<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
FINANCIAL SUPPLEMENT AND FORM 10-Q
<TABLE>
<CAPTION>
CONTENTS
- - ---------------------------------------------------------------
<S> <C>
FIVE-QUARTER SUMMARY OF SELECTED FINANCIAL INFORMATION 1
BUSINESS SEGMENTS 2
EARNINGS ANALYSIS
Summary 6
Net Interest Income 7
Provision for Credit Losses 9
Noninterest Income 9
Noninterest Expense 11
Applicable Income Taxes 11
Venture Capital Activities 12
BALANCE SHEET ANALYSIS
Assets 13
Liabilities 13
Capital 14
CREDIT RISK ANALYSIS
Summary 15
Allowance for Credit Losses 16
Nonperforming Assets 17
Consumer Risk Management 18
Commercial Risk Management 19
Commercial Real Estate 19
Highly Leveraged Transactions 20
FINANCIAL SECTION
Consolidated Balance Sheet 21
Consolidated Income Statement 22
Consolidated Statement of Changes in Stockholders' Equity 23
Consolidated Statement of Cash Flows 24
Notes to Consolidated Financial Statements 25
SELECTED STATISTICAL INFORMATION
Investment Securities 29
Impact of Credit Card Securitization 30
Analysis of Allowance for Credit Losses 31
Average Balances/Net Interest Margin/Rates 32
Five-Quarter Consolidated Income Statement 35
Selected Statistical Information 36
Financial Ratios 36
Common Stock Data 36
FORM 10-Q
Form 10-Q Cross-Reference Index 38
Signatures 40
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
F I V E - Q U A R T E R S U M M A R Y O F S E L E C T E D F I N A N C I A L I N F O R M A T I O N
First Chicago Corporation and Subsidiaries
- - -----------------------------------------------------------------------------------------------------------------------
June March December September June
(Dollars in millions, except per share data) 1994 1994 1993 1993 1993
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA FOR THE QUARTER
Net interest income..................................... $332.8 $330.6 $300.7 $323.1 $303.2
Tax-equivalent adjustment............................... 5.9 4.9 6.2 17.5 8.3
------ ------ ------ ------ ------
Net interest income--tax-equivalent basis............... 338.7 335.5 306.9 340.6 311.5
Provision for credit losses............................. 43.0 50.0 70.0 65.0 70.0
Noninterest income...................................... 428.8 501.9 523.0 685.4 503.5
Noninterest expense..................................... 460.6 484.5 481.9 475.5 466.6
Net income.............................................. 168.7 193.8 172.8 284.1 168.5
- - -----------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Net income - Primary.................................... $1.71 $2.05 $1.81 $3.14 $1.81
Net income - Fully diluted.............................. 1.67 2.00 1.77 2.97 1.72
- - -----------------------------------------------------------------------------------------------------------------------
AT QUARTER-END
Assets.................................................. $64,089 $59,843 $52,560 $53,154 $49,959
Deposits................................................ 28,577 28,833 28,186 29,379 27,794
Loans................................................... 23,680 23,782 23,103 21,969 21,621
Long-term debt.......................................... 2,269 2,265 2,065 2,091 2,366
Common stockholders' equity............................. 3,763 3,647 3,503 3,378 3,018
Stockholders' equity.................................... 4,524 4,408 4,264 4,139 3,887
- - -----------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Assets.................................................. $60,490 $61,475 $57,708 $56,932 $56,951
Earning assets.......................................... 50,464 49,488 48,977 48,403 48,749
Loans................................................... 22,924 22,460 22,263 21,588 21,974
Deposits................................................ 29,009 29,366 29,075 29,343 30,062
Common stockholders' equity............................. 3,663 3,620 3,451 3,177 2,937
Stockholders' equity.................................... 4,424 4,381 4,212 4,004 3,806
- - -----------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on stockholders' equity.......................... 15.3% 17.9% 16.3% 28.2% 17.8%
Return on common stockholders' equity................... 16.5 20.2 18.3 33.8 20.9
Return on assets........................................ 1.12 1.28 1.19 1.98 1.19
- - -----------------------------------------------------------------------------------------------------------------------
CAPITAL DATA (1)
Common-equity-to-assets................................. 6.5% 6.6% 7.2% 7.0% 6.5%
Regulatory leverage ratio (2)........................... 8.0 7.8 8.0 8.0 7.4
Risk-based capital (2)
Tier 1 ratio.......................................... 8.9 9.1 8.8 8.7 8.0
Total capital ratio................................... 13.8 14.2 13.6 13.5 13.0
Tier 1 capital........................................ $4,148 $4,182 $4,098 $3,969 $3,715
Total capital......................................... 6,424 6,509 6,292 6,179 6,001
- - -----------------------------------------------------------------------------------------------------------------------
COMMON SHARE AND STOCKHOLDER DATA FOR THE QUARTER ENDED
Market price............................................ $48 1/8 $48 1/8 $43 1/4 $48 3/4 $41 1/8
Book value.............................................. 43.40 42.19 40.55 39.03 36.27
Dividends declared per common share..................... 0.50 0.40 0.40 0.30 0.30
Common dividends........................................ 43 34 35 26 25
Preferred dividends (3)................................. 18 14 14 13 16
Dividend payout ratio................................... 29.2% 19.5% 22.1% 9.6% 16.6%
Average number of common and common-equivalent
shares (in millions).................................. 88.0 87.7 87.7 86.1 84.5
Average number of shares, assuming full
dilution (in millions)................................ 91.8 91.6 91.5 91.9 91.4
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1) Net of investment in First Chicago Capital Markets, Inc.
(2) June 1994 excludes $150 million of Preferred Stock, Series D, that was
redeemed on July 1, 1994.
(3) Second quarter of 1994 includes a $4.5 million premium related to the
redemption of Preferred Stock, Series D.
1
<PAGE>
BUSINESS SEGMENTS
The Corporation's financial results have been prepared in alignment with its
three major business segments: Corporate and Institutional, Consumer, and
Middle Market Banking. Results from other corporate activities, including
venture capital, the accelerated asset disposition portfolio and other
corporate items, are segregated and reported separately.
Segment financial results are derived from the Corporation's internal
profitability reporting system and reflect full allocation of all items,
including institutional assets and overhead items. The Corporation maintains
a detailed funds transfer pricing system that charges or credits assets and
liabilities based on known or assumed repricing characteristics. In cases
where liquidity characteristics differ significantly from repricing
characteristics, a liquidity charge or credit is assigned. Common equity is
allocated to each segment based on the measured risk of that segment using
historical loss and volatility data.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Three Months Ended June 30
Corporate and Consumer Middle Market Other Corporate
(Dollars in millions, Institutional Banking Banking Banking Activities (1)
except where noted) 1994 1993 1994 1993 1994 1993 1994 1993
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income-
tax-equivalent
basis...................... $ 99 $ 103 $ 184 $152 $ 59 $ 56 $ (3) $ 1
Provision for credit
losses..................... (21) 10 57 50 7 10 - -
Noninterest income.......... 140 231 237 207 22 21 30 45
Noninterest expense......... 172 203 235 214 46 48 8 2
Net income.................. 53 71 80 56 18 12 18 30
Return on equity (2)........ 12% 17% 36% 35% 21% 15% N/M N/M
Efficiency ratio (3)........ 72% 61% 56% 60% 56% 61% N/M N/M
Average assets
(in billions).............. $43.7 $41.4 $9.9 $8.5 $5.5 $5.3 $1.4 $1.7
- - -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Six Months Ended June 30
Corporate and Consumer Middle Market Other Corporate
(Dollars in millions, Institutional Banking Banking Banking Activities (1)
except where noted) 1994 1993 1994 1993 1994 1993 1994 1993
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income-
tax-equivalent
basis...................... $ 196 $ 200 $ 373 $303 $116 $110 $(11) $ 4
Provision for credit
losses..................... (22) 22 101 91 14 22 - -
Noninterest income.......... 233 406 462 397 43 42 193 149
Noninterest expense......... 348 382 461 418 93 94 43 7
Net income.................. 61 121 168 115 34 22 100 90
Return on equity (2)........ 6% 16% 40% 35% 20% 14% N/M N/M
Efficiency ratio (3)........ 81% 63% 55% 60% 58% 62% N/M N/M
Average assets
(in billions).............. $43.9 $39.4 $10.2 $8.8 $5.5 $5.4 $1.4 $2.8
- - -------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes results from the accelerated asset disposition portfolio, the
venture capital group and other special corporate items.
(2) The capital allocation method was changed in December 1993. Prior results
have been restated to reflect this change, which did not have a material
impact on results.
(3) Noninterest expense as a percentage of total revenue.
N/M - Not meaningful.
2
<PAGE>
CORPORATE AND INSTITUTIONAL BANKING
Net income of $53 million in Corporate and Institutional Banking and return on
equity of 12 percent was a significant improvement from the first quarter, but
year-to-date results were substantially below the 1993 level. Performance for
the second quarter of 1994 reflected:
- Difficult trading conditions, with continued below-trend revenues in
foreign exchange, derivatives and emerging markets.
- Continued excellent credit quality.
- $32 million in interest income and recoveries related to the receipt
of Brazilian bonds.
- Lower noninterest expenses, due largely to reduced incentive
compensation accruals.
- Lower gains from corporate financing and debt restructuring equity
securities.
Revenue performance by activity, including both net interest income and fee
revenue, is summarized in the following table.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(In millions) 1994 1993 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lending.................. $ 60 $ 52 $102 $ 98
Servicing................ 91 98 186 181
Financing................ 32 63 69 104
Trading.................. 43 118 44 197
Other.................... 13 3 28 26
---- ---- ---- ----
Total................ $239 $334 $429 $606
==== ==== ==== ====
- - --------------------------------------------------------------------------------
</TABLE>
Lending revenues for the second quarter included $14 million from Brazilian
interest bonds. Excluding this income, lending revenues were down slightly from
a year ago, reflecting lower large corporate loan volume and narrower market
pricing.
Lower servicing revenues for the quarter resulted principally from timing of
income in shareholder services. Revenues for six months in shareholder services,
corporate trust and cash management were slightly above 1993 results.
Financing revenues were reduced because of sharply lower corporate financing and
debt restructuring equity securities gains -- down $29 million from 1993's
second quarter. Year-to-date results were affected by the timing of leasing and
syndications transactions.
Trading results for the quarter and year-to-date dropped substantially from last
year's record levels. Comparative data for key trading revenue components are
shown in the following table.
All other revenue reflected the higher funding value of increased capital, as
well as lower interest costs for other institutional allocations.
3
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(In millions) 1994 1993 1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange and derivatives..... $12 $ 37 $ 16 $ 48
Fixed income and derivatives......... 20 30 34 53
Emerging markets..................... (1) 17 (51) 27
Funding and arbitrage................ 8 17 20 35
Other trading........................ 4 17 25 34
--- ---- ---- ----
Total........................... $43 $118 $ 44 $197
=== ==== ==== ====
- - --------------------------------------------------------------------------------
</TABLE>
Less favorable market conditions caused lower revenues in foreign exchange and
derivatives, and in fixed income and derivatives. Last year's environment,
particularly in European markets, was considerably better for these
activities.
Emerging markets activities were sharply reduced in the quarter due to the
generally unstable market conditions.
Rising interest rates reduced funding and arbitrage opportunities relative to
the falling rate conditions last year. Other trading revenues for the quarter
included lower gains on distressed loan trading.
CONSUMER BANKING
This business segment continued to produce an outstanding return on equity --
40 percent for 1994's first six months -- and outpaced last year's performance
with a 46 percent improvement in net income for the first half.
The credit card remained the driving factor in Consumer Banking's $80 million
bottom line for the second quarter. Total credit card receivables reached
$11.0 billion at quarter-end, up 22 percent from June 30, 1993. Related
revenues and expenses rose at similar rates as the Corporation continued to
invest aggressively to grow this business.
In local retail banking, results for the first half of 1994 improved
substantially over a year ago. As announced August 4, initiatives are
underway to enhance the quality of products and services in this area in order
to increase revenue and further reduce expenses.
4
<PAGE>
MIDDLE MARKET BANKING
The earnings contribution from Middle Market Banking was $18 million in the
second quarter resulting in a 21 percent return on equity. Lower credit
provisions together with reduced purchase accounting costs produced this
significant improvement from a year ago.
OTHER CORPORATE ACTIVITIES
Accelerated asset disposition activities resulted in net revenue gains of
$22 million for the second quarter. Earnings from the venture capital
portfolio in the quarter were not significant.
Year-to-date, venture capital produced significant net income of $66 million due
principally to gains related to the Corporation's investment in NEXTEL
Communications, Inc. Also included in Other Corporate Activities for the first
half of 1994 is a $35 million pretax gain from the sale of the remaining
interest in Brinson Holdings, Inc., an institutional investment management
business. This was offset by total special expenses of $43 million related to
the accounting for personal computer equipment, certain litigation costs, and
other corporate items.
STAFFING LEVELS
Staff levels for each of the three business segments as well as corporate
support functions were as follows.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
Average Full-Time-Equivalent 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Staff 1994 1994 1993 1993 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate and
Institutional............. 6,340 6,315 6,280 6,349 6,241
Consumer.................... 7,430 7,390 7,304 7,392 7,256
Middle Market............... 2,069 2,062 2,032 2,037 2,011
Corporate Support........... 1,527 1,514 1,502 1,538 1,483
------ ------ ------ ------ ------
First Chicago Corporation.. 17,366 17,281 17,118 17,316 16,991
====== ====== ====== ====== ======
------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
EARNINGS ANALYSIS
SUMMARY
The Corporation reported net income of $168.7 million, or $1.67 per share, for
the second quarter of 1994, compared with $168.5 million, or $1.72 per share,
for the second quarter of 1993. The redemptive dividend of $4.5 million
accrued in the second quarter of 1994 related to Preferred Stock, Series D,
reduced earnings by 5 cents per share. Excluding the results from the
Corporation's venture capital operations, net income was $172.3 million, or
$1.73 per share, compared with $147.9 million, or $1.52 per share a year ago.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
(Dollars in millions, June 30 June 30
except per share data) 1994 1993 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis.. $338.7 $311.5 $674.2 $616.5
Provision for credit losses................ 43.0 70.0 93.0 135.0
Noninterest income......................... 428.8 503.5 930.7 994.0
Noninterest expense........................ 460.6 466.6 945.1 900.7
No income.................................. 168.7 168.5 362.5 347.6
Common Share Data
PRIMARY
Net income............................... $ 1.71 $1.81 $3.76 $3.78
Average common and common-equivalent
shares (in millions)................... 88.0 84.5 87.9 84.1
FULLY DILUTED
Net income............................... $ 1.67 $1.72 $3.67 $3.64
Average shares, assuming full dilution
(in millions).......................... 91.8 91.4 91.7 89.5
Return on assets........................... 1.12% 1.19% 1.20% 1.24%
Return on common stockholders' equity...... 16.5 20.9 18.3 22.4
- - --------------------------------------------------------------------------------
</TABLE>
Stronger net interest income and reduced credit provisions offset by lower
revenues in market-driven businesses were key factors in the results for the
second quarter of 1994.
The credit card business was a major contributor to earnings, as managed
receivables grew to $11 billion at June 30, 1994, up 22 percent from
$9 billion a year ago.
The Corporation received Brazilian bonds as part of a debt restructuring that
was completed during the second quarter. This added approximately $32 million
to pre-tax earnings, including $14 million in interest income representing the
fair value of interest bonds; and $18 million representing the fair value of
principal bonds in excess of the recorded carrying amounts, which was treated
as a loan loss recovery.
The provision for credit losses declined to $43 million in the second quarter.
Reserve building for growth in the credit card portfolio was offset by a
negative commercial provision, principally reflecting the Brazilian debt
restructuring.
Combined trading profits were $37 million in the second quarter of 1994,
compared with record profits of $92 million a year ago. Despite the decline
from a year ago, trading profits rebounded sharply from the 1994 first
quarter, which produced overall losses of $25 million principally driven by
$54 million in losses from emerging markets trading activities.
6
<PAGE>
Other revenue for the second quarter of 1994 included net gains of $22 million
resulting from accelerated asset disposition portfolio activities. These gains
totaled $10 million a year ago.
Excluding special charges that included a $12 million intangible write-off in
the second quarter of 1993, noninterest expense in the second quarter of 1994
was up only 1 percent reflecting a continuing focus on expense control.
The Corporation's regulatory capital ratios continued to increase and are
considerably above "well-capitalized" regulatory guidelines. At June 30, 1994,
the Corporation's risk-based capital ratio was 13.8 percent, compared with 13.6
percent at year-end 1993 and 13.0 percent a year ago. The regulatory leverage
ratio remained strong at 8.0 percent, compared with 7.4 percent a year ago.
Regulatory capital ratios for the Corporation's principal banking subsidiaries
exceeded the minimum levels for well-capitalized institutions.
The Corporation's solid capital position enabled it to take several important
capital management steps: (1) the quarterly common stock dividend was increased
25 percent to 50 cents a share; (2) the common stock repurchase program was
increased from 2.5 million shares to 7 million shares; and (3) the Corporation
announced that on July 1, 1994, its Preferred Stock, Series D, would be redeemed
at a 3 percent premium which will reduce annual preferred stock dividend
requirements by $15 million.
NET INTEREST INCOME
Net interest income includes fundamental spreads on earning assets as well as
such items as loan fees, cash interest collections on problem loans, dividend
income, interest reversals, and income or expense on interest rate derivatives
used to manage interest rate risk. Net interest income is a function of average
earning assets and the net interest margin, which are presented in the following
table.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
(Dollars in millions) 1994 1993 1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income -- tax-equivalent
basis.................................... $338.7 $311.5 $674.2 $616.5
Average earning assets..................... $50,464 $48,749 $49,976 $48,344
Net interest margin........................ 2.69% 2.56% 2.72% 2.57%
- - -------------------------------------------------------------------------------
</TABLE>
In order to analyze fundamental trends in the Corporation's net interest margin,
it is useful to adjust for: 1) securitization of credit card receivables, and 2)
the activities of First Chicago Capital Markets, Inc. (FCCM).
7
<PAGE>
When credit card receivables are sold in securitization transactions, the
Corporation's earnings are unchanged; however, the net interest income related
to these high-yield assets is displaced by increased servicing fees, net of
portfolio credit losses. The average level of securitized assets was
$5.1 billion in the second quarter of 1994, compared with $4.5 billion in the
second quarter of 1993. The effect of credit card securitization transactions
on the Corporation's financial statements is summarized on page 30. The
impact is also discussed within specific categories of the Earnings Analysis.
FCCM is the Corporation's wholly owned subsidiary engaged in permissible
investment banking activities. Because capital requirements for FCCM are
risk-exposure driven rather than based on asset levels, FCCM can generate
substantial volumes of relatively riskless, thin-spread earning assets that
require little additional capital. Net interest margin trends can be better
analyzed if these earning assets and related margins are excluded.
The following table reflects the elements of net interest margin adjusted for
credit card securitizations and the activities of FCCM.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
(Dollars in millions) 1994 1993 1994 1993
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjusted net interest income--
tax-equivalent basis............ $ 463.7 $ 416.4 $ 918.9 $ 822.7
Adjusted average earning assets... $47,382 $46,653 $47,193 $46,152
Adjusted net interest margin...... 3.93% 3.58% 3.93% 3.59%
- - ------------------------------------------------------------------------------
</TABLE>
On an adjusted basis, net interest margin for the second quarter of 1994, as
compared to a year ago, increased 35 basis points to 3.93 percent. Adjusted
net interest income rose to $464 million.
Improved margins were primarily the result of strong growth in credit card
receivables, which produced a more favorable earning asset mix. Average
managed credit card receivables grew 22 percent to $10.5 billion in the second
quarter of 1994, compared with $8.6 billion a year ago. Interest income of
$14 million from the Brazilian debt restructuring added 12 basis points to the
adjusted margin in the second quarter of 1994.
A breakdown of average loans adjusted for credit card securitizations is
presented in the following table.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
Average Loans
For the Quarter Ended June 30
1994 1993
(Dollars in millions) Percent Percent
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial................................ $14,764 53% $15,640 59%
Managed credit card receivables........... 10,541 37 8,619 32
Other consumer............................ 2,741 10 2,510 9
------- --- ------- ---
Total................................. $28,046 100% $26,769 100%
======= === ======= ===
- - ------------------------------------------------------------------------------
</TABLE>
Average nonperforming assets totaled $237 million for the second quarter of
1994, a 39 percent reduction from the year-ago level of $389 million.
8
<PAGE>
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $43 million for the quarter. The
commercial provision was a negative $14 million, principally reflecting
recoveries resulting from the Brazilian debt restructuring. In the second
quarter of 1993, the commercial provision was $24 million. The provision for
consumer loans, primarily for credit cards, was $57 million for the 1994
second quarter, compared with $46 million a year ago. This increase was
related primarily to reserve building for growth in the credit card portfolio.
The change in the allowance for credit losses is presented in the following
table.
- - -------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
(Dollars in millions) 1994 1993 1994 1993
- - -------------------------------------------------------------------------------
Allowance for credit losses
--beginning of period...... $710 $610 $683 $ 624
Provision for credit losses..
43 70 93 135
Net charge-offs..............
(34) (32) (67) (106)
Other, transfers related to
securitized receivables.... (38) (21) (28) (26)
---- ---- ---- ----
Net change in allowance
for credit losses.......... (29) 17 (2) 3
---- ---- ---- ----
Allowance for credit losses
-- end of period........... $681 $627 $681 $ 627
==== ==== ==== ====
-- as a percentage of
loans outstanding....... 2.9% 2.9% 2.9% 2.9%
-- as a percentage of
nonperforming loans..... 454% 170% 454% 170%
- - -------------------------------------------------------------------------------
Details of the Corporation's credit risk management and performance during the
six months ended June 30, 1994, are presented in the Credit Risk Analysis
section, beginning on page 15.
NONINTEREST INCOME
Noninterest income for the second quarter of 1994 decreased 15 percent to
$428.8 million from the year-earlier level of $503.5 million. For the first
six months of 1994, noninterest income totaled $930.7 million, down 6 percent
from $994 million in 1993.
- - -------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
(In millions) 1994 1993 1994 1993
- - -------------------------------------------------------------------------------
Combined trading account
profits.................... $ 36.7 $ 91.6 $ 12.0 $146.1
Equity securities gains...... 3.9 78.7 138.1 211.9
Investment securities gains.. 0.6 0.2 1.1 0.2
------ ------ ------ ------
Market-driven revenues..... 41.2 170.5 151.2 358.2
Credit card fee revenue...... 193.9 164.2 376.2 310.9
Service charges and
commissions................ 104.2 103.9 205.5 202.1
Fiduciary and investment
management fees............ 49.3 53.6 101.7 102.1
Net gains from accelerated
disposition portfolio
activities................. 21.5 10.0 31.5 10.0
Other........................ 18.7 1.3 64.6 10.7
------ ------ ------ ------
Total...................... $428.8 $503.5 $930.7 $994.0
====== ====== ====== ======
- - -------------------------------------------------------------------------------
9
<PAGE>
Market-driven revenues include trading account profits, foreign exchange trading
profits, and both equity and investment securities gains. Market-driven revenues
for the second quarter of 1994 decreased to $41.2 million, compared with $170.5
million for the same period in 1993. Market-driven revenues were $151.2 million
for the first six months of 1994, compared with $358.2 million for the same
period in 1993.
Combined trading account profits were $36.7 million in the second quarter of
1994, compared with record profits of $91.6 million a year ago. For the first
six months of 1994, combined trading account profits were $12.0 million,
compared with $146.1 million a year ago. See the line-of-business discussion
related to trading results on page 3 for further information.
Equity securities gains arise principally from the Corporation's venture capital
and corporate finance activities, as well as from the sale of securities
received in troubled-debt restructurings. The following table presents a
breakdown of securities gains from these activities.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
(In millions) 1994 1993 1994 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Venture capital............................ $2.4 $42.4 $121.0 $152.8
Corporate finance.......................... 1.5 28.2 16.6 35.9
Debt restructuring......................... - 8.1 0.5 23.2
---- ----- ------ ------
Total equity securities gains............ $3.9 $78.7 $138.1 $211.9
==== ===== ====== ======
- - --------------------------------------------------------------------------------
</TABLE>
The venture capital portfolio accounted for $121 million of the year-to-date
gains, of which approximately 65 percent was related to the Corporation's
investment in NEXTEL Communications, Inc., a telecommunications services
company.
Adjusted for the effects of credit card securitization, credit card fee growth
was 15 percent for the second quarter and 17 percent for the first six months of
1994. This revenue growth resulted from increased transaction volumes.
Service charges and commissions for the first six months of 1994 rose 2 percent
from the year-earlier period to $205.5 million, resulting primarily from growth
in product revenues.
Fiduciary and investment management fees for the second quarter of 1994 declined
8 percent from one year ago, to $49.3 million. The corporate shareholder
services business generated $19.6 million of these revenues in the second
quarter of 1994, compared with $23.0 million in the second quarter of 1993.
Other revenue in the first quarter of 1994 included a $34.5 million gain related
to the sale of the Corporation's remaining interest in Brinson Holdings, Inc. to
Brinson's management. Other revenue in the second quarter of 1993 was reduced by
a $5 million charge that related to the early retirement of subordinated debt
and a $4 million charge that represented losses related to partnership
distributions on investments in the venture capital portfolio.
10
<PAGE>
NONINTEREST EXPENSE
Operating expenses were $460.6 million for the second quarter of 1994, compared
with $466.6 million a year ago. Second-quarter 1993 expenses included a $12.4
million charge for the accelerated amortization of certain acquired intangibles.
Excluding special charges, operating expense in the second quarter was up only 1
percent from a year ago.
<TABLE>
- - ---------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
(In millions) 1994 1993 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and benefits....................... $212.9 $210.9 $420.3 $409.7
Occupancy expense of premises, net.......... 35.7 36.0 70.5 75.0
Equipment rentals, depreciation and
maintenance............................... 32.3 26.5 85.6 53.5
Amortization of intangible assets........... 17.0 31.5 35.2 50.3
Deposit insurance expense................... 10.8 14.2 21.5 28.4
Other....................................... 151.9 147.5 312.0 283.8
------ ------ ------ ------
Total................................. $460.6 $466.6 $945.1 $900.7
====== ====== ====== ======
- - ---------------------------------------------------------------------------
</TABLE>
In the 1994 second quarter, salaries and benefits increased $2.0 million, or 0.9
percent, from one year ago. For the first six months of 1994, salaries and
benefits increased 3 percent from a year ago. The impact of higher staff levels,
increased 401(k) contributions and reduced pension credits was partially offset
by reduced incentive compensation accruals.
Equipment rentals, depreciation and maintenance grew 22 percent to $32.3 million
in the second quarter of 1994, compared with $26.5 million a year ago. The
increase reflects the expensing of personal computer equipment; previously,
purchases of personal computers were capitalized and depreciated. Currently,
most purchases of such equipment are being expensed. The first quarter of 1994
included a special charge of $24.5 million reflecting the reduction in the
estimated useful life of certain personal computer equipment.
Other operating expense in the first six months of 1994 included $18.7 million
of special corporate expense items that were primarily incurred in the first
quarter; $3.0 million of similar charges were incurred a year ago. Excluding
these charges, other operating expense rose 4 percent, mainly due to higher
bankcard marketing and solicitation costs.
APPLICABLE INCOME TAXES
<TABLE>
- - ---------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
(Dollars in millions) 1994 1993 1994 1993
- - ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes.................. $258.0 $270.1 $556.0 $560.3
Applicable income taxes..................... 89.3 101.6 193.5 212.7
Effective tax rate.......................... 34.6% 37.6% 34.8% 38.0%
- - ---------------------------------------------------------------------------
</TABLE>
The decrease in the effective tax rate for the second quarter of 1994 as
compared to a year ago is due to a favorable tax ruling in 1994 as well as the
special intangible charge recorded in 1993. Tax expense for the first six months
of 1994 also reflects a one-time tax benefit for the first quarter
implementation of the final I.R.S. bad debt recapture regulations.
11
<PAGE>
VENTURE CAPITAL ACTIVITIES
The Corporation's portfolio of venture capital investments is composed of
publicly traded equity securities held directly, publicly traded equity
securities held indirectly, and investments in private companies.
Venture Capital Portfolio
<TABLE>
- - -------------------------------------------------------------------------------
June 30, 1994 Investments Investments
(In millions) Held Directly Held Indirectly Total
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Publicly traded equity
investments
Gross value............. $384 $ 559 $ 943
Discount................ (17) (132) (149)
---- ----- ------
Fair value........... $367 $ 427 794
==== =====
Investments in private
companies................. 649
------
Total...................... $1,443
======
- - -------------------------------------------------------------------------------
</TABLE>
Fair value accounting is used for this portfolio, which has significantly
increased the volatility of the Corporation's reported earnings. The
Corporation has instituted a program intended to reduce volatility relative to
expected returns, through the use of equity derivatives and the sale of
investments. As a material example, during the first quarter of 1994, the
Corporation issued Debt Exchangeable for Common Stock ("DECS") related to
7.475 million shares of its holdings in NEXTEL Communications, Inc. The DECS
transaction limits the Corporation's downside risk on this investment to the
$271 million DECS proceeds and, at the same time, allows the Corporation to
share in potential market appreciation. As of June 30, 1994, 58 percent of
the $794 million in publicly traded investments was hedged under this program.
Management intends to continue to use these and other techniques to hedge the
price risk inherent in this portfolio.
The following table provides fair value and sale information for the portfolio
for 1994.
Venture Capital Portfolio Activity
<TABLE>
- - -------------------------------------------------------------------------------
Publicly
Traded Private
(In millions) Companies Companies Total
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value--December 31, 1993........... $ 759 $698 $1,457
Additional investments.................. 10 44 54
Appreciation (depreciation) recorded as
equity securities gains (losses)(1).... 157 (2) 155
Sales proceeds (1)...................... (150) (33) (183)
Other (2)............................... 18 (58) (40)
----- ---- ------
Fair value--June 30, 1994 (3)........... $ 794 $649 $1,443
===== ==== ======
Unrealized appreciation (depreciation)
at June 30, 1994....................... $ 555 $ (2) $ 553
===== ==== ======
- - -------------------------------------------------------------------------------
</TABLE>
(1) Net of transaction costs.
(2) Includes principal repayments, fund distributions and sales, and certain
reclassifications.
(3) Publicly traded amount includes net unrealized gains of $35 million related
to hedging instruments used to reduce the earnings volatility of the venture
capital portfolio.
In addition to the $1.4 billion of investments in the venture capital
portfolio, unfunded commitments totaled $256 million at June 30, 1994.
12
<PAGE>
BALANCE SHEET ANALYSIS
ASSETS
The Corporation's assets totaled $64.1 billion at June 30, 1994, up from
$52.6 billion at year-end 1993 and $50 billion at June 30, 1993.
In 1994, the Corporation prospectively adopted FASB Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts, which increased the
Corporation's total assets and total liabilities. For more information
regarding the impact on the Corporation's balance sheet, see Note 6 on page
26.
The Corporation believes that asset liquidity is the most effective way to
manage overall liquidity. One measure of the Corporation's liquidity is the
ratio of liquid assets to total assets for The First National Bank of Chicago
and FCC National Bank. The short-term assets defined as liquid are deposit
placements (due from banks--interest-bearing) and federal funds sold. During
the first six months of 1994, the Corporation maintained an average liquid
asset ratio of 20 percent. This ratio was well in excess of the 10 percent to
15 percent range targeted by the Corporation.
The Corporation continues to use credit card securitization as an effective
tool for increasing liquidity and diversifying funding sources. Securitized
credit cards totaled $5.6 billion at June 30, 1994, compared with $5.0 billion
at year-end 1993 and $5.0 billion at June 30, 1993.
Loans increased $577 million from year-end 1993 and $2.1 billion from June 30,
1993. The increase from year-end 1993 was primarily due to an increase in
commercial loans. The continued growth in credit card receivables
significantly contributed to the year-to-year growth in loans.
LIABILITIES
The Corporation's total liabilities were $59.6 billion at June 30, 1994, up
from $48.3 billion at year-end 1993 and $46.1 billion at June 30, 1993.
The continued diversification of liabilities among instruments, maturities and
depositors is intended to balance the total expense of gathering funds with
the maintenance of flexibility in funding options.
The Corporation is able to adjust its funding based on its needs through an
established distribution network in both domestic and international markets.
The Corporation has strengthened its retail deposit base in recent years
through its expanded presence in the Chicago area.
The Corporation increased the use of short-term bank notes in order to better
match asset repricing and maturity characteristics. These notes increased
$1.3 billion from year-end 1993 and $2.2 billion from a year ago. At the same
time, the level of negotiable certificates of deposit declined by $257 million
from year-end 1993 and $389 million from a year ago.
Long-term debt increased $204 million from year-end 1993 as a result of the
issuance of $200 million of subordinated debt in January 1994. Long-term debt
decreased $97 million from a year ago due to the redemption of $428 million of
subordinated debt and $24 million of senior debt partially offset by the
January 1994 issuance, as well as the issuance of $150 million of subordinated
debt in the third quarter of 1993.
The Corporation's Statement of Cash Flows is presented on page 24.
13
<PAGE>
CAPITAL
Stockholders' equity totaled $4.5 billion at June 30, 1994, up from $4.3 billion
at December 31, 1993, and $3.9 billion at June 30, 1993.
Because of the Corporation's solid capital position, several important capital
management steps were taken during the quarter: (1) the quarterly common stock
dividend was increased to 50 cents a share, from 40 cents a share, (2) the
common stock repurchase program was increased from 2.5 million shares to 7
million shares and (3) the Corporation announced that on July 1, 1994, its
Preferred Stock, Series D, would be redeemed at a 3 percent premium. This action
will reduce annual preferred stock dividend requirements by $15 million.
The Corporation's principal capital objective is to maintain and enhance its
strong capital ratios relative both to its peer group and to the regulatory
capital guidelines. Management believes that a strong capital position is
instrumental in achieving enhanced stockholder returns over the long term.
The Corporation increased regulatory capital in the first quarter of 1994 by
issuing $200 million of subordinated debt.
The Corporation's ratio of common equity to assets, net of its investment in
FCCM, was 6.5 percent at June 30, 1994, 7.2 percent at year-end 1993 and 6.5
percent a year ago.
The following table shows the components of regulatory capital as defined by
the banking regulators for risk-based capital and leverage ratio guidelines.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------
Regulatory Capital June 30 December 31 June 30
(In millions) 1994 1993 1993
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital
Common stockholders' equity....... $3,763 $3,503 $3,018
Preferred stock................... 611(1) 761 869
Less: 50 percent of investment
in FCCM................... (129) (69) (70)
Less: Disallowed intangibles and
other adjustments.......... (97) (97) (102)
------ ------ ------
Tier 1 capital.................. 4,148 4,098 3,715
------ ------ ------
Tier 2 capital
Allowance for credit losses (2)... 585 581 579
Qualifying long-term debt......... 1,820 1,682 1,777
Less: 50 percent of investment
in FCCM................... (129) (69) (70)
------ ------ ------
Tier 2 capital.................. 2,276 2,194 2,286
------ ------ ------
Total capital........... $6,424 $6,292 $6,001
====== ====== ======
- - -----------------------------------------------------------------------------
</TABLE>
(1) Excludes $150 million of Preferred Stock, Series D redeemed on July 1, 1994.
(2) Limited to 1.25 percent of risk-weighted assets.
The risk-based capital guidelines consider both balance-sheet and
off-balance-sheet credit risk, while the leverage ratio is an ongoing tool to
monitor capital in relation to total average assets.
The Corporation's Tier 1 and total risk-based capital ratios, as well as its
leverage ratio, exceed the current regulatory minimum guidelines by a
considerable margin. The Corporation intends to continue to build its capital
resources in the current year primarily through internal capital generation and
effective balance sheet management.
14
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
Regulatory Capital Ratios
Minimum
June 30 Dec. 31 June 30 Regulatory
1994 1993 1993 Requirements
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based Capital Ratios
Tier 1 capital........... 8.9% 8.8% 8.0% 4.0%
Total capital............ 13.8 13.6 13.0 8.0
Leverage Ratio............. 8.0 8.0 7.4 3.0
- - -------------------------------------------------------------------------------
</TABLE>
As of June 30, 1994, the regulatory capital ratios for all of the Corporation's
banking subsidiaries exceeded the minimum levels for well-capitalized
institutions. To achieve well-capitalized status, a bank's Tier 1 and total
capital ratios must be at least 6 percent and 10 percent, respectively. In
addition, its leverage ratio must be at least 5 percent.
CREDIT RISK ANALYSIS
Summary
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Selected Statistical Information
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in millions) 1994 1994 1993 1993 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At period-end:
Loans outstanding............... $23,680 $23,782 $23,103 $21,969 $21,621
Nonperforming loans (1)......... 150 237 234 307 370
Other real estate, net.......... 31 43 43 44 45
Nonperforming assets............ 181 280 277 351 415
Allowance for credit losses..... 681 710 683 637 627
Nonperforming loans/
loans outstanding.............. 0.6% 1.0% 1.0% 1.4% 1.7%
Nonperforming assets/loans
outstanding and other
real estate, net............... 0.8 1.2 1.2 1.6 1.9
Allowance for credit losses/
loans outstanding.............. 2.9 3.0 3.0 2.9 2.9
Allowance for credit losses/
nonperforming loans............ 454 300 292 208 170
For the quarter ended:
Average loans outstanding....... $22,924 $22,460 $22,263 $21,588 $21,974
Net charge-offs................. 34 33 39 37 32
Net charge-offs/average loans(2) 0.6% 0.6% 0.7% 0.7% 0.6%
- - --------------------------------------------------------------------------------
</TABLE>
(1) The Corporation's term loans to Brazil, having a net book value of $49
million, were exchanged during the second quarter of 1994 for securities
having a market value of $81 million as part of Brazil's recent term debt
restructuring. For additional information on this transaction, see page 6.
(2) Annualized.
15
<PAGE>
For analytical purposes, the Corporation's portfolio is divided into
commercial (domestic and foreign office) and consumer (credit card and other
nonbusiness credit to individuals) segments.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Loan Composition June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1994 1994 1993 1993 1993
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial Risk
Domestic office
Commercial............... $ 7,148 $ 6,438 $ 6,007 $ 5,807 $ 6,536
Commercial real estate
Construction........... 284 302 315 384 386
Other.................. 2,106 2,050 2,094 2,106 2,054
Financial institutions... 1,018 1,241 1,292 1,295 1,288
Other.................... 2,639 2,631 2,746 3,258 2,510
------- ------- ------- ------- -------
Total domestic......... 13,195 12,662 12,454 12,850 12,774
Foreign office............. 2,153 2,578 1,975 2,030 2,225
------- ------- ------- ------- -------
Total commercial... 15,348 15,240 14,429 14,880 14,999
------- ------- ------- ------- -------
Consumer Risk
Credit cards............... 5,356 5,736 5,778 4,302 4,000
Secured by real estate
Mortgage................. 1,425 1,370 1,469 1,370 1,222
Home equity.............. 803 767 780 813 824
Other...................... 748 669 647 604 576
------- ------- ------- ------- -------
Total consumer..... 8,332 8,542 8,674 7,089 6,622
------- ------- ------- ------- -------
Total.............. $23,680 $23,782 $23,103 $21,969 $21,621
======= ======= ======= ======= =======
- - --------------------------------------------------------------------------------
</TABLE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level considered adequate
to provide for the credit losses inherent in the loan portfolio. The credit
risk associated with certain off-balance-sheet exposures for credit-related
and derivative financial instruments is also included in the assessment of the
adequacy of the allowance.
While the allowance for credit losses is available to absorb potential losses
in the entire credit portfolio, its composition reflects an internal
allocation to the commercial and consumer segments.
Potential losses associated with the commercial and consumer categories are
estimated quarterly and are reflected in the allowance for credit losses. The
underlying credit risk for both these categories of credit exposure is
actively managed.
Using this framework, the following table presents an allocation of the
allowance for credit losses for both categories of credit exposure.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------
Allowance for Credit Losses
Three Months Ended Six Months Ended
June 30, 1994 June 30, 1994
--------------------------------------------------------
(Dollars in millions) Commercial Consumer Total Commercial Consumer Total
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance--beginning of period... $507 $203 $710 $488 $195 $683
Provision for credit losses.... (14) 57 43 (7) 100 93
Net (charge-offs)/recoveries... 9 (43) (34) 21 (88) (67)
Other, transfers related to
securitized receivables....... - (38) (38) - (28) (28)
---- ---- ---- ---- ---- ----
Balance--end of period......... $502 $179 $681 $502 $179 $681
==== ==== ==== ==== ==== ====
Allowance as a percentage
of loans outstanding........ 3.3% 2.1% 2.9% 3.3% 2.1% 2.9%
Allowance as a percentage
of nonperforming loans...... 335 - 454 335 - 454
- - -----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
NONPERFORMING ASSETS
The following table shows the trend in nonperforming assets, as well as the
level of nonperforming loans by portfolio segment.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------
Nonperforming Assets
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in millions) 1994 1994 1993 1993 1993
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans............................... $146 $233 $230 $303 $366
Accrual renegotiated loans..................... 4 4 4 4 4
---- ---- ---- ---- ----
Total nonperforming loans.................. $150 $237 $234 $307 $370
==== ==== ==== ==== ====
Nonperforming Loans
Commercial real estate....................... $ 72 $101 $108 $151 $190
Troubled-country debtor...................... 1 50 50 57 57
Other........................................ 77 86 76 99 123
---- ---- ---- ---- ----
Total nonperforming loans................. 150 237 234 307 370
---- ---- ---- ---- ----
Other real estate, net
Owned assets................................. 12 26 29 14 11
In-substance foreclosed assets............... 19 17 14 30 34
---- ---- ---- ---- ----
Total other real estate, net.............. 31 43 43 44 45
---- ---- ---- ---- ----
Total nonperforming assets................ $181 $280 $277 $351 $415
==== ==== ==== ==== ====
Nonperforming assets as a percentage of loans
outstanding and other real estate net....... 0.8% 1.2% 1.2% 1.6% 1.9%
- - ----------------------------------------------------------------------------------------------
</TABLE>
Loans 90 days or more past due and still accruing interest amounted to
$54 million at June 30, 1994, compared with $63 million at December 31, 1993,
and $200 million at June 30, 1993.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 1994 June 30, 1994
------------------------ ------------------------
Reconciliation of Changes in Commercial Commercial
Nonperforming Loans Real Real
(In millions) Estate Other Total Estate Other Total
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans--beginning of period... $101 $136 $237 $108 $126 $234
Loans placed on nonperforming status....... 10 11 21 19 44 63
Charge-offs................................ (12) (2) (14) (14) (12) (26)
Transfers to other real estate............. (4) -- (4) (11) -- (11)
Transfers to accrual status................ (18) (7) (25) (19) (9) (28)
Other:
Impact of Brazilian debt restructuring.. -- (49) (49) -- (49) (49)
Principally payments.................... (5) (11) (16) (11) (22) (33)
---- ---- ---- ---- ---- ----
Nonperforming loans--end of period......... $ 72 $ 78 $150 $ 72 $ 78 $150
==== ==== ==== ==== ==== ====
- - -----------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
CONSUMER RISK MANAGEMENT
Consumer loans consist of credit card receivables as well as home mortgage
loans, home equity loans and other forms of installment credit. At June 30,
1994, consumer loans totaled $8.3 billion.
Total managed credit card receivables (i.e. those held in the portfolio and
those sold to investors through securitization) were $11.0 billion at June 30,
1994, up 22 percent from a year earlier.
At June 30, 1994, the allowance for credit losses related to the consumer
portfolio was $179 million, or 2.1 percent of loans. Comparable figures for
December 31, 1993, were $195 million and 2.2 percent. Net charge-offs in the
second quarter were $43 million, compared with $26 million in the second quarter
of 1993.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Consumer Loans
June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1994 1994 1993 1993 1993
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card.......................... $ 5,356 $ 5,736 $ 5,778 $ 4,302 $ 4,000
Other consumer loans................ 2,976 2,806 2,896 2,787 2,622
Securitized credit card receivables.. 5,617 4,700 4,958 5,333 5,008
------- ------- ------- ------- -------
Total........................... $13,949 $13,242 $13,632 $12,422 $11,630
======= ======= ======= ======= =======
- - -------------------------------------------------------------------------------------------------
</TABLE>
Average credit card receivables for the second quarter of 1994 grew 22 percent
from the year-earlier quarter and 7 percent from the fourth quarter of 1993.
The net charge-off rate for the total average managed credit card portfolio was
3.8 percent in the second quarter of 1994. Charge-off rates for the remainder of
the year are expected to be in line with second-quarter 1994 results.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------
Average Credit Card Receivables
For the Quarter Ended
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in millions) 1994 1994 1993 1993 1993
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans outstanding........ $ 5,435 $ 5,473 $ 4,661 $ 4,014 $ 4,116
Securitized credit card receivables.. 5,106 4,848 5,203 5,170 4,503
------- -------- ------- -------- -------
Total credit card receivables... $10,541 $ 10,321 $ 9,864 $ 9,184 $ 8,619
======= ======== ======= ======== =======
Total net charge-offs
(including securitizations)........ $ 100 $ 91 $ 88 $ 81 $ 84
======= ======== ======= ======== =======
Net charge-offs/average total
receivables (1).................... 3.8% 3.6% 3.5% 3.5% 3.9%
======= ======== ======= ======== =======
- - ---------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
18
<PAGE>
COMMERCIAL RISK MANAGEMENT
Commercial loans totaled $15.3 billion at June 30, 1994, up 6.4 percent from
December 31, 1993, and 2.3 percent from June 30, 1993.
During the second quarter, net recoveries in the commercial portfolio totaled
$9 million. The provision for credit losses related to the commercial
portfolio was a negative $14 million, and the quarter-end reserve of
$502 million represented 3.3 percent of total commercial loans and 335 percent
of nonperforming loans.
COMMERCIAL REAL ESTATE
Commercial real estate consists primarily of loans secured by real estate. In
addition, this category includes certain loans that are not secured by real
estate when 80 percent or more of the borrower's revenues are derived from
real estate activities and the loans are not collateralized by cash or
marketable securities.
<TABLE>
- - -------------------------------------------------------------------------------
Commercial Real Estate Assets
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in millions) 1994 1994 1993 1993 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial real estate loans (1)...... $2,451 $2,416 $2,474 $2,563 $2,526
Nonperforming loans................... 72 101 108 151 190
Other real estate, net................ 31 43 43 44 45
Nonperforming assets.................. 103 144 151 195 235
Net charge-offs for the quarter....... 11 - 9 21 5
Nonperforming assets/loans outstanding
and other real estate, net.......... 4.1% 5.9% 6.0% 7.5% 9.1%
- - -------------------------------------------------------------------------------
</TABLE>
(1) Includes loans booked in foreign offices.
The following table presents loans secured by real estate identified by both
geographic region and collateral type. Since real estate-related loans are
not in all cases geographic- or property-specific, such loans are not included
in the table below.
<TABLE>
- - ----------------------------------------------------------------------------------------------------
Commercial Real Estate Assets
June 30, 1994 (Dollars in millions)
- - ----------------------------------------------------------------------------------------------------
Industrial/
Office Shopping Land Service
Geographic Region Buildings Hotels Centers Loans Centers Other Total Percent
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chicago..................... $241 $ 29 $150 $48 $623 $625 $1,716 77%
Southeast................... 45 18 43 - 12 5 123 5
Los Angeles................. 30 11 16 - 12 22 91 4
Other California............ 3 31 21 - 6 21 82 4
Other Midwest............... 35 5 18 - 11 3 72 3
Arizona/Colorado/Texas...... 4 15 - 26 1 - 46 2
Other....................... 23 59 9 - 2 8 101 5
---- ---- ---- --- ---- ---- ------ ---
Total loans secured by
real estate............. $381 $168 $257 $74 $667 $684 $2,231 100%
==== ==== ==== === ==== ==== ====== ===
- - ----------------------------------------------------------------------------------------------------
Nonperforming loans secured
by real estate............ $10 $- $2 $26 $15 $19 $72
Other real estate........... - 1 5 2 7 16 31
- - ----------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
HIGHLY LEVERAGED TRANSACTIONS
The Corporation originates and syndicates highly leveraged transactions
(HLTs). Policies and procedures are maintained for the management and
reporting of HLT exposure. The Corporation continues to disclose this
exposure using the HLT definition previously established by federal banking
regulatory agencies.
- - ------------------------------------------------------------------------------
HLT Credit Exposure
June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1994 1994 1993 1993 1993
- - ------------------------------------------------------------------------------
Loans...................... $590 $650 $ 711 $ 871 $ 834
Other credit exposure...... 333 309 303 344 442
---- ---- ------ ------ ------
Total HLT credit exposure.. $923 $959 $1,014 $1,215 $1,276
==== ==== ====== ====== ======
- - ------------------------------------------------------------------------------
Credit exposure to communications and electronics-related industries
represented the only significant HLT concentrations. These concentrations
reflected approximately 27 and 12 percent, respectively, of HLT credit
exposure at June 30, 1994.
During the second quarter of 1994, there were no charge-offs of HLT loans.
HLT net charge-offs were $4 million in the second quarter of 1993.
Nonperforming HLT loans totaled $1 million at June 30, 1994. At December 31,
1993, and June 30, 1993, nonperforming HLT loans were $1 million and
$35 million, respectively.
The Corporation's venture capital subsidiaries have invested in companies that
have substantially higher leverage than would normally exist in their
industries. At June 30, 1994, this portfolio consisted of 38 HLT investments,
with a carrying value of $396 million. At June 30, 1994, gross unrealized
gains related to HLT investments totaled $85 million while gross unrealized
losses were $67 million. The same portfolio at December 31, 1993, and
June 30, 1993, totaled $397 million and $390 million, respectively. At
June 30, 1994, $2 million of unfunded commitments were related to the HLT
segment of the venture capital portfolio.
20
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
June 30 December 31 June 30
- - ----------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1993
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks--noninterest-bearing........................................... $ 3,373 $ 3,916 $ 4,161
Due from banks--interest-bearing....................................................... 7,759 6,037 6,290
Federal funds sold and securities under resale agreements.............................. 13,674 8,783 7,852
Trading account assets................................................................. 5,037 4,536 3,427
Investment securities (fair values--$2,255, $2,264, and $2,197, respectively).......... 2,254 2,256 2,185
Loans (net of unearned income--$263, $282, and $307, respectively)..................... 23,680 23,103 21,621
Less allowance for credit losses..................................................... 681 683 627
------- ------- -------
Loans, net........................................................................... 22,999 22,420 20,994
Premises and equipment................................................................. 639 635 602
Accrued income receivable.............................................................. 444 407 366
Customers' acceptance liability........................................................ 486 517 498
Derivative product assets.............................................................. 6,086 - -
Other assets........................................................................... 1,338 3,053 3,584
------- ------- -------
Total assets................................................................. $64,089 $52,560 $49,959
======= ======= =======
- - ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Demand............................................................................... $ 7,009 $ 8,184 $ 6,964
Savings.............................................................................. 7,401 7,541 7,545
Time................................................................................. 4,321 4,925 5,063
Foreign offices...................................................................... 9,846 7,536 8,222
------- ------- -------
Total deposits............................................................... 28,577 28,186 27,794
Federal funds purchased and securities under repurchase agreements..................... 12,208 8,255 6,359
Other funds borrowed................................................................... 8,051 6,007 5,627
Long-term debt......................................................................... 2,269 2,065 2,366
Acceptances outstanding................................................................ 486 517 498
Derivative product liabilities......................................................... 6,094 - -
Other liabilities...................................................................... 1,880 3,266 3,428
------- ------- -------
Total liabilities............................................................ 59,565 48,296 46,072
- - ----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock........................................................................ 761 761 869
Common stock--$5 par value............................................................. 434 434 417
Number of shares authorized--150,000,000
Number of shares issued--86,824,888, 86,715,812, and 83,369,073, respectively
Number of shares outstanding--86,697,805, 86,398,605, and 83,217,811, respectively
Surplus................................................................................ 1,721 1,724 1,617
Retained earnings...................................................................... 1,616 1,358 989
Other adjustments...................................................................... (2) - -
------- ------- -------
Total........................................................................ 4,530 4,277 3,892
Less treasury stock at cost, 127,083, 317,207, and 151,262 shares, respectively........ 6 13 5
------- ------- -------
Stockholders' equity......................................................... 4,524 4,264 3,887
------- ------- -------
Total liabilities and stockholders' equity................................... $64,089 $52,560 $49,959
======= ======= =======
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
- - -------------------------------------------------------------------------------
(In millions, except
per share data) 1994 1993 1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.... $470.3 $416.3 $ 907.9 $ 839.1
Interest on bank balances..... 82.5 75.9 157.5 154.7
Interest on federal funds
sold and securities under
resale agreements........... 133.7 82.0 224.7 166.6
Interest on trading account
assets...................... 56.7 55.7 115.8 106.4
Interest on investment
securities (including
dividends).................. 14.6 18.6 30.5 40.9
------ ------ -------- --------
Total............... 757.8 648.5 1,436.4 1,307.7
- - -------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits.......... 182.9 160.6 336.8 331.6
Interest on federal funds
purchased and securities
under repurchase
agreements.................. 110.0 71.6 191.8 152.8
Interest on other funds
borrowed.................... 90.8 76.9 162.2 152.2
Interest on long-term debt.... 41.3 36.2 82.2 69.1
------ ------ -------- --------
Total............... 425.0 345.3 773.0 705.7
- - -------------------------------------------------------------------------------
NET INTEREST INCOME........... 332.8 303.2 663.4 602.0
Provision for credit losses... 43.0 70.0 93.0 135.0
------ ------ -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES. 289.8 233.2 570.4 467.0
- - -------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits...... 36.7 91.6 12.0 146.1
Equity securities gains....... 3.9 78.7 138.1 211.9
Investment securities gains... 0.6 0.2 1.1 0.2
------ ------ -------- --------
Market-driven revenue....... 41.2 170.5 151.2 358.2
Credit card fee revenue....... 193.9 164.2 376.2 310.9
Service charges and
commissions................. 104.2 103.9 205.5 202.1
Fiduciary and investment
management fees............. 49.3 53.6 101.7 102.1
Other income.................. 40.2 11.3 96.1 20.7
------ ------ -------- --------
Total............... 428.8 503.5 930.7 994.0
- - -------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee
benefits.................... 212.9 210.9 420.3 409.7
Occupancy expense of premises,
net......................... 35.7 36.0 70.5 75.0
Equipment rentals,
depreciation and
maintenance................. 32.3 26.5 85.6 53.5
Other expense................. 179.7 193.2 368.7 362.5
------ ------ -------- --------
Total............... 460.6 466.6 945.1 900.7
- - -------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES.... 258.0 270.1 556.0 560.3
Applicable income taxes....... 89.3 101.6 193.5 212.7
------ ------ -------- --------
NET INCOME.................... $168.7 $168.5 $ 362.5 $ 347.6
------ ------ -------- --------
NET INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS' EQUITY. $150.4 $152.7 $ 330.4 $ 318.2
====== ====== ======== ========
- - -------------------------------------------------------------------------------
EARNINGS PER SHARE
NET INCOME-PRIMARY.......... $1.71 $1.81 $3.76 $3.78
NET INCOME-FULLY DILUTED.... $1.67 $1.72 $3.67 $3.64
- - -------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES TO STOCKHOLDERS' EQUITY
<TABLE>
- - -----------------------------------------------------------------
Six Months Ended June 30 (In millions) 1994 1993
- - -----------------------------------------------------------------
<S> <C> <C>
Stockholders' Equity
Balance, beginning of period................... $4,264 $3,401
Net income................................... 363 348
Issuance of common stock..................... 5 27
Issuance of preferred stock.................. - 196
Issuance of treasury stock................... 19 (4)
Treasury stock purchases..................... (16) -
Other........................................ (2) (2)
------ ------
4,633 3,966
Cash dividends declared on preferred stock... (32) (30)
Cash dividends declared on common stock...... (77) (49)
------ ------
1994 1993
- - -----------------------------------------------
Rate per common share for period $0.90 $0.60
- - -----------------------------------------------
Balance, end of period......................... $4,524 $3,887
====== ======
- - -----------------------------------------------------------------
</TABLE>
23
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
Six Months Ended June 30 (In millions) 1994 1993
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................ $ 363 $ 348
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization........................................... 89 99
Provision for credit losses............................................. 93 135
Equity securities gains................................................. (138) (212)
Net decrease in net derivative product balances......................... 244 -
Net (increase) in trading account assets................................ (501) (115)
Net (increase) in accrued income receivable............................. (37) (10)
Net decrease in other assets............................................ 226 385
Interest income from Brazilian debt restructuring....................... (14) -
Other noncash adjustments............................................... (125) 21
--------- --------
Total adjustments....................................................... (163) 303
--------- --------
Net cash provided by operating activities................................. 200 651
- - -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in federal funds sold and securities under resale agreements. (4,891) (960)
Purchases of investment securities........................................ - (1,900)
Purchase of investment securities--available for sale..................... (548) -
Purchase of debt investment securities--held to maturity.................. (100) -
Purchase of equity securities--venture capital............................ (55) -
Proceeds from maturities of debt securities............................... - 1,925
Proceeds from maturities of debt securities--available for sale........... 630 -
Proceeds from maturities of debt securities--held to maturity............. 30 -
Proceeds from sales of debt securities.................................... - 2
Proceeds from sales of debt securities--available for sale................ 27 -
Proceeds from sales of equity securities.................................. - 401
Proceeds from sales of equity securities--available for sale.............. 1 -
Proceeds from sales of equity securities--venture capital................. 231 -
Net (increase) in credit card receivables................................. (677) (1,073)
Credit card receivables securitized....................................... 1,000 1,000
Net (increase) decrease in loans of bank subsidiaries..................... (1,134) 1,068
Loans made to customers and purchased from others by nonbank
subsidiaries............................................................. (430) (191)
Principal collected on and proceeds from sale of loans by nonbank
subsidiaries............................................................. 446 138
Loan recoveries........................................................... 44 48
Purchases of premises and equipment....................................... (94) (78)
Proceeds from sales of premises and equipment............................. 23 21
Net cash and cash equivalents due to acquisitions......................... (4) -
--------- --------
Net cash provided by (used in) investing activities....................... (5,501) 401
- - -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand and savings deposits............................... (1,340) (684)
Net decrease in time deposits............................................. (616) (1,199)
Net increase in deposits in foreign offices............................... 2,086 22
Net increase (decrease) in federal funds purchased and securities under
repurchase agreements.................................................... 3,953 (603)
Proceeds from other funds borrowed........................................ 116,917 41,309
Repayment of other funds borrowed......................................... (114,852) (39,852)
Proceeds from issuance of long-term debt.................................. 202 667
Repayment of long-term debt............................................... (7) (10)
Net increase (decrease) in other liabilities.............................. (31) 363
Dividends paid............................................................ (97) (75)
Proceeds from issuance of common stock.................................... 5 30
Proceeds from issuance of preferred stock................................. - 196
Payment for purchase of treasury stock.................................... (16) -
Proceeds from reissuance of treasury stock................................ 8 -
--------- --------
Net cash provided by financing activities................................. 6,212 164
- - -----------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.............. 268 (103)
- - -----------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 1,179 1,113
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 9,953 9,338
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 11,132 $ 10,451
========= ========
- - -----------------------------------------------------------------------------------------------
</TABLE>
See Note 7 on page 27.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Although the interim amounts are unaudited, they do reflect all adjustments
that, in the opinion of management, are necessary for a fair presentation of
the results of operations for the interim periods. All such adjustments are
of a normal, recurring nature. Because the results from commercial banking
operations are so closely related and responsive to changes in economic
conditions, fiscal policy and monetary policy, and because the results for the
venture capital and trading portfolios are largely market-driven, the results
for any interim period are not necessarily indicative of the results that can
be expected for the entire year.
Note 2
The Corporation presents earnings per share on both a primary and a fully
diluted basis. Earnings per common and common-equivalent share amounts were
computed by dividing net income, after deducting dividends on preferred stock,
by the average number of common and common-equivalent shares outstanding
during the period.
Common-equivalent shares consist of shares issuable under the Employee Stock
Purchase and Savings Plan and outstanding stock options. Fully diluted shares
also include the common shares that would result from the conversion of
convertible preferred stock.
Net income was reduced by preferred stock dividend requirements to compute
primary earnings per share. To compute fully diluted earnings per share, net
income was reduced by preferred stock dividend requirements, except those
related to convertible stock.
The net income, preferred stock dividends and shares used to compute primary
and fully diluted earnings per share are presented in the table below.
<TABLE>
- - -------------------------------------------------------------------------------
Six Months
Ended
(In millions) June 30
1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY
Net income.......................................... $362.5 $347.6
Preferred stock dividends (1)....................... 32.1 29.4
------ ------
Net income attributable to common
Stockholders' equity.............................. $330.4 $318.2
====== ======
Average number of common and
common-equivalent shares.......................... 87.9 84.1
==== ====
FULLY DILUTED
Net income.......................................... $362.5 $347.6
Preferred stock dividends, excluding
convertible Series A and B, where applicable (1).. 26.3 21.8
------ ------
Fully diluted net income............................ $336.2 $325.8
====== ======
Average number of shares,
assuming full dilution............................ 91.7 89.5
==== ====
- - -------------------------------------------------------------------------------
</TABLE>
(1) As of June 30, 1994, includes $4.5 million of additional preferred
dividends, which represent a 3 percent premium over the $150 million par
value of the Corporation's Preferred Stock, Series D, that was redeemed on
July 1, 1994.
Note 3
At June 30, 1994, credit card receivables aggregated $5.4 billion. These
receivables are available for sale at face value through credit card
securitization programs.
25
<PAGE>
Note 4
- - ------
The reserve for credit losses related to securitized credit card receivables
is included in other assets on the Corporation's consolidated balance sheet to
the extent that the reserve offsets the receivables due from the
securitization trust. Any remaining reserve balance is included in other
liabilities. This reserve totaled $234 million at June 30, 1994, compared
with $196 million at year-end 1993 and $193 million a year ago.
Note 5
- - ------
Included in other assets on the Corporation's consolidated balance sheet are
accelerated disposition portfolio assets of $58 million at June 30, 1994,
compared with $107 million at year-end 1993 and $355 million a year ago.
These assets are carried at the lower of the initially established carrying
value or their estimated disposition value.
Of these assets, $42 million were nonperforming at June 30, 1994, compared
with $87 million at year-end 1993 and $192 million a year ago.
Note 6
- - ------
Offsetting of Amounts Related to Certain Contracts
- - --------------------------------------------------
In 1994, the Corporation prospectively adopted FASB Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts. This interpretation is
applicable to the balance sheet presentation of derivative financial
instruments. These derivatives include interest rate, currency, commodity and
equity swaps, forwards, options, caps, floors, collars, forward rate
agreements, and other conditional or exchange contracts, and include both
exchange-traded and over-the-counter contracts.
In general, purchased option, cap and floor contracts are reported in
derivative product assets, and written option, cap and floor contracts are
reported in derivative product liabilities. For other derivative financial
instruments, an unrealized gain is reported in derivative product assets and
an unrealized loss is reported in derivative product liabilities. Previously,
the Corporation reported certain unrealized gains and unrealized losses on a
net basis.
Derivative financial instruments executed with the same counterparty under a
legally enforceable master netting arrangement are reported on a net basis as
derivative product assets or liabilities depending on whether they are a net
asset or liability.
At December 31, 1993, the fair value of currency options purchased totaled
$536 million, while the fair value of currency options written totaled
$501 million. At June 30, 1993, the fair value of currency options purchased
totaled $617 million, while the fair value of currency options written totaled
$499 million. These amounts are recorded in other assets and other
liabilities, respectively.
The adoption of this interpretation for balance sheet presentation purposes
does not affect the net income or capital of the Corporation. It also does
not affect its risk-based capital ratios, which historically have incorporated
the gross unrealized gains on derivative financial instruments. However,
based on current regulatory agency guidelines, the Corporation's regulatory
leverage ratio was adversely affected by this change. The balance sheet
impact of this interpretation at future dates will fluctuate as the unrealized
gains and losses on derivative financial instruments increase or decrease with
changes in remaining maturity and market rates, as well as the ability to net
amounts under master netting arrangements.
26
<PAGE>
Accounting for Loan Impairment
- - ------------------------------
In May 1993, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 114, Accounting by Creditors for Impairment of a Loan. This
statement is effective for financial statements issued for periods beginning
after December 15, 1994. SFAS No. 114 addresses the accounting for loans when
it is probable that all principal and interest amounts that are due on a loan
will not be collected in accordance with its contractual terms (i.e. "impaired
loans"). Pursuant to SFAS No. 114, to the extent the recorded investment of
an impaired loan exceeds the present value of the loan's expected future cash
flows or other measures of value, a valuation allowance is established for the
difference with a corresponding charge to the provision for credit losses.
The Corporation does not expect the adoption of SFAS No. 114 to have a
material impact on the results of its operations and financial position.
However, the future impact at the adoption date is not currently determinable
since it would be based on the existing impaired loans as of that date.
SFAS No. 114 also changes the definition of In-Substance Foreclosures (ISFs),
with the result that a larger portion of currently reported ISFs would be
reclassified as nonaccrual loans. The Corporation intends to adopt this new
ISF definition concurrent with the adoption of the other provisions of SFAS
No. 114.
Note 7
- - ------
For purposes of the Statement of Cash Flows, cash and cash equivalents consist
of cash and due from banks.
Cash flows from derivative financial instruments are reported net as operating
activities. Upon adopting FASB Interpretation No. 39 on January 1, 1994, a
noncash transfer of balances attributable to derivative financial instruments
on December 31, 1993, was made. Transfers to net derivative product balances
of $573 million, $941 million and $1.3 billion were made from other assets,
accrued income receivable and other liabilities, respectively, for purposes of
reporting the Consolidated Statement of Cash Flows.
Loans of $11 million and $30 million were transferred to other real estate in
the first six months of 1994 and 1993, respectively.
The Corporation's term loans to Brazil, having a net book value of $49 million
were exchanged for securities having a fair market value of $81 million as
part of Brazil's recent term debt restructuring. For additional information
on this transaction, see page 6.
Note 8
- - ------
The ratio of income to fixed charges for the six months ended June 30, 1994,
excluding interest on deposits was 2.2x, and including interest on deposits
was 1.7x. The ratio has been computed on the basis of the total enterprise
(as defined by the Securities and Exchange Commission) by dividing income
before fixed charges and income taxes by fixed charges. Fixed charges consist
of interest expense on all long- and short-term borrowings, excluding or
including interest on deposits.
27
<PAGE>
Note 9
- - ------
The Corporation and certain of its subsidiaries are defendants in various
lawsuits, including certain class actions, arising out of normal corporate
activities, and the Corporation has received certain tax deficiency
assessments. Since the Corporation and certain of its subsidiaries, which are
regulated by one or more federal and state regulatory authorities, also are
the subject of numerous examinations and reviews by such authorities, the
Corporation is and will be, from time to time, normally engaged in various
disagreements with regulators, primarily related to banking matters. In the
opinion of management and the Corporation's general counsel, the ultimate
resolution of the matters referred to in this note will not have a material
effect on the Corporation's consolidated financial statements.
Note 10
- - -------
In November 1993, the Corporation and Lake Shore Bancorp., Inc. (Lake Shore)
signed a definitive agreement providing for the merger of Lake Shore into the
Corporation. Lake Shore, with approximately $1.2 billion in assets and
capital of approximately $124 million as of July 8, 1994, had seven locations
in the Chicago metropolitan area. It was the holding company for Lake Shore
National Bank, Chicago, Illinois, and Bank of Hinsdale, Hinsdale, Illinois.
The combination was consummated on July 8, 1994. Consideration tendered for
Lake Shore shares and stock options approximates $323 million, which consists
of approximately 6.4 million common shares of the Corporation. The agreement
provided that each share or share equivalent of Lake Shore common stock be
exchanged for the Corporation's common stock valued at $31.08. The exchange
ratio was based on the average closing price of the Corporation's common stock
during a 20-day trading period beginning on June 7, 1994, and ending on
July 5, 1994, with a minimum price of $37 and a maximum of $53 per share. The
average closing price of the Corporation's common stock during the 20-day
trading period was $50.406 per share.
The combination will be accounted for on a pooling-of-interest basis; however,
because the transaction is not considered material, the Corporation will not
restate either 1994 or prior year financial data.
28
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- - --------------------------------------------------------------------------------
INVESTMENT SECURITIES
Investment securities included in the consolidated balance sheet as of June 30,
1994, were as follows:
<TABLE>
- - --------------------------------------------------------------------------------
Book Cost Unrealized Unrealized Fair
(In millions) Value Basis Gains Losses Value
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. government and federal agency
Held to maturity.............. $ 267 $ 267 $ - $ 4 $ 263
Available for sale............ 246 246 - - 246
------ ------ ---- ---- ------
Total........................... 513 513 - 4 509
States and political subdivisions
Held to maturity.............. 135 135 5 - 140
Available for sale............ - - - - -
------ ------ ---- ---- ------
Total........................... 135 135 5 - 140
Other securities
Bonds, notes and debentures
Held to maturity.............. 4 4 - - 4
Available for sale............ 63 66 - 3 63
------ ------ ---- ---- ------
Total........................... 67 70 - 3 67
Equity securities (1)
Venture capital............... 1,404 886 623 105 1,404
Available for sale (2)........ 135 135 - - 135
------ ------ ---- ---- ------
Total........................... 1,539 1,021 623 105 1,539
Total investment securities....... $2,254 $1,739 $628 $112 $2,255
====== ====== ==== ==== ======
- - --------------------------------------------------------------------------------
</TABLE>
(1) The fair values for certain securities for which market quotations are not
available have been estimated. In addition, the values reflect liquidity and
other market-related factors.
(2) Includes Federal Reserve stock.
29
<PAGE>
IMPACT OF CREDIT CARD SECURITIZATION
For analytical purposes only, the following table shows income statement line
items for the Corporation adjusted for the net impact of securitization of
credit card receivables.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 1994 Three Months Ended June 30, 1993
--------------------------------------------- ----------------------------------------------
Credit Card Credit Card
(In millions) Reported Securitizations Adjusted Reported Securitizations Adjusted
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis.. $ 339 $ 127 $ 466 $ 312 $ 109 $ 421
Provision for credit
losses................ 43 62 105 70 58 128
Noninterest income...... 429 (65) 364 504 (51) 453
Noninterest expense..... 461 - 461 467 - 467
Net income.............. 169 - 169 169 - 169
Assets--quarter-end..... $64,089 $5,617 $69,706 $49,959 $5,008 $54,967
--average......... 60,490 5,106 65,596 56,951 4,503 61,454
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1994 Six Months Ended June 30, 1993
--------------------------------------------- ----------------------------------------------
Credit Card Credit Card
(In millions) Reported Securitizations Adjusted Reported Securitizations Adjusted
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis.. $ 674 $ 250 $ 924 $ 617 $ 212 $ 829
Provision for credit
losses................ 93 118 211 135 111 246
Noninterest income...... 931 (132) 799 994 (101) 893
Noninterest expense..... 945 - 945 901 - 901
Net income.............. 363 - 363 348 - 348
Assets--quarter-end..... $64,089 $5,617 $69,706 $49,959 $5,008 $54,967
--average......... 60,982 4,977 65,959 56,389 4,492 60,881
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
(In millions) June 30 March 31 December 31 September 30 June 30
1994 1994 1993 1993 1993
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter
Commercial.................................. $507 $488 $490 $487 $469
Consumer.................................... 203 195 147 140 141
---- ---- ---- ---- ----
Total balance, beginning of quarter..... 710 683 637 627 610
- - -----------------------------------------------------------------------------------------------------
Provision for credit losses
Commercial.................................. (14) 7 8 19 24
Consumer.................................... 57 43 62 46 46
---- ---- ---- ---- ----
Total provision for credit losses....... 43 50 70 65 70
- - -----------------------------------------------------------------------------------------------------
Charge-offs
Commercial
Domestic
Commercial.............................. 2 6 5 3 8
Real estate............................. 12 2 10 21 6
Other................................... - 1 1 1 -
Foreign, including TCD.................... - 3 8 - -
Consumer
Credit card............................... 49 50 39 33 39
Other..................................... 2 2 3 1 1
---- ---- ---- ---- ----
Total charge-offs....................... 65 64 66 59 54
- - -----------------------------------------------------------------------------------------------------
Recoveries
Commercial
Domestic
Commercial.............................. 3 3 3 2 5
Real estate............................. 1 2 1 - 1
Other................................... 1 5 3 2 1
Foreign, including TCD.................... 18 14 7 5 1
Consumer
Credit card............................... 7 7 13 13 13
Other..................................... 1 - - - 1
---- ---- ---- ---- ----
Total recoveries........................ 31 31 27 22 22
- - -----------------------------------------------------------------------------------------------------
Net charge-offs/(recoveries)
Commercial.................................. (9) (12) 10 16 6
Consumer.................................... 43 45 29 21 26
---- ---- ---- ---- ----
Total net charge-offs/(recoveries)............ 34 33 39 37 32
- - -----------------------------------------------------------------------------------------------------
Other
Commercial.................................. - - - - -
Consumer.................................... (38) 10 15 (18) (21)
---- ---- ---- ---- ----
Total................................... (38) 10 15 (18) (21)
- - -----------------------------------------------------------------------------------------------------
Balance, end of quarter
Commercial.................................. 502 507 488 490 487
Consumer.................................... 179 203 195 147 140
---- ---- ---- ---- ----
Total balance, end of quarter........... $681 $710 $683 $637 $627
==== ==== ==== ==== ====
- - -----------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- - ----------------------------------------------------------------------------------------------------------------------
(Three Months Ended) June 30, 1994 March 31, 1994
- - ----------------------------------------------------------------------------------------------------------------------
(Income and rates on a tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Due from banks--interest-bearing (A)........................ $ 7,556 $ 82.5 4.38% $ 7,974 $ 75.0 3.81%
Federal funds sold and securities under resale agreements... 13,287 133.7 4.04 11,744 91.0 3.14
Trading account assets...................................... 4,342 56.9 5.26 4,672 59.5 5.16
Investment securities
U.S. government and federal agency........................ 518 5.6 4.34 793 7.4 3.78
States and political subdivisions......................... 141 3.2 9.10 150 3.3 8.92
Other..................................................... 1,680 8.6 2.05 1,667 6.8 1.65
- - ----------------------------------------------------------------------------------------------------------------------
Total investment securities............................... 2,339 17.4 2.98 2,610 17.5 2.72
Loans (B)(C)
Domestic offices.......................................... 21,166 428.9 8.41 20,639 414.3 8.43
Foreign offices........................................... 1,774 44.3 10.02 1,849 26.2 5.75
- - ----------------------------------------------------------------------------------------------------------------------
Total loans................................................. 22,940 473.2 8.54 22,488 440.5 8.20
- - ----------------------------------------------------------------------------------------------------------------------
Total earning assets (D)................................ 50,464 763.7 6.07 49,488 683.5 5.60
Cash and due from banks--noninterest-bearing................ 4,222 4,257
Allowance for credit losses................................. (711) (693)
Other assets................................................ 6,515 8,423
- - ----------------------------------------------------------------------------------------------------------------------
Total assets................................................ $60,490 $61,475
======= =======
- - ----------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings................................................... $ 8,018 $ 44.9 2.25% $ 8,100 $ 41.3 2.07%
Time...................................................... 4,435 34.2 3.09 4,748 29.6 2.53
Foreign offices (E)....................................... 9,553 103.8 4.36 9,343 83.0 3.60
- - ----------------------------------------------------------------------------------------------------------------------
Total deposits--interest-bearing........................ 22,006 182.9 3.33 22,191 153.9 2.81
Federal funds purchased and securities under repurchase
agreements................................................ 11,140 110.0 3.96 10,683 81.8 3.11
Other funds borrowed........................................ 8,146 90.8 4.47 7,273 71.4 3.98
Long-term debt.............................................. 2,267 41.3 7.31 2,211 40.9 7.50
- - ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities........................ 43,559 425.0 3.91 42,358 348.0 3.33
Demand deposits............................................. 7,003 7,175
Other liabilities........................................... 5,504 7,561
Preferred stock............................................. 761 761
Common stockholders' equity................................. 3,663 3,620
- - ----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity.............. $60,490 $61,475
======= =======
Interest income/earning assets.............................. $763.7 6.07% $683.5 5.60%
Interest expense/earning assets............................. 425.0 3.38 348.0 2.85
- - ----------------------------------------------------------------------------------------------------------------------
Net interest margin......................................... $338.7 2.69% $335.5 2.75%
====== ===== ====== ====
</TABLE>
(A) Principally balances in overseas offices.
(B) Rates are calculated on average lease-financing receivables balances
reduced by deferred liability for taxes.
(C) Nonperforming loans are included in average balances used to determine
rates.
(D) Includes a tax-equivalent adjustment based on the current federal income
tax rate. The tax-equivalent adjustment for the third quarter of 1993
reflects the year-to-date impact of the increase in the federal tax rate
to 35%, including the required revaluation of the leveraged lease
portfolio. The tax-equivalent adjustment for the three months ended
June 30, 1994, was $5.9 million, compared with $4.9 million, $6.2 million,
$17.5 million and $8.3 million for the three months ended March 31, 1994,
December 31, 1993, September 30, 1993, and June 30, 1993.
(E) Includes International Banking Facilities deposit balances in domestic
offices and balances of Edge Act and overseas offices.
32
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------
December 31, 1993 September 30, 1993 June 30, 1993
---------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 7,219 $ 70.0 3.85% $ 7,582 $ 73.3 3.84% $ 7,582 $ 75.9 4.02%
12,171 89.6 2.92 11,610 88.6 3.03 11,324 82.0 2.90
4,595 56.8 4.90 5,152 59.7 4.60 4,999 56.2 4.51
810 6.8 3.33 618 6.8 4.37 947 9.6 4.07
180 4.0 8.82 211 4.9 9.21 234 5.3 9.08
1,622 7.9 1.93 1,458 5.3 1.44 1,397 7.9 2.27
---------------------------------------------------------------------------------------
2,612 18.7 2.84 2,287 17.0 2.95 2,578 22.8 3.55
20,426 392.3 7.89 19,735 394.2 8.16 20,172 386.9 7.89
1,954 26.5 5.38 2,037 53.4 10.40 2,094 33.0 6.32
---------------------------------------------------------------------------------------
22,380 418.8 7.67 21,772 447.6 8.38 22,266 419.9 7.74
---------------------------------------------------------------------------------------
48,977 653.9 5.30 48,403 686.2 5.62 48,749 656.8 5.40
4,128 3,885 3,745
(654) (619) (611)
5,257 5,263 5,068
---------------------------------------------------------------------------------------
$57,708 $56,932 $56,951
======= ======= =======
---------------------------------------------------------------------------------------
$ 7,952 $ 40.6 2.03% $ 8,296 $ 40.7 1.95% $ 8,569 $ 40.7 1.91%
5,004 37.4 2.97 4,988 32.3 2.57 5,343 35.0 2.63
8,714 78.7 3.58 9,113 82.8 3.60 9,303 84.9 3.66
---------------------------------------------------------------------------------------
21,670 156.7 2.87 22,397 155.8 2.76 23,215 160.6 2.77
10,798 81.1 2.98 9,800 74.2 3.00 9,371 71.6 3.06
7,020 70.2 3.97 7,238 73.4 4.02 7,780 76.9 3.96
2,088 39.0 7.41 2,255 42.2 7.42 2,026 36.2 7.17
---------------------------------------------------------------------------------------
41,576 347.0 3.31 41,690 345.6 3.29 42,392 345.3 3.27
7,405 6,946 6,847
4,515 4,292 3,906
761 827 869
3,451 3,177 2,937
---------------------------------------------------------------------------------------
$57,708 $56,932 $56,951
======= ======= =======
$653.9 5.30% $686.2 5.62% $656.8 5.40%
347.0 2.81 345.6 2.83 345.3 2.84
---------------------------------------------------------------------------------------
$306.9 2.49% $340.6 2.79% $311.5 2.56%
====== ==== ====== ==== ====== ====
</TABLE>
33
<PAGE>
<TABLE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
- - --------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- - --------------------------------------------------------------------------------------------------------------------
(Six Months Ended June 30) 1994 1993
- - --------------------------------------------------------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Due from banks--interest bearing (A)........................ $ 7,765 $ 157.5 4.09% $ 7,482 $ 154.7 4.17%
Federal funds sold and securities under resale agreements... 12,516 224.7 3.62 11,287 166.6 2.98
Trading account assets...................................... 4,507 116.4 5.21 4,585 107.2 4.71
Investment securities
U.S. government and federal agency........................ 655 13.0 4.00 735 16.1 4.42
States and political subdivisions......................... 146 6.5 8.98 237 10.8 9.19
Other..................................................... 1,673 15.4 1.86 1,534 20.6 2.71
- - --------------------------------------------------------------------------------------------------------------------
Total investment securities............................... 2,474 34.9 2.84 2,506 47.5 3.82
Loans (B)(C)
Domestic offices.......................................... 20,904 843.2 8.42 20,355 780.8 7.93
Foreign offices........................................... 1,810 70.5 7.85 2,129 65.4 6.19
- - --------------------------------------------------------------------------------------------------------------------
Total loans................................................. 22,714 913.7 8.37 22,484 846.2 7.76
- - --------------------------------------------------------------------------------------------------------------------
Total earning assets (D)................................ 49,976 1,447.2 5.84% 48,344 1,322.2 5.51%
Cash and due from banks--noninterest bearing................ 4,240 3,619
Allowance for credit losses................................. (702) (624)
Other assets................................................ 7,468 5,050
- - --------------------------------------------------------------------------------------------------------------------
Total assets................................................ $60,982 $56,389
======= =======
- - --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest bearing
Savings................................................... $ 8,059 $ 86.2 2.16% $ 8,062 $ 81.5 2.04%
Time...................................................... 4,592 63.8 2.80 5,806 74.2 2.58
Foreign offices (E)....................................... 9,448 186.8 3.99 9,493 175.9 3.74
- - --------------------------------------------------------------------------------------------------------------------
Total deposits--interest bearing........................ 22,099 336.8 3.07 23,361 331.6 2.86
Federal funds purchased and securities under repurchase
agreements................................................ 10,912 191.8 3.54 9,925 152.8 3.10
Other funds borrowed........................................ 7,709 162.2 4.24 6,956 152.2 4.41
Long-term debt.............................................. 2,239 82.2 7.40 1,943 69.1 7.17
- - --------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities........................ 42,959 773.0 3.63 42,185 705.7 3.37
Demand deposits............................................. 7,089 6,785
Other liabilities........................................... 6,532 3,756
Preferred stock............................................. 761 793
Common stockholders' equity................................. 3,641 2,870
- - --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity.............. $60,982 $56,389
======= =======
Interest income/earning assets.............................. $1,447.2 5.84% $1,322.2 5.51%
Interest expense/earning assets............................. 773.0 3.12 705.7 2.94
- - --------------------------------------------------------------------------------------------------------------------
Net interest margin......................................... $ 674.2 2.72% $ 616.5 2.57%
======== ==== ======== ====
</TABLE>
(A) Principally balances in overseas offices.
(B) Rates are calculated on average lease-financing receivables balances
reduced by deferred liability for taxes.
(C) Nonperforming loans are included in average balances used to determine
rates.
(D) Includes tax-equivalent adjustments of $10.8 million based on 35% federal
income tax rate and $14.5 million based on 34% federal income tax rate
for the six months ended June 30, 1994 and 1993.
(E) Includes International Banking Facilities deposit balances in
domestic offices and balances of Edge Act and overseas offices.
34
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
FIVE-QUARTER CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Three Months Ended
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in millions, except per share data) 1994 1994 1993 1993 1993
- - ------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C> <C>
Interest and fees on loans............................................. $ 470.3 $ 437.6 $ 415.3 $ 433.0 $ 416.3
Interest on bank balances.............................................. 82.5 75.0 70.0 73.3 75.9
Interest on federal funds sold and securities under resale agreements.. 133.7 91.0 89.6 88.6 82.0
Interest on trading account assets..................................... 56.7 59.1 56.3 59.2 55.7
Interest on investment securities (including dividends)................ 14.6 15.9 16.5 14.6 18.6
------- ------- ------- ------- -------
Total........................................................ 757.8 678.6 647.7 668.7 648.5
- - ------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits................................................... 182.9 153.9 156.7 155.8 160.6
Interest on federal funds purchased and securities under repurchase
agreements............................................................ 110.0 81.8 81.1 74.2 71.6
Interest on other funds borrowed....................................... 90.8 71.4 70.2 73.4 76.9
Interest on long-term debt............................................. 41.3 40.9 39.0 42.2 36.2
------- ------- ------- ------- -------
Total........................................................ 425.0 348.0 347.0 345.6 345.3
- - ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME.................................................... 332.8 330.6 300.7 323.1 303.2
Provision for credit losses............................................ 43.0 50.0 70.0 65.0 70.0
------- ------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.................. 289.8 280.6 230.7 258.1 233.2
- - ------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits (losses)...................................... 36.7 (24.7) 61.2 77.3 91.6
Equity securities gains................................................ 3.9 134.2 40.1 228.2 78.7
Investment securities gains (losses)................................... 0.6 0.5 0.9 (0.8) 0.2
------- ------- ------- ------- -------
Market-driven revenue............................................. 41.2 110.0 102.2 304.7 170.5
Credit card fee revenue................................................ 193.9 182.3 196.6 186.7 164.2
Service charges and commissions........................................ 104.2 101.3 122.4 108.0 103.9
Fiduciary and investment management fees............................... 49.3 52.4 50.7 47.9 53.6
Other income........................................................... 40.2 55.9 51.1 38.1 11.3
------- ------- ------- ------- -------
Total........................................................ 428.8 501.9 523.0 685.4 503.5
- - ------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits......................................... 212.9 207.4 226.5 217.7 210.9
Occupancy expense of premises, net..................................... 35.7 34.8 35.7 37.0 36.0
Equipment rentals, depreciation and maintenance........................ 32.3 53.3 30.3 26.5 26.5
Other expense.......................................................... 179.7 189.0 189.4 194.3 193.2
------- ------- ------- ------- -------
Total........................................................ 460.6 484.5 481.9 475.5 466.6
- - ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES............................................. 258.0 298.0 271.8 468.0 270.1
Applicable income taxes.............................................. 89.3 104.2 99.0 183.9 101.6
------- ------- ------- ------- -------
NET INCOME............................................................. $ 168.7 $ 193.8 $ 172.8 $ 284.1 $ 168.5
======= ======= ======= ======= =======
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY................. $ 150.4 $ 180.0 $ 159.0 $ 270.3 $ 152.7
======= ======= ======= ======= =======
- - ------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Net Income - Primary................................................. $ 1.71 $ 2.05 $ 1.81 $ 3.14 $ 1.81
Net Income - Fully diluted........................................... $ 1.67 $ 2.00 $ 1.77 $ 2.97 $ 1.72
- - ------------------------------------------------------------------------------------------------------------------------
Average number of common and common-equivalent shares (in millions).... 88.0 87.7 87.7 86.1 84.5
Average number of shares, assuming full dilution (in millions)......... 91.8 91.6 91.5 91.9 91.4
Average full-time-equivalent staff..................................... 17,366 17,281 17,118 17,316 16,991
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- - -----------------------------------------------------------------------------------------------------------------------
1994 1993
(Dollars in millions, except per share data) June 30 March 31 December 31 September 30 June 30
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME DATA
Actual
Net interest income--tax-equivalent basis..... $ 338.7 $ 335.5 $ 306.9 $ 340.6 $ 311.5
Average earning assets........................ 50,464 49,488 48,977 48,403 48,749
Net interest margin........................... 2.69% 2.75% 2.49% 2.79% 2.56%
Adjusted (1)
Net interest income--tax-equivalent basis..... $ 463.7 $ 455.2 $ 436.6 $ 465.1 $ 416.4
Average earning assets........................ 47,382 47,004 47,810 46,325 46,653
Net interest margin........................... 3.93% 3.93% 3.62% 3.98% 3.58%
- - ------------------------------------------------------------------------------------------------------------------
AT QUARTER-END
BALANCE SHEET DATA
Assets.......................................... $64,089 $59,843 $52,560 $53,173 $49,959
Deposits........................................ 28,577 28,833 28,186 29,379 27,794
Loans........................................... 23,680 23,782 23,103 21,969 21,621
Long-term debt.................................. 2,269 2,265 2,065 2,091 2,366
Common stockholders' equity..................... 3,763 3,647 3,503 3,378 3,018
Stockholders' equity............................ 4,524 4,408 4,264 4,139 3,887
- - ------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS (2)
Common equity/assets............................ 6.5% 6.6% 7.2% 7.0% 6.5%
Regulatory leverage ratio (3)................... 8.0 7.8 8.0 8.0 7.4
Risk-based capital (3)
Tier 1 capital ratio.......................... 8.9 9.1 8.8 8.7 8.0
Total capital ratio........................... 13.8 14.2 13.6 13.5 13.0
Tier 1 capital................................ $ 4,148 $ 4,182 $ 4,098 $ 3,969 $ 3,715
Total capital................................. 6,424 6,509 6,292 6,179 6,001
- - ------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
FOR THE QUARTER ENDED
Net income as a percentage of:
Average stockholders' equity.................. 15.3% 17.9% 16.3% 28.2% 17.8%
Average common stockholders' equity........... 16.5 20.2 18.3 33.8 20.9
Average total assets.......................... 1.12 1.28 1.19 1.98 1.19
Average earning assets........................ 1.34 1.59 1.40 2.33 1.39
Stockholders' equity as a percentage of:
Total assets.................................. 7.1 7.4 8.1 7.8 7.8
Total loans................................... 19.1 18.5 18.5 18.8 18.0
Total deposits................................ 15.8 15.3 15.1 14.1 14.0
Average stockholders' equity as a percentage of:
Average assets................................ 7.3 7.1 7.3 7.0 6.7
Average loans................................. 19.3 19.5 18.8 18.4 17.1
Average deposits.............................. 15.3 14.9 14.5 13.6 12.7
- - ------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
FOR THE QUARTER ENDED
Market price
High......................................... $55 1/2 $52 3/8 $50 5/8 $49 1/4 $45 3/8
Low.......................................... 46 5/8 41 1/8 40 7/8 40 7/8 35 1/2
At quarter-end............................... 48 1/8 48 1/8 43 1/4 48 3/4 41 1/8
Price earnings ratio........................... 5.5 5.5 4.9 5.8 N/M
Book value..................................... $ 43.40 $ 42.19 $ 40.55 $ 39.03 $ 36.27
Market price/book value........................ 111% 114% 107% 125% 113%
Dividends declared on common stock............. $ 0.50 $ 0.40 $ 0.40 $ 0.30 $ 0.30
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted to exclude impact of securitization of credit card receivables
and the activity of FCCM, the Corporation's capital markets subsidiary.
(2) Net of investment in FCCM.
(3) June 1994 excludes $150 million of Preferred Stock, Series D, that was
redeemed on July 1, 1994.
N/M - Not meaningful.
36
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6052
FIRST CHICAGO CORPORATION
--------------------------------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 36-2669970
--------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE FIRST NATIONAL PLAZA CHICAGO, ILLINOIS 60670
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
312-732-4000
--------------------------------------------------------------------
(Registrant's telephone number, including area code)
NO CHANGE
--------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of July 31, 1994.
Class Number of Shares Outstanding
- - ------------------------- ----------------------------
Common Stock $5 par value 92,402,020
37
<PAGE>
Form 10-Q Cross-Reference Index
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
Page
----
Consolidated Balance Sheet --
June 30, 1994 and 1993 and December 31, 1993 21
Consolidated Income Statement --
Three and Six Months Ended June 30, 1994 and 1993 22
Consolidated Statement of Changes in Stockholders'
Equity -- Six Months Ended June 30, 1994 and 1993 23
Consolidated Statement of Cash Flows --
Six Months Ended June 30, 1994 and 1993 24
Notes to Consolidated Financial Statements 25-28
Selected Statistical Information 1,
15-17,
29-36
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1-20
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 39
ITEM 2. Changes in Securities 39
ITEM 3. Defaults Upon Senior Securities 39
ITEM 4. Submission of Matters to a Vote of Security Holders 39
ITEM 5. Other Information 39
ITEM 6. Exhibits and Reports on Form 8-K 39
Signatures 40
38
<PAGE>
PART II. - OTHER INFORMATION
----------------------------
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
The information in response to Item 4 is incorporated by reference
from the Registrant's First Quarter Report for the Period Ended
March 31, 1994, set forth as Exhibit 22 hereto.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 12 Statements re computation of ratios.
Exhibit 22 Registrant's First Quarter Report for the Period Ended
March 31, 1994.
(b) The Registrant filed the following Current Reports on Form 8-K during
the quarter ended June 30, 1994.
<TABLE>
<CAPTION>
Date Item Reported
------- -------------
<S> <C>
4/8/94 Summary of Registrant's first quarter 1994
results.
4/13/94 The Registrant's earnings for the quarter ended
March 31, 1994.
5/16/94 Registrant's announcement of common stock
dividend increase and other capital management
actions.
</TABLE>
39
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CHICAGO CORPORATION
----------------------------
(Registrant)
Date August 12, 1994 Richard L. Thomas
--------------------- ----------------------------
Richard L. Thomas
Chairman of the Board
Date August 12, 1994 William J. Roberts
--------------------- ----------------------------
William J. Roberts
Principal Accounting Officer
40
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit Page
- - -------------- ---------------------- ----
12 - Statement re computation of ratios. 42
22 - Registrant's First Quarter Report for
the Period Ended March 31, 1994 43
41
<PAGE>
Exhibit 12
COMPUTATION OF RATIOS OF INCOME TO FIXED CHARGES
The computation of the ratios of income to fixed charges is set
forth in Note 8 of Notes to Consolidated Financial Statements on page 27 of
the Form 10-Q.
42
<PAGE>
Exhibit 22
FIRST CHICAGO CORPORATION
FIRST QUARTER REPORT
For the Period Ended March 31, 1994
43
<PAGE>
FINANCIAL SUPPLEMENT
CONTENTS
- - -----------------------------------------------------------------
Letters to Stockholders 1
Earnings and Balance Sheet Review 2
Annual Meeting Summary 3
Consolidated Balance Sheet 4
Consolidated Income Statement 5
Five-Quarter Comparative Income Statement 6
Credit Data/Capital Data 7
Board of Directors/Stockholder Information INSIDE BACK COVER
- - -----------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------
Three Months Ended
March 31
(Dollars in millions, except ------------------ Change
per share data) 1994 1993 ------
- - -------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings
Net interest income--tax-equivalent basis.. $ 335.5 $ 305.0 + 10%
Combined credit provisions................. 50.2 65.5 - 23%
Noninterest income......................... 501.9 490.5 + 2%
Noninterest expense (excluding provision
for other real estate)................... 484.3 433.6 + 12%
Net income................................. 193.8 179.1 + 8%
Primary earnings per share................. 2.05 1.97 + 4%
Fully diluted earnings per share........... 2.00 1.91 + 5%
Net interest margin........................ 2.75% 2.58% + 7%
Return on assets........................... 1.28 1.30 - 2%
Return on common stockholders' equity...... 20.2 23.9 - 15%
- - -------------------------------------------------------------------------
AVERAGE BALANCES
Loans...................................... $22,460 $22,162 + 1%
Earning assets............................. 49,488 47,939 + 3%
Total assets............................... 61,475 55,826 + 10%
Common stockholders' equity................ 3,620 2,803 + 29%
Stockholders' equity....................... 4,381 3,521 + 24%
- - -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At March 31
-----------------
BALANCE SHEET 1994 1993 Change
------- ------- ------
<S> <C> <C> <C>
Assets..................................... $59,843 $48,482 + 23%
Deposits................................... 28,833 27,687 + 4%
Loans...................................... 23,782 21,666 + 10%
Common stockholders' equity................ 3,647 2,888 + 26%
Stockholders' equity....................... 4,408 3,757 + 17%
- - -------------------------------------------------------------------------
</TABLE>
Inside front cover
<PAGE>
First Chicago Corporation - First Quarter Report
For the Period Ended March 31, 1994
To the Owners of First Chicago:
The first quarter marked our sixth consecutive quarter of solid earnings,
reflecting the diversity and strength of all our businesses. Net income for the
quarter was $193.8 million, or $2.00 per common share on a fully diluted basis.
This compares favorably with year-ago results of $1.91 per share and fourth
quarter 1993 results of $1.77. Return on common stockholders' equity for the
first quarter of 1994 was 20%.
Highlights of the quarter were: better than expected growth in our credit card
business, wider net interest margins, continued credit quality improvement, and
strong venture capital gains. Losses in trading activities under difficult
market conditions partially offset those excellent gains. In addition, there was
a special gain and some non-recurring charges that were largely offsetting.
The credit card business continued to be a major contributor to earnings. Total
credit card receivables climbed 23% from a year ago, ending the quarter at $10.4
billion. Revenues from this business once again exceeded our expectations.
Credit card growth, combined with increased volume in middle market loans and a
reduction of thinner-margin large corporate loans, has created a higher-yielding
loan mix. This improved loan composition is reflected in the first quarter net
interest margin, which rose significantly from previous levels.
Credit quality continued to be excellent in the first quarter. The total
provision for credit losses, which comprises both consumer and commercial
portfolios, was $50 million -- the lowest provision posted in five years.
Nonperforming assets were essentially unchanged from their low levels at year-
end 1993, while reserves remained very strong.
Extreme volatility in global financial markets during the quarter led to a $54
million loss in the emerging markets trading unit. This loss more than offset
moderate profits in other trading activities, resulting in a combined trading
loss of $25 million. We have trimmed back our positions in emerging markets
securities in response to currently unsettled market conditions. However, we
continue to believe that this business will provide attractive opportunities
over the long term.
Our venture capital portfolio produced significant equity gains of $119 million
in the quarter. Net income from venture capital was $69 million, or $0.73 per
share. During the quarter, we completed an innovative financing arrangement
related to our investment in NEXTEL Communications, Inc. that protected a
substantial portion of the appreciation in our venture capital portfolio. This
transaction, along with subsequent appreciation and sales of NEXTEL common
stock, accounted for over 80% of the venture capital gains in the quarter.
Other revenue included a $35 million gain on the sale of the Corporation's
remaining interest in Brinson Holdings, Inc. to its management. Brinson Holdings
is the institutional investment management company that was sold in 1989.
During the quarter there were $42 million of special charges: $24 million
related to a change in accounting treatment for personal computer equipment, and
$18 million for litigation and other corporate expenses.
With respect to the balance sheet, capital ratios continued to strengthen. Tier
I capital increased to 9.1% and total risk-adjusted capital rose to 14.2%--both
up substantially from one year-ago and significantly above the regulatory
guidelines for "well-capitalized" status.
In summary, first quarter results underscore the strengths of First Chicago's
franchise and the benefits of our diversified earnings base, excellent credit
quality and solid capital position. Our management team is committed to
strengthening this franchise further and producing attractive returns in each of
our businesses. We are confident about First Chicago's prospects and remain
optimistic that we will continue to generate attractive financial returns for
our stockholders.
Richard L. Thomas
Chairman
Leo F. Mullin
President
David J. Vitale
Vice Chairman
In order to provide more timely financial information, beginning with the second
quarter of 1994 First Chicago will mail its quarterly earnings news release to
all stockholders of record. We will discontinue issuing a separate quarterly
report.
Beneficial owners of First Chicago common stock--those who hold the stock
through a bank or brokerage account, for example--will not automatically receive
the earnings releases. If these stockholders wish to receive the quarterly
releases on an ongoing basis, they can send their request in writing to First
Chicago Corporation, Corporate Communications, Suite 0358, One First National
Plaza, Chicago, IL 60670-0358, or call (312) 732-6204.
1
<PAGE>
EARNINGS AND BALANCE SHEET REVIEW
NET INCOME was $193.8 million, or $2.00 per common share on a fully diluted
basis, for the first quarter of 1994. Return on common stockholders' equity
(ROE) was 20%. Net income for the 1993 first quarter was $179.1 million, or
$1.91 per common share fully diluted.
Earnings from the core businesses in the first quarter were:
o $89 million (44% ROE) Consumer Banking;
o $15 million (19% ROE) Middle Market Banking;
o $9 million (0.4% ROE) Corporate and Institutional Banking.
Net income from the venture capital business was $69 million, or 73 cents per
share.
NET INTEREST INCOME on a tax-equivalent basis was $336 million. Net interest
margin increased to 2.75% and average earning assets were $49.5 billion.
Adjusted for the effects of credit card securitization and the activities of the
Corporation's capital markets subsidiary, net interest margin was a strong
3.93%, up from 3.61% in the first quarter of 1993 and 3.62% in the 1993 fourth
quarter.
TOTAL NONINTEREST INCOME was $502 million for the first quarter. Combined
trading activities generated a loss of $25 million. Equity securities gains were
$134 million, including $119 million from the venture capital portfolio. The
remaining $15 million of gains was primarily realized from equity securities
held in conjunction with corporate financing activities. The $35 million gain
related to the sale of the Corporation's interest in Brinson Holdings, Inc. was
recorded in other revenue.
NONINTEREST EXPENSE was $485 million for the quarter, including nonrecurring
charges of $42 million. Salaries and benefits reflected lower incentive
compensation costs relative to recent periods. Other expense included increased
spending in the credit card business. Excluding special items, noninterest
expense was up 3% from the year-ago quarter.
The PROVISION FOR CREDIT LOSSES was $50 million for the first quarter. This
included $43 million for the consumer portfolios and $7 million principally for
middle market commercial credits. NONPERFORMING ASSETS were $280 million, or
1.2% of related assets, essentially unchanged from year-end 1993 and down 26%
from one year ago.
The Corporation's ALLOWANCE FOR CREDIT LOSSES was $710 million at quarter-end,
representing 300% of nonperforming loans. Of this total, $507 million was
related to the commercial segment and $203 million to the consumer portfolios.
NET CHARGE-OFFS were $33 million for the quarter. Commercial net recoveries were
$12 million. Consumer net charge-offs, mainly in the credit card portfolio, were
$45 million. The net charge-off rate for total average credit card receivables
was 3.6%.
The TIER 1 RISK-ADJUSTED CAPITAL RATIO was 9.1%, and the TOTAL RISK-ADJUSTED
RATIO was 14.2%. BOOK VALUE at quarter-end was $42.19 per common share.
TOTAL ASSETS increased to $59.8 billion at March 31, up 23% from a year earlier
due largely to an accounting change for derivative financial instruments. TOTAL
DEPOSITS were $28.8 billion.
2
<PAGE>
ANNUAL MEETING SUMMARY
First Chicago Corporation held its Annual Meeting of Stockholders on Friday,
April 8, in First Chicago Center. Chief Financial Officer Robert A. Rosholt
summarized the elements that contributed to First Chicago's positive performance
in 1993, including record earnings; excellent credit quality indicators; success
of the accelerated asset disposition program; and a strong capital position.
Reports by the Corporation's senior management are excerpted below:
THOMAS OPTIMISTIC ABOUT CORPORATION'S FUTURE
First Chicago firmly reestablished itself as a high-performing banking company
in 1993 and has a solid base for continuing that excellent performance in 1994,
Chairman Richard L. Thomas told stockholders. "A year ago, we said that our No.
1 priority for 1993 would be to restore First Chicago to high-performing status.
Today, I am pleased to say that, with the support of our customers and
stockholders and because of the dedicated efforts of our employees, we have,
indeed, accomplished our goal."
The Corporation's strategy for 1994 will be to continue to enhance its position
as the largest banking company headquartered in Chicago. "The industry is
clearly consolidating," Thomas said, citing BankAmerica's plans to acquire
Continental Bank. "Fifteen years ago Chicago was home to four of the 50 largest
U.S. banks. Soon, we will have only two of the top 50: The Northern Trust and
ourselves."
Thomas reaffirmed First Chicago's commitment to build shareholder value and
perform well. "Our quarterly earnings have reflected steady improvement over the
past two years, excluding our large write-off of lower quality real estate in
the third quarter of 1992. In our view, value comes from quality earnings,
growth prospects, and the increases in our price/earnings ratio that ultimately
will result from superior performance."
First Chicago should produce reasonable earnings growth in its core businesses
over the intermediate term, Thomas said, despite regulatory burdens that
continue to impede the ability of banks to compete effectively. "However, if we
are to succeed in implementing our plans and in building the franchise over the
next several years, we must raise our return on equity to even higher levels,
continue to improve our operating efficiency, and in every respect, challenge
ourselves to do the best we can."
Thomas added that First Chicago has the constant challenge of balancing short-
and long-term earnings. "With consolidation proceeding apace and with constant
rumors about the next takeover target, we must be attentive to our earnings
performance over the near term to protect against any unwarranted downturn in
the price of our shares. Nonetheless, we also plan to invest in people and
projects that will support future earnings growth."
While the Corporation has extensive operations throughout the U.S. and important
facilities overseas, there is a competitive advantage to being "the leading bank
in the Midwest and one of the few banks outside New York City serving the large
corporate market," Thomas said. "With this home court advantage and our focus on
charting a steady course, I believe we can continue to produce good returns."
Although acquisitions are not critical, Thomas said First Chicago would like to
be in a position to acquire in order to facilitate growth. "In order for us to
consider any sizeable acquisition, the valuation of our shares will have to
improve significantly relative to those of potential acquirees," he said. "In
any event, we are determined to be disciplined in our acquisition strategy, and
we will enter into a transaction only when we believe it is clearly in the best
interests of our stockholders.
"We face a future of opportunities and challenges," Thomas concluded. "But I
believe that, with the continued support of our stockholders and customers and
the dedication of our employees, it will be an exceedingly bright future for all
of us."
MULLIN: OUTLOOK FOR BUSINESSES IS BRIGHT
President Leo F. Mullin reaffirmed that First Chicago's businesses have a
"competitive advantage that can be sustained over time."
The credit card business has been a major driver of corporate performance,
thanks largely to First Card's proven marketing techniques, sophisticated credit
management, state-of-the-art systems and loyal work force. Average credit card
receivables grew 21% in 1993 over 1992 levels; receivables ended the year at
$10.7 billion.
Mullin said he felt confident about growth prospects for the credit card
business. Growth is not dependent on simply getting new cardholders, but rather
on taking share from other card issuers and then building outstandings by
encouraging widespread card use in nontraditional areas of consumer credit, such
as supermarkets and health care, he said.
In the retail market, First Chicago has been the leader in serving Chicago--the
third largest consumer market in the U.S. and, by far, the most attractive in
the Midwest. The Bank's market share in Chicagoland is 20%. And when credit
cards are included, First Chicago does business with well over 1 million area
households. "Our challenge now is to move more products through the distribution
network and to obtain major gains in efficiency," Mullin said.
American National Corporation, which also has a 20% market share, leads in
serving Chicagoland's middle market (companies with $5 million-$150 million in
annual sales). "Its success derives from excellence in execution," Mullin said.
"At American National, 'hustle' is the strategy--our bankers do the basics
better."
In the large corporate market, First Chicago is No. 1 with Midwest companies and
among the top banks in the nation. "In 1993, we had our best year ever in each
of our corporate businesses: trading, operating products and corporate finance,"
Mullin said.
Based on these factors, the Corporation's businesses should continue to do well.
"First Chicago comprises a set of businesses that were highly successful in
1993," Mullin said. "All have strong prospects for maintaining competitive
advantage in the marketplaces in which they compete. Their futures are bright,
and collectively they offer stockholders the prospect of excellent returns over
time."
VITALE: WE WELCOME COMPETITION
Vice Chairman David J. Vitale asserted that while the competitive marketplace
continues to heat up, First Chicago is "up to the challenge."
Technology and deregulation have intensified the competitive environment in the
past 20 years. "These two factors have
(continued on page 8)
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
First Chicago Corporation and Subsidiaries
- - -----------------------------------------------------------------------
March 31 (Dollars in millions) 1994 1993
- - -----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks--noninterest-bearing........ $ 3,621 $ 3,398
Due from banks--interest-bearing................... 7,926 6,193
Federal funds sold and securities under resale
agreements......................................... 10,475 7,292
Trading account assets.............................. 4,748 3,276
Investment securities............................... 2,253 2,272
Loans (net of unearned discount--$297 in 1994 and
$319 in 1993)...................................... 23,782 21,666
Less allowance for credit losses................... 710 610
------- -------
Total loans, net................................... 23,072 21,056
Premises and equipment.............................. 612 593
Accrued income receivable........................... 377 347
Customers' acceptance liability..................... 502 546
Derivative product assets........................... 5,047 -
Other assets........................................ 1,210 3,509
------- -------
Total assets................................. $59,843 $48,482
======= =======
- - -----------------------------------------------------------------------
LIABILITIES
Deposits
Demand............................................. $ 7,114 $ 6,305
Savings............................................ 7,633 7,613
Time............................................... 4,445 5,784
Foreign offices.................................... 9,641 7,985
------- -------
Total deposits............................... 28,833 27,687
Federal funds purchased and securities under
repurchase agreements.............................. 9,266 6,195
Other funds borrowed................................ 8,284 5,293
Long-term debt...................................... 2,265 1,905
Acceptances outstanding............................. 502 546
Derivative product liabilities...................... 4,574 -
Other liabilities................................... 1,711 3,099
------- -------
Total liabilities............................ 55,435 44,725
- - -----------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock--without par value, authorized
15,000,000 shares.................................. 761 869
Common stock--$5 par value.......................... 434 416
- - ----------------------------------------------------
1994 1993
- - ----------------------------------------------------
Number of shares
authorized.......... 150,000,000 150,000,000
Number of shares
issued.............. 86,788,368 83,144,528
Number of shares
outstanding......... 86,440,453 83,046,898
Surplus............................................. 1,725 1,612
Retained earnings................................... 1,504 861
Other adjustments................................... (1) 2
------- -------
Total........................................ 4,423 3,760
- - -----------------------------------------------------------------------
Less Treasury stock at cost: 347,915 shares in 1994
and 97,630 shares in 1993.......................... 15 3
------- -------
Stockholders' equity......................... 4,408 3,757
------- -------
Total liabilities and stockholders' equity... $59,843 $48,482
======= =======
- - -----------------------------------------------------------------------
</TABLE>
NOTE: In 1994, the Corporation has prospectively changed its balance sheet
presentation to a separate disclosure of derivative product assets and
liabilities, which includes currency options purchased and currency
options written. This change is consistent with the prospective adoption
of FASB Interpretation No. 39 that requires the reporting of unrealized
gains on derivative financial instruments as assets and unrealized
losses on derivative financial instruments as liabilities. Carrying
value amounts recognized for derivative financial instruments executed
with the same counterparty under a legally enforceable master netting
arrangement are offset. Previously, the Corporation reported unrealized
gains and losses related to certain derivative financial instruments on
a net basis. In addition, currency options purchased and currency
options written totaled $549 million and $522 million, respectively, at
March 31, 1993 and are included in other assets and other liabilities.
4
<PAGE>
CONSOLIDATED INCOME STATEMENT
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Three Months Ended
March 31
(In millions, except per share data) 1994 1993
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans............................................. $437.6 $422.8
Interest on bank balances.............................................. 75.0 78.8
Interest on federal funds sold and securities under resale agreements.. 91.0 84.6
Interest on trading account assets..................................... 59.1 50.7
Interest on investment securities (including dividends)................ 15.9 22.3
------ ------
Total.......................................................... 678.6 659.2
- - --------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits................................................... 153.9 171.0
Interest on federal funds purchased and securities under repurchase
agreements........................................................... 81.8 81.2
Interest on other funds borrowed....................................... 71.4 75.3
Interest on long-term debt............................................. 40.9 32.9
------ ------
Total.......................................................... 348.0 360.4
- - --------------------------------------------------------------------------------------------
NET INTEREST INCOME.................................................... 330.6 298.8
Provision for credit losses............................................ 50.0 65.0
------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.................. 280.6 233.8
- - --------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits (losses)...................................... (24.7) 54.5
Equity securities gains................................................ 134.2 133.2
Investment securities gains............................................ 0.5 -
------ ------
Market-driven revenue.......................................... 110.0 187.7
Credit card fee revenue................................................ 182.3 146.7
Service charges and commissions........................................ 101.3 98.2
Fiduciary and investment management fees............................... 52.4 48.5
Other income........................................................... 55.9 9.4
------ ------
Total.......................................................... 501.9 490.5
- - --------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits......................................... 207.4 198.8
Occupancy expense of premises, net..................................... 34.8 39.0
Equipment rentals, depreciation and maintenance........................ 53.3 27.0
Other expense.......................................................... 188.8 168.8
------ ------
Subtotal....................................................... 484.3 433.6
Provision for other real estate........................................ 0.2 0.5
------ ------
Total.......................................................... 484.5 434.1
- - --------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES............................................. 298.0 290.2
Applicable income taxes................................................ 104.2 111.1
------ ------
NET INCOME............................................................. $193.8 $179.1
====== ======
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY................. $180.0 $165.5
====== ======
- - --------------------------------------------------------------------------------------------
EARNINGS PER SHARE
PRIMARY.............................................................. $ 2.05 $ 1.97
FULLY DILUTED........................................................ $ 2.00 $ 1.91
- - --------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
FIVE-QUARTER COMPARATIVE INCOME STATEMENT
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
Three Months Ended
------------------------------------------------
MARCH 31 Dec. 31 Sept. 30 June 30 March 31
(In millions, except per share data) 1994 1993 1993 1993 1993
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................................. $437.6 $415.3 $433.0 $416.3 $422.8
Interest on bank balances.............................................. 75.0 70.0 73.3 75.9 78.8
Interest on federal funds sold and securities under resale agreements.. 91.0 89.6 88.6 82.0 84.6
Interest on trading account assets..................................... 59.1 56.3 59.2 55.7 50.7
Interest on investment securities (including dividends)................ 15.9 16.5 14.6 18.6 22.3
------ ------ ------ ------ ------
Total........................................................ 678.6 647.7 668.7 648.5 659.2
- - -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits................................................... 153.9 156.7 155.8 160.6 171.0
Interest on federal funds purchased and securities under repurchase
agreements............................................................ 81.8 81.1 74.2 71.6 81.2
Interest on other funds borrowed....................................... 71.4 70.2 73.4 76.9 75.3
Interest on long-term debt............................................. 40.9 39.0 42.2 36.2 32.9
------ ------ ------ ------ ------
Total........................................................ 348.0 347.0 345.6 345.3 360.4
- - -------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME.................................................... 330.6 300.7 323.1 303.2 298.8
Provision for credit losses............................................ 50.0 70.0 65.0 70.0 65.0
------ ------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.................. 280.6 230.7 258.1 233.2 233.8
- - -------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits (losses)...................................... (24.7) 61.2 77.3 91.6 54.5
Equity securities gains................................................ 134.2 40.1 228.2 78.7 133.2
Investment securities gains (losses)................................... 0.5 0.9 (0.8) 0.2 -
------ ------ ------ ------ ------
Market-driven revenue.......................................... 110.0 102.2 304.7 170.5 187.7
Credit card fee revenue................................................ 182.3 196.6 186.7 164.2 146.7
Service charges and commissions........................................ 101.3 122.4 108.0 103.9 98.2
Fiduciary and investment management fees............................... 52.4 50.7 47.9 53.6 48.5
Other income........................................................... 55.9 51.1 38.1 11.3 9.4
------ ------ ------ ------ ------
Total........................................................ 501.9 523.0 685.4 503.5 490.5
- - -------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits......................................... 207.4 226.5 217.7 210.9 198.8
Occupancy expense of premises, net..................................... 34.8 35.7 37.0 36.0 39.0
Equipment rentals, depreciation and maintenance........................ 53.3 30.3 26.5 26.5 27.0
Other expense.......................................................... 188.8 188.2 192.8 192.2 168.8
------ ------ ------ ------ ------
Subtotal..................................................... 484.3 480.7 474.0 465.6 433.6
Provision for other real estate........................................ 0.2 1.2 1.5 1.0 0.5
------ ------ ------ ------ ------
Total........................................................ 484.5 481.9 475.5 466.6 434.1
- - -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES............................................. 298.0 271.8 468.0 270.1 290.2
Applicable income taxes................................................ 104.2 99.0 183.9 101.6 111.1
------ ------ ------ ------ ------
NET INCOME............................................................. $193.8 $172.8 $284.1 $168.5 $179.1
====== ====== ====== ====== ======
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY................. $180.0 $159.0 $270.3 $152.7 $165.5
====== ====== ====== ====== ======
- - -------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
PRIMARY.............................................................. $2.05 $1.81 $3.14 $1.81 $1.97
FULLY DILUTED........................................................ $2.00 $1.77 $2.97 $1.72 $1.91
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
CREDIT DATA
First Chicago Corporation and Subsidiaries
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
For the Quarter Ended
-----------------------------------------------------
(Dollars in millions) 3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PROVISION FOR CREDIT LOSSES
Commercial.................................................... $ 7 $ 8 $ 19 $ 24 $ 27
Consumer...................................................... 43 62 46 46 38
---- ---- ---- ---- ----
Total......................................................... 50 70 65 70 65
TOTAL CHARGE-OFFS............................................. 64 66 59 54 100
TOTAL RECOVERIES.............................................. 31 27 22 22 26
NET CHARGE-OFFS
Commercial
Commercial real estate................................... - 9 21 5 16
Other.................................................... (12) 1 (5) 1 30
---- ---- ---- ---- ----
Total.................................................... (12) 10 16 6 46
Consumer.................................................... 45 29 21 26 28
---- ---- ---- ---- ----
Total......................................................... 33 39 37 32 74
NONPERFORMING ASSETS
Commercial real estate........................................ 101 108 151 190 143
Troubled-country debtor....................................... 50 50 57 57 57
Other......................................................... 86 76 99 123 151
---- ---- ---- ---- ----
Nonperforming loans......................................... 237 234 307 370 351
Other real estate, net...................................... 43 43 44 45 26
---- ---- ---- ---- ----
Total nonperforming assets (NPA).............................. 280 277 351 415 377
NPA AS A PERCENTAGE OF LOANS AND OTHER REAL ESTATE............ 1.2% 1.2% 1.6% 1.9% 1.7%
TOTAL RESERVE AS A PERCENTAGE OF LOANS........................ 3.0% 3.0% 2.9% 2.9% 2.8%
TOTAL RESERVE AS A PERCENTAGE OF NONPERFORMING LOANS.......... 300% 292% 208% 170% 174%
CAPITAL DATA
- - ---------------------------------------------------------------------------------------------------------------------
3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - ---------------------------------------------------------------------------------------------------------------------
Common Equity/Assets (1)...................................... 6.6% 7.2% 7.0% 6.5% 6.4%
Risk-Based Capital Ratios (1)
Tier 1...................................................... 9.1% 8.8% 8.7% 8.0% 7.8%
Total....................................................... 14.2% 13.6% 13.5% 13.0% 12.4%
Leverage Ratio (1)............................................ 7.8% 8.0% 8.0% 7.4% 7.3%
Book Value of Common Equity................................... $42.19 $40.55 $39.03 $36.27 $34.78
(1) Net of investment in First Chicago Capital Markets, Inc.
</TABLE>
7
<PAGE>
substantially enhanced our ability and the ability of our competitors to take
advantage of a less constrained marketplace," he noted. First Chicago faces
competition on many fronts other than from commercial banks: for example, from
mutual funds and insurance companies, brokerage houses, even telephone and
automobile companies.
"We have positioned ourselves well, we have excellent franchises and financial
strength, and most important, we are committed to quality execution. Success is
dictated by one simple principle: delivering value to customers. This means
working closely with our customers and providing solutions for their financial
problems."
Examples of how First Chicago is meeting the new needs of the marketplace
include changing consumer delivery channels; applying new technology and
developing highly efficient systems for First Card; offering FirstWindow 2000,
a patented information delivery system for corporations; and most recently,
underwriting and distributing corporate debt securities through First Chicago
Capital Markets, Inc.
"We know that we face a more challenging marketplace," Vitale acknowledged, "but
we can and will take advantage of this challenge and the strength of our
position as the only major Chicago-based financial institution."
STOCKHOLDER QUESTIONS
Management responded to a number of questions and comments. Two that may be of
general interest are summarized here:
Q. Will you address the subject of derivatives, which have been in the news
lately? [A derivative is a financial instrument--such as an interest-rate or
currency swap--that "derives" its value from price changes in an underlying
asset.]
A. Chicago is actually the home of the derivatives business. All the leading
exchanges--the Chicago Board Options Exchange, the Chicago Mercantile Exchange,
the Chicago Board of Trade--are derivatives houses, and they are very important
to the city.
Derivatives are risk management tools. They can be used for speculation, but
they also have sound business purposes. First Chicago has been dealing in
derivatives for 10 years, and has important trading capabilities and expertise
in this area. The Corporation uses derivatives primarily in two ways: first, to
hedge interest-rate risks on its balance sheet and second, to help corporate
customers manage their business risks. Anyone serving large corporations
operating in global markets has to be involved in the derivatives business. The
Corporation monitors its exposure to derivatives very carefully.
Q. Why did First Chicago pay such a high price to acquire Lake Shore Bancorp?
A. The Corporation agreed to pay $323 million, about 2.6 times book value for
Lake Shore, which is a full price but well worth it for strategic and financial
reasons. Strategically, there is no more attractive "micromarket" in Chicagoland
than North Michigan Avenue, where Lake Shore is headquartered. Thousands of
small companies and affluent consumers within a short distance of that major
street contribute to the area's more than $10 billion economy. Financially,
First Chicago can use its resources in consumer and middle market banking--which
far exceed the resources Lake Shore has as a much smaller institution--to build
revenue over time. From an efficiency standpoint, the Lake Shore business can be
folded into First Chicago with substantial cost-savings.
FORMAL BUSINESS OF THE MEETING
A total of 74.3 million shares were represented in person or by proxy, or nearly
86% of the total shares outstanding.
Stockholders elected the 17 Director nominees named in the Proxy Statement. Each
of the nominees received more than 73 million votes, in excess of 98% of the
shares voted at the meeting. The particulars are:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Richard L. Thomas 73,840,082 508,341
Richard M. Morrow 74,020,614 327,809
Donald P. Jacobs 73,837,011 511,412
John H. Bryan 73,946,468 401,955
Patrick G. Ryan 73,846,922 501,501
Roger W. Stone 73,049,871 1,298,552
Jerry K. Pearlman 73,828,656 519,767
James J. O'Connor 73,814,057 534,366
Earl L. Neal 74,024,604 323,819
Jack F. Reichert 73,837,646 510,777
Adele Simmons 74,019,449 328,974
Dean L. Buntrock 73,848,176 500,247
James S. Crown 73,836,799 511,624
Leo F. Mullin 73,902,656 445,767
David J. Vitale 73,925,435 422,988
Donald V. Fites 73,140,172 1,208,251
Andrew J. McKenna 74,033,232 315,191
</TABLE>
Stockholders ratified the appointment of Arthur Andersen & Co. as the
Corporation's independent auditors for 1994. Of the shares present and entitled
to vote, 73,942,712 (99.5%) were voted for; 117,391 (0.1%) were voted against;
and 288,320 (0.3%) abstained.
8
<PAGE>
Board of Directors
Richard L. Thomas
Chairman of the Board and
Chief Executive Officer
First Chicago Corporation
Leo F. Mullin
President and
Chief Operating Officer
First Chicago Corporation
David J. Vitale
Vice Chairman of the Board
First Chicago Corporation
John H. Bryan*
Chairman of the Board and
Chief Executive Officer
Sara Lee Corporation
Dean L. Buntrock
Chairman of the Board and
Chief Executive Officer
WMX Technologies, Inc.
James S. Crown
General Partner
Henry Crown and Company
(Not Incorporated)
Donald V. Fites*
Chairman of the Board and
Chief Executive Officer
Caterpillar Inc.
Donald P. Jacobs
Dean of the J. L. Kellogg
Graduate School of Management
Northwestern University
Andrew J. McKenna*
Chairman of the Board, President
and Chief Executive Officer
Schwarz Paper Company
Richard M. Morrow*
Retired Chairman and
Chief Executive Officer
Amoco Corporation
Earl L. Neal
Principal
Earl L. Neal & Associates
James J. O'Connor
Chairman and
Chief Executive Officer
Commonwealth Edison Company
Jerry K. Pearlman
Chairman and
Chief Executive Officer
Zenith Electronics Corporation
Jack F. Reichert
Chairman of the Board and
Chief Executive Officer
Brunswick Corporation
Patrick G. Ryan
President and
Chief Executive Officer
Aon Corporation
Adele Simmons
President
The John D. and Catherine T.
MacArthur Foundation
Roger W. Stone
Chairman of the Board, President
and Chief Executive Officer
Stone Container Corporation
*Member of the Audit Committee
Stockholder Information
Inquiries
Stockholders who have questions about stock transfers, changes of address,
dividend payments or lost certificates should contact First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, NJ 07303-2500. 1-800-446-2617.
Dividend Direct Deposit
First Chicago offers common stockholders the convenience of having dividends
electronically deposited without charge into their checking, savings or money
market account at most U.S. financial institutions. To obtain an enrollment
card, contact First Chicago Trust Company of New York.
Dividend Reinvestment and Stock Purchase Plan
Stockholders can increase their ownership in the Corporation without brokerage
commissions or service fees through the Dividend Reinvestment and Stock Purchase
Plan. For a prospectus and an enrollment card, contact First Chicago Trust
Company of New York.
Financial Reports
Requests for annual and quarterly reports and 10-K and 10-Q filings should be
addressed to Corporate Communications, First Chicago Corporation, Mail Suite
0358, Chicago, IL 60670-0358. (312) 732-6204.
Investor Relations
Analysts and investors seeking additional financial information should contact
Investor Relations, First Chicago Corporation, Mail Suite 0460, Chicago, IL
60670-0460. (312) 732-4812 or (312) 732-8013.
Inside Back Cover
