized losses..................             -           (284)            (451)          (303)
 Options
  Purchased..........................             -            228              161             60
  Written............................             -           (164)             (11)           (28)
 Guarantees
  Purchased..........................         5,801          7,867           16,921         11,385
  Written............................        (5,789)        (7,987)         (17,623)       (11,870)
 Swaps
  Unrealized gains...................        12,585          9,806           14,074         11,821
  Unrealized losses..................       (11,558)        (8,624)         (11,929)       (10,003)
                                           --------        -------         --------       --------
     Total Interest Rate Contracts...      $  1,041        $ 1,199         $  2,786       $  1,220
                                           ========        =======         ========       ========
</TABLE>

     Net gains (losses) from dealer/trading activity in interest rate contracts
and nonderivative trading account assets for the years ended December 31, 1995,
1994 and 1993 are summarized below:
<TABLE>
<CAPTION>
                                              Gains       Gains        Gains 
                                            (Losses)    (Losses)     (Losses)
(in thousands)   Years Ended December 31       1995        1994         1993
----------------------------------------------------------------------------
<S>                                         <C>         <C>          <C>   
Interest Rate Contracts:                                           
 Futures and forwards...................    $(1,462)     $1,020      $(6,156)  
 Forward rate agreements................       (285)       (628)         228
 Options................................       (545)       (224)         (12) 
 Guarantees.............................        988        (134)         441
 Swaps..................................        603         279          511
Debt Instruments........................      5,811        (709)      10,246
                                            -------      ------      -------
    Total Trading Revenue...............    $ 5,110      $ (396)     $ 5,258
                                            =======      ======      =======
</TABLE>

                                       46
<PAGE>
 
     The following table summarizes the maturities and weighted average interest
rates paid and received on dealer/trading interest rate swaps as of December 31,
1995:

<TABLE>
<CAPTION>
 
                                                                                          1995
                                    -----------------------------------------------------------    
                                          Within     1 to 3     3 to 5     5 to 10
(in thousands)          December 31       1 year      years      years      years      Total
-----------------------------------------------------------------------------------------------
<S>                                      <C>        <C>        <C>         <C>        <C> 
Pay Fixed Swaps:
 Notional amount.....................    $ 98,153   $200,914   $123,100    $ 5,723    $427,890
 Average pay rate....................        6.24%      6.11%      6.47%      7.10%       6.26%
 Average receive rate................        4.15%      5.64%      5.79%      5.97%       5.35%
Receive Fixed Swaps:
 Notional amount.....................    $104,493   $199,114   $123,100    $ 5,723    $432,430
 Average pay rate....................        4.16%      5.67%      5.79%      5.97%       5.34%
 Average receive rate................        6.05%      6.21%      6.58%      7.16%       6.29%
Basis swaps:
 Notional amount.....................    $ 16,000          -          -          -    $ 16,000
 Average pay rate....................        6.12%         -          -          -        6.12%
 Average receive rate................        6.24%         -          -          -        6.24%  
    Total notional amount............    $218,646   $400,028   $246,200    $11,446    $876,320
</TABLE>

Risk management activity

In addition to its dealer activities, the Corporation uses interest rate
contracts, primarily swaps, to reduce the level of financial risk inherent in
mismatches between the interest rate sensitivities of certain assets and
liabilities. During 1995 and 1994, interest rate swaps were primarily used to
alter the character of funds supporting the municipal bond portfolio and the
senior note program. The Corporation had $281 million notional amount of swap
contracts, used for risk management purposes, outstanding at December 31, 1995
with a fair value of $(11.8) million and a replacement cost of zero. At December
31, 1994, the Corporation had $497 million notional amount of swap contracts
outstanding with a fair value of $(16.4) million and a replacement cost of $263
thousand. Gross unrealized gains and losses, representing the difference between
fair value and carrying value (i.e. accrued interest payable or receivable) on
these contracts, totaled zero and $6.3 million, respectively, at December 31,
1995 and $134 thousand and $7.8 million, respectively, at December 31, 1994.
Risk management activity, including the related cash positions, had no material
effect on the Corporation's net income for the year ended December 31, 1995 or
1994. There were no deferred gains or losses on terminated contracts at December
31, 1995 or 1994.

     The following table summarizes swap activity for risk management purposes
during 1995 and 1994:

<TABLE>
<CAPTION>
                                                                       Notional
(in thousands)                                                          Amount
-------------------------------------------------------------------------------
<S>                                                                   <C>
Amount, December 31, 1993...........................................  $ 716,750
Additions...........................................................     66,381
Maturities..........................................................   (231,278)
Terminations........................................................    (55,000)
                                                                      ---------
Amount, December 31, 1994...........................................    496,853
Additions...........................................................    609,406
Maturities..........................................................   (475,226)
Terminations........................................................   (350,000)
                                                                      ---------
Amount, December 31, 1995...........................................  $ 281,033
                                                                      =========
</TABLE>
     The following table summarizes the maturities and weighted average interest
rates paid and received on interest rate swaps used for risk management as of
December 31, 1995:

<TABLE>
<CAPTION>
                                                                                          1995
                                    -----------------------------------------------------------    
                                          Within     1 to 3     3 to 5     5 to 10
(in thousands)          December 31       1 year      years      years      years      Total
-----------------------------------------------------------------------------------------------
<S>                                      <C>         <C>        <C>        <C>       <C> 
Pay Fixed Swaps:
 Notional amount.....................    $ 80,000    $31,000    $35,357    $34,676   $181,033
 Average pay rate....................        9.96%     10.60%      6.32%      7.05%      8.80%
 Average receive rate................        5.82%      5.76%      5.71%      5.81%      5.79%
Basis swaps:
 Notional amount.....................    $100,000          -          -          -   $100,000
 Average pay rate....................        6.43%         -          -          -       6.43%
 Average receive rate................        5.94%         -          -          -       5.94%
  Total notional amount..............    $180,000    $31,000    $35,357    $34,676   $281,033
</TABLE> 

                                       47
<PAGE>
 
Foreign exchange contracts
Dealer activity

The Corporation is also a dealer in foreign exchange, having a significant
presence in the marketplace. Foreign exchange contracts may create exposure to
market and credit risk, including replacement risk and settlement risk. Credit
risk is managed by establishing limits for customers through an independent
corporate-wide credit approval process and continually monitoring exposure
against those limits. In addition, both settlement and replacement risk are
reduced through netting by novation, agreements with counterparties to offset
certain related obligations. Market risk is managed through establishing
exposure limits by currency and monitoring actual exposure against those limits,
entering into offsetting positions, and closely monitoring price behavior.
Effective April 3, 1995, the Corporation and BMO agreed to combine their U.S.
foreign exchange activities ("FX"). Under this arrangement, FX net profit will
be shared by the Corporation and BMO in accordance with a specific formula set
forth in the agreement. This agreement expires in April 2002 but may be extended
at that time. Either party may terminate the arrangement at its option.
Beginning with second quarter 1995, FX revenues were reported net of expenses.
This agreement did not have a material impact on the Corporation's 1995 net
income or financial position at December 31, 1995.

     At December 31, 1995, approximately two-thirds of the Corporation's gross
notional positions in foreign currency contracts are represented by five
currencies: English pounds, German deutsche marks, Canadian dollars, Japanese
yen and French francs.

     Foreign exchange contracts include spot, future, forward and option
contracts that enable customers to manage their foreign exchange risk. Spot,
future and forward contracts are agreements to exchange currencies at a future
date, at a specified  rate of exchange. Foreign exchange option contracts give
the buyer the right and the seller an obligation (if the buyer asserts his
right) to exchange currencies during a specified period (or on a certain date in
the case of "European" options) at a specified exchange rate.

     The following table summarizes the Corporation's dealer/trading foreign
exchange contracts and their related contractual or notional amount and maximum
replacement cost:

<TABLE>
<CAPTION>
                                                              Contractual                             Maximum
                                                              or Notional                         Replacement
                                                                   Amount                                Cost
                                            ------------------------------------------------------------------
(in thousands)                 December 31           1995            1994               1995             1994
--------------------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>               <C>               <C>
Foreign Exchange Contracts:
 Spot, futures and forwards...............     $4,786,883     $12,822,530           $ 45,100         $133,768
 Options written..........................         85,551         769,916                 --               --
 Options purchased........................         85,551         769,916              1,386           13,896
</TABLE>
     The following table summarizes average and end of period fair values of
dealer/trading foreign exchange contracts for the years ended December 31, 1995
and 1994:

<TABLE>
<CAPTION>
                                                     1995            1995               1994             1994
                                            ------------------------------------------------------------------
                                            End of Period         Average      End of period          Average
                                                   Assets          Assets             Assets           Assets
(in thousands)                               (Liabilities)   (Liabilities)      (Liabilities)    (Liabilities)
--------------------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>               <C>               <C>
Foreign Exchange Contracts:
Spot, futures and forwards
 Unrealized gains.........................       $ 45,100       $ 137,511          $ 133,768        $ 225,626
 Unrealized losses........................        (45,100)       (139,447)          (149,424)        (222,408)
Options
 Purchased................................          1,386           6,301             13,896           22,349
 Written..................................         (1,386)         (6,301)           (13,896)         (22,043)
                                                 --------       ---------          ---------        ---------
Total Foreign Exchange....................       $     --       $  (1,936)         $ (15,656)       $   3,524
                                                 ========       =========          =========        =========
</TABLE>

     Net gains (losses) from dealer/trading foreign exchange contracts, for the
years ended December 31, 1995, 1994 and 1993 are summarized below. 1995 net
foreign exchange gains include $8.8 million of net profit under the
aforementioned agreement with BMO.
 
<TABLE>
<CAPTION>
                                                                     Gains              Gains            Gains  
                                                                  (Losses)           (Losses)         (Losses)
                                                                  --------------------------------------------
(in thousands)                    Years ended December 31             1995               1994             1993
--------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>              <C>
 Spot, futures and forwards.............................           $14,290            $19,567          $25,046
 Options................................................               (42)               202             (744)
                                                                   -------            -------          -------
  Total Foreign Exchange................................           $14,248            $19,769          $24,302
                                                                   =======            =======          =======
</TABLE>

Securities activities

The Corporation's securities activities that have off-balance-sheet risk include
municipal bond underwriting, short selling and indemnified lending of securities
held in trust.

     Through its municipal bond underwriting activities, the Corporation 
commits to buy and offer for resale newly issued bonds. The Corporation is
exposed to market risk because it may be unable to resell its inventory of bonds
profitably as a result of unfavorable market conditions. In syndicate
arrangements, the Corporation is obligated to fulfill syndicate members'
commitments should they default. The syndicates of which the Corporation was a
member had underwriting commitments totaling $15.5 million at December 31, 1995
and $14.6 million at December 31, 1994.

                                      48
<PAGE>
 
     Security short selling, defined as selling of securities not yet owned,
exposes the Corporation to off-balance-sheet market risk because the Corporation
may be required to buy securities at higher prevailing market prices to cover
its short positions. The Corporation had no short position at December 31, 1995
and a short position of $10 million at December 31, 1994.

     Securities lending, a service the Corporation provides to master trust and
institutional custody customers, exposes the Corporation to off-balance-sheet
credit risk when it indemnifies its customers against the risks of borrower
default. Risks are minimized by lending to approved brokers and dealers, up to a
lending limit established for each broker, and by obtaining collateral in excess
of the value of the loan. Collateral is typically cash, U.S. Government
securities or letters of credit from approved banks. The value of the collateral
is monitored daily and additional collateral is obtained when deemed necessary.
Highly liquid collateral, such as cash and U.S. Government securities, typically
represents over 95 percent of the collateral held by the Corporation. The
Corporation's maximum risk of accounting loss is represented by the amount of
securities lent under indemnification, which totaled $1.04 billion at December
31, 1995 and $2.09 billion at December 31, 1994.

9. Concentrations Of Credit Risk In Financial Instruments

The Corporation had four concentrations of credit risk arising from financial
instruments at December 31, 1995 and 1994. These concentrations were the Midwest
geographic area, individuals, brokers and dealers, and commercial banks. Each
concentration exceeded 10 percent of the Corporation's total credit exposure,
which is the total potential accounting loss should all customers fail to
perform according to contract terms and all collateral prove to be worthless.

Midwestern geographic area

A majority of the Corporation's customers are located in the Midwestern region
of the United States, defined here to include Illinois, Indiana, Iowa, Michigan,
Minnesota, Missouri and Wisconsin. The Corporation provides credit to these
customers through a broad array of banking and trade financing products
including commercial loans, commercial loan commitments, commercial real estate
loans, consumer installment loans, charge card loans and lines, mortgage loans,
home equity loans and lines, standby and commercial letters of credit and
banker's acceptances. The financial viability of customers in the Midwest is, in
part, dependent on the region's economy. Corporate customers headquartered in
the region and serving a national or international market are not included in
this concentration because their business is broad-based and not dependent on
the region's economy. The Corporation's maximum risk of accounting loss, should
all customers making up the Midwestern concentration fail to perform according
to contract terms and all collateral prove to be worthless, was approximately
$12.8 billion or 49 percent of the Corporation's total credit exposure at
December 31, 1995 and $12.1 billion or 47 percent of the Corporation's total
credit exposure at December 31, 1994.

     The Corporation manages this exposure by continually reviewing local market
conditions and customers, adjusting individual and industry exposure limits
within the region and by obtaining or closely monitoring collateral values. See
Note 8 for information on collateral supporting credit facilities.

Individuals

The Corporation extends credit to individuals through credit card lines, style
lines of credit, installment and single payment loans. Credit card and style
lines are unsecured revolving lines of credit, accessed through VISA and
MasterCard, special drafts, and/or automated teller machines. The Corporation's
credit card lines represent most of its total credit exposure to individuals.
Although credit card loans are not collateralized, measures have been
implemented to reduce credit loss. These measures include strict credit approval
criteria, card use monitoring, automated authorization procedures and aggressive
collection procedures. Further, credit card customers are broad-based
geographically, although currently about 50 percent are located in the Midwest.

     Installment and single payment loans are generally collateralized by
personal property and have a fixed maturity. The Corporation ensures that it has
sufficient collateral by monitoring its value and perfecting its legal rights to
the property upon default.

     The Corporation's maximum risk of accounting loss, should all individual
customers fail to perform according to contract terms and all available
collateral prove to be worthless, was approximately $5.7 billion or 22 percent
of the Corporation's total credit exposure at December 31, 1995 and $5.2 billion
or 20 percent of the Corporation's total credit exposure at December 31, 1994.

Brokers and dealers

The Corporation has credit exposure to various brokers and dealers in securities
and commodities through securities lending, commercial lending and standby
letter of credit guarantees. Securities lending represents most of the total
credit exposure to this group and consists of loans of securities held by trust
customers where the Corporation has provided indemnification against borrower
default. Securities are typically used by brokers and dealers to cover their
short positions. These loans are generally collateralized by cash, U.S.
Government securities and letters of credit with values in excess of loan
amounts. Cash collateral is typically held at the Corporation while other
collateral is usually held at the depositories through which securities lending
transactions are conducted.

                                       49
<PAGE>
 
     Commercial loans are used by brokers and dealers to fund the purchase of
securities, while standby letters are used to maintain margins. Collateral is
typically equity and debt securities, commodities, futures and option contracts
held by the Corporation or other appropriate custodians or depositories.
Security interest is obtained to ensure access to collateral.

     The Corporation's maximum risk of accounting loss, should brokers and
dealers fail to fulfill their contractual obligations and all collateral prove
to be worthless, was approximately $1.8 billion or 7 percent of the
Corporation's total credit exposure at December 31, 1995 and $3.1 billion or 12
percent of the Corporation's total credit exposure at December 31, 1994.

Commercial banks

The Corporation has credit exposure to the domestic and international banking
industry through its participation in check clearing, international banking
transactions, foreign exchange transactions, Eurodollar investing and through
correspondent banking services including Federal fund loans and standby letter
of credit guarantees. Generally, collateral is not held to support credit
exposure to banks, although risks are mitigated since durations are short,
investments are highly liquid, and counterparties are geographically diverse.
The Corporation's maximum risk of accounting loss, should all commercial banks
fail to fulfill their contractual obligations, was approximately $2.0 billion or
8 percent of the Corporation's total credit exposure at December 31, 1995 and
$2.8 billion or 11 percent of the Corporation's total credit exposure at
December 31, 1994.

10. Retirement And Other Postemployment Plans

The Corporation has noncontributory defined benefit pension plans covering
virtually all its employees as of December 31, 1995. Most of the employees
participating in retirement plans were included in one primary plan ("primary
plan") during the three-year period ended December 31, 1995. The benefit formula
for this plan is based upon length of service and an employee's highest
qualifying compensation during five consecutive years of active employment. The
plan is a multiple-employer plan covering the Corporation's employees as well as
persons employed by certain affiliated entities. In 1995, the Corporation
prospectively expanded the definition of qualifying compensation and reduced the
rate used to compute retirement benefits. The estimated net cost savings
generated by these changes is $2.28 million in 1995.

     The policy for this plan is to have the participating entities, at a
minimum, fund annually an amount necessary to satisfy the requirements under
ERISA, without regard to prior years' contributions in excess of the minimum.
For 1994, the minimum and maximum deductible contribution were both zero as a
result of the full funding limitation. For 1995 and 1993, cumulative
contributions were greater than the amount recorded as pension expense for
financial reporting purposes.

     In 1995, the Corporation changed mortality rates from the 1984 Unisex
Pensioner Mortality Table to the 1983 Group Annuity Mortality Table in
accordance with the Retirement Protection Act of 1994. In addition, the
assumption regarding future annual increases were modified as follows: the wage
base was decreased from 6% to 5% and the Consumer Price Index was reduced by 1%
at each age. These changes had no material effect on 1995 pension expense. In
1994, the Corporation elected to change the measurement date for plan assets and
liabilities from December 31 to September 30. The change had no material effect
on 1994 or prior years' pension expense.

<TABLE>
<CAPTION>
(in thousands)                                           Years Ended December 31         1995***       1994**      1993
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>           <C>         <C>
Actuarial present value of benefit obligations:                                 
 Accumulated benefit obligation, including vested benefits of $145,430 in 1995,  
  $105,804 in 1994, and $125,726 in 1993.........................................   $ 162,325     $ 122,357   $ 143,111
                                                                                    =========     =========   =========
Projected benefit obligation for service rendered to date.......................    $(212,772)    $(172,016)  $(206,048)
Plan assets at fair value*......................................................      206,539       187,249     211,380
                                                                                    ---------     ---------   ---------
Excess of plan assets over projected benefit obligation.........................       (6,233)       15,233       5,332
Unrecognized net (gain) loss from past experience different from that assumed                                   
 and effects of changes in assumptions..........................................       17,401        (3,416)     11,331
Prior service cost not yet recognized in net periodic pension cost..............       (8,797)       (4,221)       (286)
Unrecognized net asset at December 31 being recognized over 16.3 years                                          
 from January 1, 1986...........................................................       (2,222)       (2,577)     (3,045)
Contributions made between measurement date (September 30) and end of year......        7,827             -           -
                                                                                    ---------     ---------   ---------
 Prepaid pension cost...........................................................    $   7,976     $   5,019   $  13,332
                                                                                    =========     =========   =========
Assumptions used:                                                                                               
 Discount rate..................................................................         7.25%         7.75%       7.25%
 Rate of increase in compensation...............................................         5.70%         6.60%       6.60%
 Expected long-term asset return................................................         8.00%         8.00%       8.00%
</TABLE>
   *Plan assets consist primarily of participating units in collective trust
    funds administered by HTSB, along with U.S. Government bonds.
  **Plan assets and obligations measured as of September 30, 1994.
 ***Plan assets and obligations measured as of September 30, 1995.

    Net pension expense included the following components for the primary plan:

<TABLE>
<CAPTION>
(in thousands)                                             Years Ended December 31       1995        1994       1993
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>          <C>          <C>
Service cost-benefits earned during the period....................................   $  7,659    $ 10,796   $  9,453
Interest cost on projected benefit obligation.....................................     13,718      13,526     13,278
Actual return on plan assets......................................................    (32,128)      1,368    (26,778)
Net amortization and deferral.....................................................     16,271     (17,460)    12,369
                                                                                     --------    --------   --------
 Net periodic pension expense.....................................................   $  5,520    $  8,230   $  8,322
                                                                                     ========    ========   ========
</TABLE>

                                       50
<PAGE>
 
     Certain employees participating in the primary plan are also covered by a
supplemental unfunded retirement plan. The purpose of this plan is to extend
full retirement benefits to individuals without regard to statutory limitations
for qualified funded plans. The following table sets forth the status of this
supplemental plan:

<TABLE>
<CAPTION>
(in thousands)                      Years Ended December 31   1995      1994      1993
----------------------------------------------------------------------------------------
<S>                                                          <C>       <C>       <C>
Accumulated benefit obligation.............................  $ 5,871   $ 7,703   $ 8,944
Projected benefit obligation for service rendered to date..   14,543    19,573    15,425
Accrued pension liability..................................    7,599     6,138     8,944
Net periodic pension expense...............................    4,256     6,983     5,491
                                                                               
Assumptions used:                                                              
  Discount rate............................................     5.25%     5.75%     5.00%
  Rate of increase in compensation.........................     5.70%     6.60%     6.60%
</TABLE>

     During 1995, 1994 and 1993, the Corporation's lump-sum benefit payments to
retirees resulted in settlement losses of approximately $.8 million, $3.1
million and $3.4 million, respectively, reflected above as a portion of net
periodic pension expense.

     The total consolidated pension expense of the Corporation, including the
supplemental plan, for 1995, 1994 and 1993 was $9,770,000, $15,222,000, and
$13,830,000, respectively.

     In addition to pension benefits, the Corporation provides medical care
benefits for retirees (and their dependents) who have attained age 55 and have
at least 10 years of service. In 1994, the Corporation expanded the plan to
provide medical care benefits for disabled employees and widows of former 
employees (and their dependents). The Corporation provides these medical
care benefits through a self-insured plan. Under the terms of the plan, the
Corporation contributes to the cost of coverage based on employees' length of
service. Cost sharing with plan participants is accomplished through
deductibles, coinsurance and out-of-pocket limits. Funding for the plan largely
comes from the general assets of the Corporation, although recently
contributions to a trust fund have been made under Internal Revenue Code Section
401(h).

     In 1994 the Corporation elected to change the measurement date for plan
assets and liabilities from December 31 to September 30; the change had no
material effect on 1994 benefit expense. The following table sets forth the
postretirement medical care benefit plan's status at December 31, 1995, 1994 and
1993 for the Corporation:

<TABLE>
<CAPTION>
(in thousands)                  Years Ended December 31   1995***      1994**      1993
----------------------------------------------------------------------------------------
<S>                                                      <C>         <C>        <C>
Actuarial present value of benefit obligation:
 Retirees..............................................  $(22,104)   $(28,562)  $(26,792)
 Fully eligible active plan participants...............    (3,744)     (5,041)    (5,151)
 Other active plan participants........................   (13,418)    (13,637)   (12,107)
                                                         --------    --------   --------
Accumulated postretirement benefit obligation..........   (39,266)    (47,240)   (44,050)
Plan assets at fair value*.............................     8,350       6,924      4,781
                                                         --------    --------   --------
Accumulated postretirement benefit obligation in                                
 excess of plan assets.................................   (30,916)    (40,316)   (39,269)
Unrecognized net (gain) loss from past experience                               
 different from that assumed...........................   (11,385)       (949)     2,163
Prior service cost not yet recognized in net periodic                           
 postretirement benefit cost...........................     2,982       3,177          -
Unrecognized transition obligation.....................    33,430      35,396     37,448
                                                         --------    --------   --------
Prepaid (accrued) postretirement benefit cost..........  $ (5,889)   $ (2,692)       342
                                                         ========    ========   ========
Assumptions used in determining actuarial present                               
 value of benefit obligation:                                                   
 Discount rate.........................................      7.25%       7.75%      7.25%
 Rate of increase in health care costs:                                          
     Initial...........................................         9%         12%        12%
     Ultimate..........................................         6%          7%         7%
 Expected long-term asset return.......................         8%          8%      **** 
</TABLE> 
    *Plan assets consist primarily of participating units in collective trust
     funds administered by HTSB.
   **Plan assets and obligations measured as of September 30, 1994.
  ***Plan assets and obligations measured as of September 30, 1995.
 ****For 1993 postretirement medical expense, no assets were assumed to exist.
     The initial funding occurred in 1993.

     Net postretirement benefit expense included the following components:
 
<TABLE> 
<CAPTION> 
(in thousands)                Years Ended December 31      1995       1994       1993
--------------------------------------------------------------------------------------
<S>                                                      <C>         <C>        <C> 
Service cost-benefits earned during the period.......    $ 1,260     $2,003     $1,367
Interest cost on accumulated postretirement benefit                              
 obligation..........................................      2,634      3,399      2,969
Actual return on plan assets.........................     (1,426)         2        (76)
Amortization of transition obligation over 20 years..      2,623      1,763      2,047
                                                         -------     ------     ------        
     Net postretirement benefit expense..............    $ 5,091     $7,167     $6,307
                                                         =======     ======     ======  
</TABLE>

     For 1995, the weighted average annual rate of increase in the per capita
cost of covered benefits was assumed to be 9 percent and was assumed to decrease
gradually to 6 percent in 2001 and remain level thereafter. For 1994 and 1993,
the weighted average annual rate of increase in the per capita cost of covered
benefits was assumed to be 12 percent and was assumed to decrease gradually to 7
percent in 2001 and remain level thereafter. This health care cost trend rate
assumption had a significant effect on the amounts reported. Increasing the
assumed health care cost trend rates by one percentage point each 

                                       51
<PAGE>
 
year would have increased the accumulated postretirement benefit obligation as
of September 30, 1995, September 30, 1994 and December 31, 1993 by $6.3 million,
$7.3 million and $6.7 million, respectively, and the aggregate service and
interest cost components of net postretirement benefit expense for 1995 by
approximately $.7 million.

11. Lease Expense And Obligations

Rental expense for all operating leases was $18,144,000 in 1995, $16,002,000 in
1994, and $16,623,000 in 1993. These amounts include real estate taxes,
maintenance, and other rental-related operating costs of $3,992,000, $4,151,000,
and $4,712,000 for 1995, 1994, and 1993 respectively, paid under net lease
arrangements. Lease commitments are primarily for office space. Minimum rental
commitments as of December 31, 1995 for all noncancelable operating leases are
as follows:

<TABLE>
<CAPTION>
(in thousands)
-------------------------------------------------------------------------------
<S>                                                                     <C>
1996..................................................................  $15,863
1997..................................................................   14,246
1998..................................................................   13,753
1999..................................................................    9,683
2000..................................................................    6,293
2001 and thereafter...................................................   10,166
                                                                        -------
     Total minimum future rentals.....................................  $70,004
                                                                        =======
</TABLE>

     Occupancy expenses for 1995, 1994 and 1993 have been reduced by
$13,200,000, $13,816,000 and $13,300,000, respectively, for rental income from
leased premises.

12. Income Taxes

The 1995, 1994 and 1993 applicable income tax expense (benefit) was as follows:

<TABLE>
<CAPTION>
(in thousands)                              Federal   State   Foreign   Total
------------------------------------------------------------------------------
<S>                                         <C>       <C>     <C>     <C>
1995: Current                               $68,348   $ 3,178   $29   $ 71,555
      Deferred...........................    (2,683)    1,303     -     (1,380)
                                            -------   -------   ---   --------
      Total..............................   $65,665   $ 4,481   $29   $ 70,175
                                            =======   =======   ===   ========
                                                                 
1994: Current                               $27,335       980   $31   $ 28,346
      Deferred...........................        90    (3,908)    -     (3,818)
                                            -------   -------   ---   --------
      Total..............................   $27,425   $(2,928)  $31   $ 24,528
                                            =======   =======   ===   ========
                                                                 
1993: Current............................   $48,639   $ 4,055   $14   $ 52,708
      Deferred...........................    (7,331)   (5,498)    -    (12,829)
                                            -------   -------   ---   --------
      Total..............................   $41,308   $(1,443)  $14   $ 39,879
                                            =======   =======   ===   ========
</TABLE> 
 
     Deferred tax assets (liabilities) are comprised of the following at
December 31, 1995, and at December 31, 1994:
 
<TABLE> 
<CAPTION> 
(in thousands)                                   December 31   1995      1994
-------------------------------------------------------------------------------
<S>                                                          <C>       <C> 
Gross deferred tax assets:                                             
  Allowance for possible credit losses...................... $ 51,179  $ 53,765
  Intangible assets.........................................    8,023     7,182
  Deferred employee compensation............................    5,116     4,432
  Deferred expense and prepaid income.......................    7,467     7,029
  Other real estate.........................................      800     2,370
  Pension and medical trust.................................    4,917     3,910
  Other assets..............................................    2,093     1,423
                                                             --------  --------
     Deferred tax assets....................................   79,595    80,111
                                                             --------  --------
Gross deferred tax liabilities:                                        
  Depreciable assets........................................   (3,200)   (3,899)
  Other liabilities.........................................   (1,917)   (3,114)
                                                             --------  --------
     Deferred tax liabilities...............................   (5,117)   (7,013)
Valuation allowance.........................................       -         -
                                                             --------  --------
  Net deferred tax assets...................................   74,478    73,098
                                                             --------  --------
Tax effect of adjustment related to SFAS No. 115............  (17,787)   21,535
                                                             --------  --------
Net deferred tax assets including adjustment related to SFAS           
 No. 115.................................................... $ 56,691  $ 94,633
                                                             ========  ========
</TABLE>

     At December 31, 1995, the net deferred tax asset of $74.5 million included
$62.4 million for Federal tax and $12.1 million for Illinois tax. The
Corporation has fully recognized both its Federal and Illinois deferred tax
assets. Current taxable income and taxable income generated in the statutory
carryback period is sufficient to support the entire deferred tax asset. The
deferred taxes reported on the Corporation's Consolidated Statement of Condition
at December 31, 1995 also include a $17.8 million deferred tax liability for the
tax effect of the net unrealized gains associated with marking to market certain
securities designated as available for sale.

                                       52
<PAGE>
 
     Total income tax expense of $70,175,000 for 1995, $24,528,000 for 1994, and
$39,879,000 for 1993 reflects effective tax rates of 32.2 percent, 20.1 percent
and 25.6 percent, respectively. The reasons for the differences between actual
tax expense and the amount determined by applying the U.S. Federal income tax
rate of 35 percent to income before income taxes were as follows:

<TABLE>
<CAPTION>
                                                                       1995                      1994                      1993
                                                         ------------------        ------------------        ------------------
                                                                 Percent of                Percent of                Percent of
                                                                     Pretax                    Pretax                    Pretax
(dollars in thousands)          Years Ended December 31   Amount     Income         Amount     Income         Amount     Income
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>    <C>                <C>    <C>               <C>     <C>
Computed tax expense...................................  $76,204       35.0%       $42,656       35.0%       $54,503       35.0%
Increase (reduction) in income tax expense due to:                                                           
  Tax-exempt income from loans and investments net of                                                        
   municipal interest expense disallowance.............  (10,463)      (4.8)       (14,135)     (11.6)       (15,213)      (9.7)
  Reduction of deferred tax valuation allowance........        -          -         (2,825)      (2.3)             -          -
  Other, net...........................................    4,434        2.0         (1,168)      (1.0)           589         .3
                                                         -------       ----        -------       ----        -------       ----
Actual tax expense.....................................  $70,175       32.2%       $24,528       20.1%       $39,879       25.6%
                                                         =======       ====        =======       ====        =======       ====
</TABLE>

     The tax expense from net gains on security sales amounted to $9,094,000,
$4,440,000, and $5,166,000 in 1995, 1994, and 1993, respectively.

13. Investments In Subsidiaries And Statutory Restrictions

Bankcorp's investment in the combined net assets of its wholly-owned
subsidiaries was $1,175,037,000 and $1,026,515,000 at December 31, 1995 and
1994, respectively.

     Provisions of both Illinois and Federal banking laws place restrictions
upon the amount of dividends that can be paid to Bankcorp by its bank
subsidiaries. Illinois state law requires that no dividends may be paid in an
amount greater than the net profits then on hand, reduced by certain loan losses
(as defined). In addition to these restrictions, Federal Reserve member banking
subsidiaries require prior approval of Federal banking authorities if dividends
declared by a subsidiary bank, in any calendar year, will exceed its net profits
(as defined in the applicable statute) for that year, combined with its retained
net profits, as so defined, for the preceding two years. Based on these and
certain other prescribed regulatory limitations, Bankcorp subsidiaries could
have declared, without regulatory approval, $235,622,000 of dividends at
December 31, 1995. Actual dividends paid, however, would be subject to prudent
capital maintenance. Cash dividends paid to Bankcorp by its subsidiaries
amounted to $63,265,000 and $49,731,000 in 1995 and 1994, respectively.

     The Federal Reserve Act also places restrictions on certain transactions
between Bankcorp and its affiliates, including loans from subsidiary banks. Such
restrictions include collateralization requirements and quantitative
limitations. Essentially, a member bank's aggregate involvement in these
restricted transactions may not exceed 20 percent of its capital and surplus, as
defined by the Federal Reserve Board. In addition, restricted transactions
involving an individual affiliate are limited to 10 percent of its capital and
surplus.

     The bank subsidiaries of Bankcorp are required by the Federal Reserve Act
to maintain reserves against certain of their deposits. Reserves are held either
in the form of vault cash or balances maintained with the Federal Reserve Bank.
Required reserves are essentially a function of daily average deposit balances
and statutory reserve ratios prescribed by type of deposit. During 1995 and
1994, daily average reserve balances of $198 million and $206 million,
respectively, were required for those subsidiaries of Bankcorp that must
maintain such balances. At year-end 1995 and 1994, balances on deposit at the
Federal Reserve Bank totaled $441 million and $219 million, respectively.

14. Contingent Liabilities

Certain subsidiaries of Bankcorp are defendants in various legal proceedings
arising in the normal course of business. In the opinion of management, based on
the advice of legal counsel, the ultimate resolution of these matters will not
have a material adverse effect on the Corporation's financial position.

                                       53
<PAGE>
 
15. Foreign Activities (By Domicile Of Customer)

Income and expenses identifiable with foreign and domestic operations are
summarized in the table below:

<TABLE>
<S>                                <C>           <C>           <C>
1995 (in thousands)                   Foreign       Domestic   Consolidated
---------------------------------------------------------------------------
Total operating income...........  $   49,329    $ 1,353,204    $ 1,402,533
Total expenses...................      23,922      1,160,885      1,184,807
                                   ----------    -----------    -----------
Income before taxes..............      25,407        192,319        217,726
Applicable income taxes..........      10,098         60,077         70,175
                                   ----------    -----------    -----------
Net income.......................      15,309        132,242        147,551
                                   ==========    ===========    ===========
Identifiable assets at year-end..  $  817,228    $14,858,973    $15,676,201
                                   ==========    ===========    ===========
1994 (in thousands)                   
---------------------------------------------------------------------------
Total operating income...........  $   53,416    $ 1,095,633    $ 1,149,049
Total expenses...................      23,584      1,003,591      1,027,175
                                   ----------    -----------    -----------
Income before taxes..............      29,832         92,042        121,874
Applicable income taxes..........      11,857         12,671         24,528
                                   ----------    -----------    -----------
Net income.......................      17,975         79,371         97,346
                                   ==========    ===========    ===========
Identifiable assets at year-end..  $1,042,784    $14,288,755    $15,331,539
                                   ==========    ===========    ===========
1993 (in thousands)
---------------------------------------------------------------------------
Total operating income...........  $   51,726    $ 1,018,539    $ 1,070,265
Total expenses...................      20,442        894,101        914,543
                                   ----------    -----------    -----------
Income before taxes..............      31,284        124,438        155,722
Applicable income taxes..........      12,434         27,445         39,879
Cumulative effect on prior years                              
 (to December 31, 1992) of                                    
 changing the accounting method                               
 for income taxes................           -          1,782          1,782
                                   ----------    -----------    -----------
Net income.......................      18,850         98,775        117,625
                                   ==========    ===========    ===========
Identifiable assets at year-end..  $  836,268    $12,681,566    $13,517,834
                                   ==========    ===========    ===========
</TABLE>

     Determination of rates for foreign funds generated or used are based on the
actual external costs of specific interest-bearing sources or uses of funds for
the periods. Internal allocations for certain unidentifiable income and expenses
were distributed to foreign operations based on the percentage of identifiable
foreign income to total income. As of December 31, 1995, 1994 and 1993,
identifiable foreign assets accounted for 5, 7 and 6 percent, respectively, of
total consolidated assets.

16. Parent Company Only Condensed Financial Information

Presented below is the statement of income, balance sheet and statement of cash
flows for Harris Bankcorp, Inc. (parent company only):

<TABLE>
<CAPTION>
Statement of Income
(in thousands)                        For the Years Ended December 31       1995       1994        1993
-------------------------------------------------------------------------------------------------------
<S>                                                                     <C>        <C>         <C>
*Interest on securities purchased from bank subsidiary under                                   
  agreement to resell................................................   $  8,820    $ 7,032    $  3,721
 Interest on securities purchased from nonaffiliates under                                     
  agreement to resell................................................          -          -          48
*Interest on advances to bank subsidiaries...........................     17,081     13,613      20,487
*Interest on advances to nonbank subsidiaries........................          1          2          38
 Interest on investments in Federal agency securities................      7,442      6,387       3,212
 Interest  on investments in foreign securities......................      1,367        217           -
*Interest on deposits at bank subsidiaries...........................        916        571       1,118
 Interest on deposits at nonaffiliated banks.........................        463        507       1,309
*Dividends from bank subsidiaries....................................     61,765     47,231      80,605
*Dividends from nonbank subsidiaries.................................      1,500      2,500       3,000
 Other operating income..............................................         20         58       1,488
                                                                        --------    -------    --------
     Total operating income..........................................     99,375     78,118     115,026
                                                                        --------    -------    --------
 Interest expense on commercial paper................................     15,054     11,496       7,779
 Interest expense on long-term notes.................................     23,005     19,520      26,384
 Other operating expense.............................................      6,870      5,228       7,441
                                                                        --------    -------    --------
     Total operating expenses........................................     44,929     36,244      41,604
                                                                        --------    -------    --------
 Income before income taxes and equity in undistributed net income                             
  of subsidiaries....................................................     54,446     41,874      73,422
 Applicable income tax benefit.......................................     (4,323)    (3,441)     (3,827)
                                                                        --------    -------    --------
 Income before equity in undistributed net income of subsidiaries                              
  and cumulative effect of a change in accounting principle..........     58,769     45,315      77,249
*Equity in undistributed net income of bank subsidiaries.............     86,317     51,960      27,373
*Equity in undistributed net income of nonbank subsidiaries..........      2,465         71       6,878
                                                                        --------    -------    --------
 Income before cumulative effect of a change in accounting principle.    147,551     97,346     111,500
 Cumulative effect on prior years (to December 31, 1992) of changing                           
  the accounting method for income taxes.............................         -          -        6,125
                                                                        --------    -------    --------
     Net income......................................................   $147,551    $97,346    $117,625
                                                                        ========    =======    ========
</TABLE>
*Eliminated in consolidation.

                                       54
<PAGE>
 
<TABLE>
<CAPTION>
Balance Sheet
<S>                                                                      <C>         <C>
 (in thousands)                                            December 31        1995        1994
 ---------------------------------------------------------------------------------------------
 Assets                                                                               
 Demand balances due from banks.......................................   $       50   $      50
 Investment in U. S. Treasury and Federal agency securities...........      138,511     200,799
*Investment in foreign securities.....................................       24,754           -
*Securities purchased from bank subsidiary under agreement to resell..      138,475     136,912
 Advances to bank subsidiaries........................................      295,000     235,000
 Interest-bearing deposits at nonaffiliated banks.....................       25,000      25,000
 Equity investments in wholly-owned subsidiaries:                                     
   *Banks.............................................................    1,123,183     977,125
   *Nonbanks..........................................................       51,854      49,390
 Other assets.........................................................        9,115       6,451
                                                                         ----------  ----------
     Total assets.....................................................   $1,805,942  $1,630,727
                                                                         ==========  ==========
 Liabilities and Stockholder's Equity                                                 
 Commercial paper outstanding.........................................   $  292,022  $  306,737
 Other liabilities....................................................        4,192       4,026
 Long-term notes......................................................      363,952     298,810
                                                                         ----------  ----------
    Total liabilities.................................................      660,166     609,573
 Stockholder's equity.................................................    1,145,776   1,021,154
                                                                         ----------  ----------
      Total liabilities and stockholder's equity......................   $1,805,942  $1,630,727
                                                                         ==========  ==========
</TABLE> 
*Eliminated in consolidation
 
Statement of Cash Flows
 
<TABLE> 
<CAPTION> 
(in thousands)                                     For the Years Ended December 31       1995         1994       1993
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>        <C>          <C>  
Operating Activities:
 Net income.......................................................................   $147,551   $   97,346   $117,625
 Adjustments to reconcile net income to net cash provided by operating activities:  
  Undistributed net income of subsidiaries........................................    (88,782)     (52,031)   (34,251)
  Accretion and amortization......................................................     (7,069)      (5,037)    (3,173)
  Deferred income tax (benefit) provision.........................................        (52)          30     (1,418)
  Net (increase) decrease in interest receivable..................................       (812)        (344)       143
  Other, net......................................................................       (268)      (1,172)    (6,484)
                                                                                     --------   ----------   --------
  Net cash provided by operating activities.......................................     50,568       38,792     72,442
                                                                                     --------   ----------   --------
Investing Activities:                                                                                        
  Net (increase) decrease in interest-bearing deposits at banks...................          -       (5,000)   145,000
  Net (increase) decrease in securities purchased under agreement to resell.......     (1,563)      14,525    (27,462)
  Proceeds from maturities of portfolio securities................................    774,155    1,102,363    674,893
  Purchases of portfolio securities...............................................   (729,552)  (1,096,928)  (862,929)
  Net (increase) decrease in advances to subsidiaries.............................    (60,000)         500      1,100
  Return of capital from subsidiaries.............................................          -            -      8,261
  Other, net......................................................................     (1,193)          21     (1,073)  
                                                                                     --------   ----------   --------
    Net cash (used) provided by investing activities..............................    (18,153)      15,481    (62,210)
                                                                                     --------   ----------   --------
Financing Activities:                                                                                        
  Net (decrease) increase in commercial paper outstanding.........................    (14,715)     (19,531)    39,123
  Proceeds from issuance of long-term notes.......................................     65,000            -          -
  Proceeds from issuance of preferred stock.......................................    180,000            -          -
  Cash dividends paid.............................................................   (262,700)     (34,738)   (49,355)
                                                                                     --------   ----------   --------
    Net cash used by financing activities.........................................    (32,415)     (54,269)   (10,232)
                                                                                     --------   ----------   --------
Net increase in demand balances due from banks....................................          -            4          -
Demand balances due from banks at January 1.......................................         50           46         46
                                                                                     --------   ----------   --------
Demand balances due from banks at December 31.....................................   $     50   $       50   $     46
                                                                                     ========   ==========   ========
</TABLE>

17. Business Combinations/Intangibles

At December 31, 1995 and 1994, intangible assets, including goodwill resulting
from business combinations, amounted to $38,407,000 and $47,757,000,
respectively. Intangible assets are included in "Other Assets" on the
Consolidated Statement of Condition. Amortization of these intangibles amounted
to $9,350,000 in 1995, $10,266,000 in 1994, and $11,785,000 in 1993. The impact
of purchase accounting adjustments, other than amortization of intangibles, was
not material to the Corporation's reported results.

                                       55
<PAGE>
 
18. Related Party Transactions

Bankcorp is a wholly-owned subsidiary of Bankmont, a Delaware corporation.
Bankmont is a wholly-owned subsidiary of BMO. Unamortized goodwill of $16.5
million at December 31, 1995 associated with the acquisition of Bankcorp in 1984
is reflected on the accounting records of Bankmont and has not been "pushed
down" to the Corporation.

     During 1995, 1994 and 1993, the Corporation engaged in various transactions
with BMO and its subsidiaries. These transactions included the payment and
receipt of service fees and occupancy expenses, and purchasing and selling
Federal funds, repurchase and reverse repurchase agreements, long-term
borrowings and interest rate and foreign exchange contracts. The purpose of
these transactions was to facilitate a more efficient use of combined resources
and to better serve customers. Management fees were determined in accordance
with applicable banking regulations. During 1995, 1994 and 1993, the Corporation
received from BMO approximately $15.7 million, $12.8 million and $8.0 million
respectively, primarily for trust services, data processing and other operations
support provided by the Corporation.

     Effective April 3, 1995, the Corporation and BMO agreed to combine their
U.S. foreign exchange activities. Under this arrangement, FX net profit will be
shared by the Corporation and BMO in accordance with a specific formula set
forth in the agreement. This agreement expires in April 2002 but may be extended
at that time. Either party may terminate the arrangement at its option.
Beginning with second quarter 1995, FX revenues were reported net of expenses.
1995 foreign exchange revenues included $8.8 million of net profit under this
agreement. This agreement did not have a material impact on the Corporation's
1995 net income or financial position at December 31, 1995.

     In October 1991, the Corporation announced that certain U.S. corporate
banking units of HTSB and BMO were to be merged into a single organizational
unit in order to better accommodate the requirements of certain customers in the
large corporate market. The transition was expected to take place over several
months. During the 1991 fourth quarter, a total of 38 employees had transferred
from HTSB to BMO's payroll, although all related customer business remained with
the Corporation at that time. During 1992, 75 customers representing
approximately $214 million in outstanding credits and $2.3 billion in unused
commitments were transferred to BMO. In 1993, an additional 31 customers
representing approximately $22 million in outstanding credits and $533 million
in commitments were also transferred. BMO was compensated for expenses incurred
on behalf of HTSB's customers through December 31, 1993. No material transfers
occurred in 1995 or 1994.

19. Subsequent Event

     On January 11, 1996, the Corporation announced the sale of its securities
custody and related trustee services business for large institutions to
Citibank. After restructuring charges, it is estimated that the net gain on the
sale will approximate $4.0 million. The sale of the custody business for large
institutions is not expected to have a material impact on 1996 earnings.

                                       56
<PAGE>
 
Explanation of Joint Independent Auditors' Reports
-------------------------------------------------------------------------------
The Board of Directors of Harris Bankcorp, Inc. engaged the firms of KPMG Peat
Marwick LLP and Coopers & Lybrand L.L.P. to serve as joint auditors for the
three years ended December 31, 1995, 1994 and 1993.

     Bankmont Financial Corp., a wholly-owned subsidiary of Bank of Montreal,
owns all outstanding shares of Harris Bankcorp, Inc. Canadian bank shareholders
had been required by the Canadian Bank Act to appoint each year two firms of
independent public accountants to be auditors of their bank and all significant
subsidiaries. In prior years, the change in the Corporation's independent public
accountants reflected identical changes made by Bank of Montreal. The Canadian
Bank Act was revised during 1992; accordingly, the Corporation no longer expects
a planned rotation of independent auditors.

                                       57
<PAGE>
 
Independent Auditors' Report
-------------------------------------------------------------------------------

To the Stockholder and Board
of Directors of Harris Bankcorp, Inc.:

We have audited the accompanying consolidated statements of condition of Harris
Bankcorp, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholder's equity and
cash flows for each of the years in the three year period ended December 31,
1995. These consolidated financial statements are the responsibility of Harris
Bankcorp, Inc.'s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harris
Bankcorp, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1995 in conformity with generally accepted
accounting principles.



KPMG Peat Marwick LLP                    Coopers & Lybrand L.L.P.
Chicago, Illinois
January 26, 1996

                                       58
<PAGE>
  
ITEM 9-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

There were no disagreements between the Corporation and its independent auditors
related to accounting matters and/or financial disclosures. There were no
changes in independent auditors since December 31, 1993.

                                       59
<PAGE>
 
-------------------------------------------------------------------------------
PART III

ITEM 10-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Bankcorp's Board of Directors consists of seventeen members. Directors are
elected annually. Each present director, except Mrs. Congalton and Ms. Decyk
(both of whom are attorneys), has been employed in an executive capacity by his
or her employer for more than five years. Set forth below is certain
biographical information concerning each director, including principal
occupation, age, the year first elected a director of Bankcorp and HTSB and
other directorships.

Matthew W. Barrett, age 51, Chairman and Chief Executive Officer of Bank of
Montreal. Elected in 1988.

F. Anthony Comper, age 50, President and Chief Operating Officer and a Director
of Bank of Montreal. Elected in 1990.

Susan T. Congalton, age 49, Managing Director, Lupine Partners (private
investments). Elected in 1988.

Roxanne J. Decyk, age 43, Vice President, Planning, Amoco Corp. (petroleum
products) and a Director of Material Sciences Corporation and Snap-On
Incorporated. Elected in 1990.

Wilbur H. Gantz, age 58, President and Chief Executive Officer of PathoGenesis
Corporation (diagnostic health care) and a Director of W.W. Grainger, Gillette
Corporation and Bank of Montreal. Elected in 1984.

James J. Glasser, age 61, Chairman of GATX Corporation (capital equipment and
services for extracting, processing and distributing dry and liquid bulk
commodities) and a Director of The B. F. Goodrich Company, Stone Container
Corporation and Bank of Montreal. Elected in 1980.

Daryl F. Grisham, age 69, President and Chief Executive Officer of Parker House
Sausage Company (meat processor). Elected in 1983.

Dr. Leo M. Henikoff, age 56, President and Chief Executive Officer of Rush-
Presbyterian-St. Luke's Medical Center (health care and related services).
Elected in 1986.

Dr. Stanley O. Ikenberry, age 61, Regent Professor and President Emeritus of the
University of Illinois and a Director of Franklin Life Insurance Company and
Pfizer, Inc. Elected in 1985.

Richard M. Jaffee, age 60, Chairman and Chief Executive Officer, Oil-Dri
Corporation of America (a developer, manufacturer and marketer of sorbent
products). Elected in 1995.

Edward W. Lyman, Jr., age 53, Vice Chair of the Board of Bankcorp and Harris
Trust and Savings Bank. Elected in 1995.

Alan G. McNally, age 50, Chairman of the Board and Chief Executive Officer of
Bankcorp and Harris Trust and Savings Bank. Elected in 1993.

Maribeth S. Rahe, age 47, Vice Chair of the Board of Bankcorp and Harris Trust
and Savings Bank. Elected in 1995.

Charles H. Shaw, age 63, Chairman, The Charles H. Shaw Company (real estate
development). Elected in 1990.

Richard E. Terry, age 58, Chairman and Chief Executive Officer, Peoples Energy
Corporation (public utility) and a Director of Amsted Industries. Elected in
1992.

James O. Webb, age 64, President, James O. Webb & Associates, Inc. (consultant
in new ventures and business development). Elected in 1995.

William J. Weisz, age 69, Chairman of the Board, Motorola, Inc. (manufacturer of
electronic equipment). Elected in 1988.

     In addition to Messrs. McNally and Lyman and Ms. Rahe, the Corporation had
nine executive officers at December 31, 1995--Richard J. Brown, age 51, Jeffrey
D. Butterfield, age 49, Charles H. Davis, age 53, Pierre O. Greffe, age 43,
Kenneth R. Keck, age 57, Louis F. Lanwermeyer, age 47, Charles R. Tonge, age 46,
Edward J. Williams, age 53 and Nancy B. Wolcott, age 41. Each officer has held
executive positions with the Corporation or an affiliate for many years.

                                       60
<PAGE>
 
ITEM 11-OMITTED PURSUANT TO GENERAL INSTRUCTION (J)(2)(c) OF FORM 10-K.

ITEM 12-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Bank of Montreal, through its subsidiary, Bankmont Financial Corp., a U.S. bank
holding company chartered in Delaware, owns all 6,667,490 issued and outstanding
shares of Bankcorp's common stock.

ITEM 13-OMITTED PURSUANT TO GENERAL INSTRUCTION (J)(2)(c) OF FORM 10-K.

Part IV

ITEM 14-EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  Documents filed with Report:

     (l)  Financial Statements (See page 1 for a listing of all financial
          statements included in Item 8)

     (2)  Financial Statement Schedules

          All Schedules normally required by Form 10-K are omitted since they
          are either not applicable or the required information is shown in the
          financial statements or the notes thereto.

     (3)  Exhibits:

           3.  Articles of Incorporation and By-laws

               a)  Restated Certificate of Incorporation (filed as an Exhibit to
                   Bankcorp's 1987 Form 10-K and incorporated herein by
                   reference)

               b)  By-laws of Bankcorp

           4.  Indenture dated as of June 1, 1989 relating to Bankcorp's 9 3/8%
               Subordinated Notes Due 2001 (filed as an Exhibit to Bankcorp's
               May 24, 1989 Registration Statement on Form S-3 and incorporated
               herein by reference). In addition, Bankcorp has issued three
               Floating Rate Subordinated Notes and one Fixed Rate Subordinated
               Note to its parent company, Bankmont. The principal amount of
               these notes totals $200 million for the floating rate notes and
               $65 million for the fixed rate note, respectively. The floating
               rate notes mature in 2004, 2005 and 2006, respectively. The fixed
               rate note matures in 2007. Bankcorp hereby agrees to file a copy
               of the agreement relating to any such notes with the Commission
               upon request.

          10.  Material Contracts and Compensatory Plans

               a)  1995 Managerial Incentive Plan

               b)  Harris Growth Incentive Plan (filed as an Exhibit to
                   Bankcorp's 1991 Form 10-K and incorporated herein by
                   reference)

               c)  Employees' Savings and Profit Sharing Plan

               d)  1995 Stock Appreciation Rights Plan

               e)  Harris Retirement Benefit Replacement Plan (filed as an
                   Exhibit to Bank of Montreal's August 3, 1994 Registration
                   Statement on Form F-4, File No. 33-82358, and incorporated
                   herein by reference)

          23.  Consents of Experts and Counsel (consents of Independent 
               Auditors)

          24.  Power of Attorney

(b)  No reports on Form 8-K were filed during the last quarter of 1995.
-------------------------------------------------------------------------------
*Copies of Exhibits (a)(3) 3, 4, 10, 23 and 24, not contained herein, may be
obtained at a cost of 25 cents per page upon written request to the Secretary of
Harris Bankcorp, Inc.

                                      61
<PAGE>
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Harris Bankcorp, Inc. has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 25th day of
March 1996.



Alan G. McNally            Chairman of the Board and
                           Chief Executive Officer
                        
                        
Pierre O. Greffe           Chief Financial Officer



Paul R. Skubic             Chief Accounting Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by Alan G. McNally, Chairman of the Board and Chief Executive
Officer of the Corporation, as attorney-in-fact for the following Directors on
behalf of Harris Bankcorp, Inc. on the 25th day of March 1996.

 
F. Anthony Comper          Daryl F. Grisham            Maribeth S. Rahe
Susan T. Congalton         Leo M. Henikoff             Charles H. Shaw
Roxanne J. Decyk           Stanley O. Ikenberry        Richard E. Terry
Wilbur H. Gantz            Richard M. Jaffee           James O. Webb
James J. Glasser           Edward W. Lyman, Jr.        William J. Weisz



Alan G. McNally
Attorney-In-Fact



Supplemental Information

No annual report or proxy statement will be sent to security holders in 1996.

                                       62