<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
FINANCIAL SUPPLEMENT AND FORM 10-Q
CONTENTS
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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 14
Capital 14
CREDIT RISK ANALYSIS
Summary 16
Allowance for Credit Losses 17
Nonperforming Assets 18
Consumer Risk Management 19
Commercial Risk Management 20
Commercial Real Estate 20
Highly Leveraged Transactions 21
FINANCIAL SECTION
Consolidated Balance Sheet 22
Consolidated Income Statement 23
Consolidated Statement of Changes in Stockholders' Equity 24
Consolidated Statement of Cash Flows 25
Notes to Consolidated Financial Statements 26
SELECTED STATISTICAL INFORMATION
Investment Securities 30
Impact of Credit Card Securitization 31
Analysis of Allowance for Credit Losses 32
Average Balances/Net Interest Margin/Rates 33
Five-Quarter Consolidated Income Statement 36
Selected Statistical Information 37
Financial Ratios 37
Common Stock Data 37
FORM 10-Q
Form 10-Q Cross-Reference Index 39
Signatures 41
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<TABLE>
<CAPTION>
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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
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September June March December September
(Dollars in millions, except per share data) 1994 1994 1994 1993 1993
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<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA FOR THE QUARTER
Net interest income.............................. $ 334.4 $ 332.8 $ 330.6 $ 300.7 $ 323.1
Tax-equivalent adjustment........................ 6.4 5.9 4.9 6.2 17.5
------- ------- ------- ------- -------
Net interest income--tax-equivalent basis........ 340.8 338.7 335.5 306.9 340.6
Provision for credit losses...................... 55.0 43.0 50.0 70.0 65.0
Noninterest income............................... 455.1 428.8 501.9 523.0 685.4
Noninterest expense.............................. 491.4 460.6 484.5 481.9 475.5
Net income....................................... 153.8 168.7 193.8 172.8 284.1
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EARNINGS PER SHARE
Net income - Primary............................. $ 1.54 $ 1.71 $ 2.05 $ 1.81 $ 3.14
Net income - Fully diluted....................... 1.51 1.67 2.00 1.77 2.97
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AT QUARTER-END
Assets........................................... $65,747 $64,089 $59,843 $52,560 $53,173
Deposits......................................... 29,670 28,577 28,833 28,186 29,379
Loans............................................ 23,817 23,680 23,782 23,103 21,969
Long-term debt................................... 2,272 2,269 2,265 2,065 2,091
Common stockholders' equity...................... 3,930 3,763 3,647 3,503 3,378
Stockholders' equity............................. 4,541 4,524 4,408 4,264 4,139
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AVERAGE BALANCES
Assets........................................... $66,050 $60,490 $61,475 $57,708 $56,932
Earning assets................................... 54,226 50,464 49,488 48,977 48,403
Loans............................................ 23,468 22,924 22,460 22,263 21,588
Deposits......................................... 29,409 29,009 29,366 29,075 29,343
Common stockholders' equity...................... 3,815 3,663 3,620 3,451 3,177
Stockholders' equity............................. 4,426 4,424 4,381 4,212 4,004
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FINANCIAL RATIOS
Return on stockholders' equity................... 13.8% 15.3% 17.9% 16.3% 28.2%
Return on common stockholders' equity............ 15.0 16.5 20.2 18.3 33.8
Return on assets................................. 0.92 1.12 1.28 1.19 1.98
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CAPITAL DATA (1)
Common-equity-to-assets.......................... 6.6% 6.5% 6.6% 7.2% 7.0%
Regulatory leverage ratio (2).................... 7.8 8.0 7.8 8.0 8.0
Risk-based capital (2)
Tier 1 ratio................................... 9.2 8.9 9.1 8.8 8.7
Total capital ratio............................ 13.9 13.8 14.2 13.6 13.5
Tier 1 capital................................. $ 4,319 $ 4,148 $ 4,182 $ 4,098 $ 3,969
Total capital.................................. 6,561 6,424 6,509 6,292 6,179
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COMMON SHARE AND STOCKHOLDER DATA FOR THE
QUARTER ENDED
Market price..................................... $45 7/8 $48 1/8 $48 1/8 $43 1/4 $48 3/4
Book value....................................... 42.79 43.40 42.19 40.55 39.03
Dividends declared per common share.............. 0.50 0.50 0.40 0.40 0.30
Common dividends................................. 46 43 34 35 26
Preferred dividends (3).......................... 10 18 14 14 13
Dividend payout ratio............................ 32.5% 29.2% 19.5% 22.1% 9.6%
Average number of common and common-
equivalent shares (in millions)................ 93.4 88.0 87.7 87.7 86.1
Average number of shares, assuming full
dilution (in millions)......................... 97.1 91.8 91.6 91.5 91.9
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</TABLE>
(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>
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Three Months Ended September 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
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income-
tax-equivalent
basis...................... $ 97 $ 142 $ 180 $155 $68 $ 56 $ (4) $(12)
Provision for credit
losses..................... (10) 8 55 46 10 10 - 1
Noninterest income.......... 148 204 264 232 20 20 23 229
Noninterest expense......... 180 197 256 228 50 49 5 2
Net income.................. 47 70 81 67 17 11 9 136
Return on equity (2)........ 10% 17% 33% 37% 15% 13% N/M N/M
Efficiency ratio (3)........ 73% 57% 58% 59% 56% 64% N/M N/M
Average assets
(in billions).............. $48.1 $41.1 $10.6 $8.7 $6.1 $5.6 $1.3 $1.5
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</TABLE>
<TABLE>
<CAPTION>
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Three Months Ended September 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
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income-
tax-equivalent
basis...................... $ 292 $ 332 $ 553 $463 $184 $166 $(14) $ (4)
Provision for credit
losses..................... (32) 30 157 137 23 32 - 1
Noninterest income.......... 381 610 726 630 62 61 217 378
Noninterest expense......... 528 573 718 644 139 143 52 16
Net income.................. 106 190 248 185 52 32 110 225
Return on equity (2)........ 7% 16% 37% 34% 19% 13% N/M N/M
Efficiency ratio (3)........ 79% 61% 56% 59% 56% 63% N/M N/M
Average assets
(in billions).............. $45.2 $40.5 $10.4 $8.7 $5.8 $5.4 $1.3 $2.0
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</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 was $47 million in Corporate and Institutional Banking and return on
equity was 10 percent for the third quarter. Year-to-date results were
substantially below the 1993 level. Performance for the quarter reflected:
- Improving but continued difficult trading conditions, characterized by
weakness in foreign exchange and emerging markets revenues.
- Continued excellent credit quality, including reduced nonperforming
asset levels.
- 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>
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Three Months Ended Nine Months Ended
September 30 September 30
(In millions) 1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Lending........ $ 44 $ 72 $145 $170
Servicing...... 94 92 281 273
Financing...... 34 56 102 160
Trading........ 57 103 100 301
Other.......... 16 23 45 38
---- ---- ---- ----
Total...... $245 $346 $673 $942
==== ==== ==== ====
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</TABLE>
Lending revenues were lower than in 1993 due primarily to the absence of $24
million of revenues from Brazilian interest bonds. Excluding this income, the
reduced lending revenues reflected lower large corporate loan volume and
narrower market pricing.
Improved servicing revenues for the quarter and the first nine months resulted
principally from cash management services activities.
Financing revenues reflected sharply reduced gains on equity securities--down
$21 million from 1993's third quarter. Leasing revenues were also lower due to
timing of residual gains. Year-to-date results were related primarily to lower
equity gains and the timing of leasing and asset backed transactions.
Trading results for the quarter and the first nine months dropped substantially
from last year's record levels. Comparative data for key trading revenue
components are shown in the following table.
3
<PAGE>
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
September 30 September 30
(In millions) 1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Foreign exchange and derivatives.. $ 8 $ 37 $ 24 $ 85
Fixed income and derivatives...... 28 31 62 85
Emerging markets.................. 4 10 (47) 37
Funding and arbitrage............. 10 14 29 49
Other trading..................... 7 11 32 45
--- ---- ---- ----
Total......................... $57 $103 $100 $301
=== ==== ==== ====
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</TABLE>
While improved, the trading environment continued to be challenging--
characterized by lower revenues in foreign exchange and derivatives, and in
fixed income and derivatives. Last year's environment, particularly in European
markets, was conducive to record trading results for these activities.
Emerging markets trading generated positive revenues in the third quarter with a
reduced scope of activity.
A rising interest rate environment 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
Consumer Banking continued to be the Corporation's largest earnings contributor
in the third quarter. Net income for the quarter was $81 million, up 21 percent
from a year earlier, and return on equity was 33 percent. Year-to-date net
income of $248 million in Consumer Banking represented almost half of the
Corporation's total net income.
The credit card business again produced excellent results in the quarter.
Average managed credit card receivables were $11 billion in the third quarter,
an increase of 20 percent from 1993. This continued growth trend in receivables
was the primary factor for the substantial increase in revenue, provision and
noninterest expense.
The Community Banking Group--local retail banking--continued to move toward its
profit improvement goals. In the third quarter, a $7 million charge was
incurred to facilitate the restructuring of this business.
4
<PAGE>
MIDDLE MARKET BANKING
The net income contribution of Middle Market Banking was $17 million for the
third quarter as American National Corporation produced record results. The
added middle market business that resulted from the Corporation's merger with
Lake Shore Bancorp, Inc. on July 8 was an important factor in the substantially
higher results from the year-ago quarter.
For the first nine months, net income was $52 million, compared with $32 million
in the same period of 1993, and return on equity was 19 percent. This
significant increase reflects higher loan volume (up 10 percent on average) and
improved credit quality (provision of $23 million versus $32 million).
OTHER CORPORATE ACTIVITIES
Results in this category for the third quarter were due principally to equity
securities gains of $17 million from venture capital and $6 million in gains
from accelerated asset disposition activities.
Net income of $110 million for the first nine months included $138 million in
venture capital gains, more than half of which was generated from the
Corporation's investment in NEXTEL Communications, Inc. Special corporate
charges of $43 million, related in part to accounting for personal computer
equipment and certain litigation costs, are also included in this category.
STAFFING LEVELS
Staff levels for each of the three business segments as well as corporate
support functions were as follows.
<TABLE>
<CAPTION>
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Average Full-Time-Equivalent 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
Staff 1994 1994 1994 1993 1993
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<S> <C> <C> <C> <C> <C>
Corporate and Institutional... 6,402 6,340 6,315 6,280 6,349
Consumer...................... 7,616 7,430 7,390 7,304 7,392
Middle Market................. 2,143 2,069 2,062 2,032 2,037
Corporate Support............. 1,566 1,527 1,514 1,502 1,538
------ ------ ------ ------ ------
First Chicago Corporation... 17,727 17,366 17,281 17,118 17,316
====== ====== ====== ====== ======
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</TABLE>
5
<PAGE>
EARNINGS ANALYSIS
SUMMARY
The Corporation reported net income of $153.8 million, or $1.51 per share, for
the third quarter of 1994, compared with $284.1 million, or $2.97 per share, for
the third quarter of 1993. Excluding the results from the Corporation's venture
capital operations, net income was $150.4 million, or $1.49 per share, compared
with $166.1 million, or $1.71 per share, a year ago.
<TABLE>
<CAPTION>
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Three Months Nine Months
Ended Ended
(Dollars in millions, September 30 September 30
except per share data) 1994 1993 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis...... $340.8 $340.6 $1,015.0 $ 957.1
Provision for credit losses.................... 55.0 65.0 148.0 200.0
Noninterest income............................. 455.1 685.4 1,385.8 1,679.4
Noninterest expense............................ 491.4 475.5 1,436.5 1,376.2
Net income..................................... 153.8 284.1 516.3 631.7
Common Share Data
PRIMARY
Net income................................... $ 1.54 $ 3.14 $ 5.29 $ 6.94
Average common and common-equivalent shares
(in millions)............................... 93.4 86.1 89.7 84.8
FULLY DILUTED
Net income................................... $ 1.51 $ 2.97 $ 5.17 $ 6.63
Average shares, assuming full dilution
(in millions)............................... 97.1 91.9 93.5 90.3
Return on assets............................... 0.92% 1.98% 1.10% 1.49%
Return on common stockholders' equity.......... 15.0 33.8 17.1 26.5
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</TABLE>
The Corporation's 1994 third quarter results remained strong; driven by its core
business lines.
Higher fundamental net interest margins, reduced credit provisions and strong
credit card fee revenue offset by lower revenues in market-driven businesses
were key factors in the results for the third quarter of 1994.
The credit card business was a major contributor to earnings, as managed
receivables grew to $11.4 billion at September 30, 1994, up 18 percent from $9.6
billion a year ago.
The Corporation's middle market banking business generated record earnings in
the third quarter because of improved spreads on earning assets and reduced
credit provisions.
The provision for credit losses was $55 million in the third quarter, compared
to $65 million a year earlier. This decrease reflects a reserve for the growth
in the credit card portfolio, offset by improved credit performance in all
business segments.
Combined trading profits were $42 million in the 1994 third quarter, compared
with near-record profits of $77 million a year ago. Equity security gains in
the quarter were $20 million, of which $17 million was related to the venture
capital portfolio. Total equity security gains in the third quarter of 1993
were $228 million, of which $207 million was related to the venture capital
portfolio.
6
<PAGE>
Other revenue for the third quarter of 1994 included net gains of $6.2 million
resulting from accelerated asset disposition portfolio activities. These gains
totaled $20 million a year ago.
Noninterest expense for the quarter was $491 million, compared with $476 million
a year ago. Excluding special charges, operating expense in the third quarter
was up 4 percent from a year ago.
The Corporation's regulatory capital ratios continued to improve and are
considerably above "well-capitalized" regulatory guidelines. At September 30,
1994, the Corporation's risk-based capital ratio was 13.9 percent, compared with
13.6 percent at year-end 1993 and 13.5 percent a year ago. The regulatory
leverage ratio remained strong at 7.8 percent, compared with 8.0 percent a year
ago. The decrease in the leverage ratio from one year ago reflects the
implementation of FASB Interpretation No. 39, Offsetting of Amounts Related to
Certain Contracts. See Note 6 on page 27 for more information. Regulatory
capital ratios for all the Corporation's banking subsidiaries exceeded the
minimum levels for well-capitalized institutions.
Third quarter results reflect the acquisition of Lake Shore Bancorp, Inc.,
completed on July 8, 1994. This transaction was accounted for as a pooling-of-
interests; however, prior-period results have not been restated. Consideration
tendered for Lake Shore shares and stock options was approximately $323 million,
which consisted of approximately 6.4 million shares of First Chicago common
stock.
The Corporation repurchased 1.2 million shares of common stock during the third
quarter of 1994. The stock buyback program authorizes the repurchase of up to 7
million shares. The purpose of this program is to repurchase shares to meet
obligations under the Corporation's employee benefit plans and to manage the
overall capital position of the Corporation. As of September 30, 1994, one-
quarter of the program (1.7 million shares) had been completed. The Corporation
also redeemed preferred stock during the quarter. On July 1, 1994, Preferred
Stock, Series D, was redeemed at a 3 percent premium. This action reduced
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>
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Three Months Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis.. $ 340.8 $ 340.6 $1,015.0 $ 957.1
Average earning assets..................... $54,226 $48,403 $ 51,393 $48,364
Net interest margin........................ 2.49% 2.79% 2.64% 2.64%
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</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 $5.9
billion in the third quarter of 1994, compared with $5.2 billion in the third
quarter of 1993. The effect of credit card securitization transactions on the
Corporation's financial statements is summarized on page 31. 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>
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Three Months Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 1994 1993 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjusted net interest income--
tax-equivalent basis............ $ 485.5 $ 465.1 $1,404.4 $1,287.8
Adjusted average earning assets.. $50,046 $46,325 $ 48,144 $ 46,210
Adjusted net interest margin..... 3.85% 3.98% 3.90% 3.73%
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</TABLE>
On an adjusted basis, net interest margin for the third quarter of 1994 was 3.85
percent. This compares to 3.62 percent in the year-ago quarter, which excludes
36 basis points resulting from $24 million in gains from the sale of Brazilian
interest bonds and an $18 million positive impact on net interest income due to
a required revaluation of the leveraged lease portfolio.
Improved margins were primarily the result of a more profitable earning asset
mix, reflecting a relative increase in credit card and middle market loans. The
Corporation uses interest rate derivative financial instruments to reduce
structural interest rate risk and the volatility of net interest margin. The
consistency of the Corporation's net interest margin reflects this effective use
of interest rate derivatives. Without the use of these instruments, adjusted
net interest income would have declined by $23 million in the third quarter of
1994 and $114 million for the first nine months of 1994; net interest income in
the third quarter and first nine months of 1993 would also have declined by $58
million and $184 million, respectively.
A breakdown of average loans adjusted for credit card securitizations is
presented in the following table.
<TABLE>
<CAPTION>
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Average Loans
For the Quarter Ended September 30
1994 1993
(Dollars in millions) Percent Percent
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial.................. $15,307 52% $15,128 56%
Managed credit card 10,992 37 9,184 34
receivables................
Other consumer.............. 3,110 11 2,630 10
------- --- ------- ---
Total.................... $29,409 100% $26,942 100%
======= === ======= ===
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</TABLE>
Average nonperforming assets totaled $175 million for the third quarter of 1994,
a 55 percent reduction from the year-ago level of $393 million.
8
<PAGE>
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $55 million in the third quarter of 1994.
The commercial provision was $5 million, compared with $19 million a year ago.
The provision for consumer loans was $50 million, compared with $46 million a
year ago. The increase in the consumer provision was due primarily to
receivable growth in the credit card portfolio.
The change in the allowance for credit losses is presented in the following
table.
<TABLE>
<CAPTION>
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Three Months Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for credit losses
-- beginning of period....................... $681 $627 $ 683 $ 624
Provision for credit losses..................... 55 65 148 200
Net charge-offs................................. (38) (37) (105) (143)
Other:
- Mergers and acquisitions.................. 16 - 16 -
- Transfers related to securitized
receivables............................... (31) (18) (59) (44)
---- ---- ----- -----
Net change in allowance for credit losses....... 2 10 - 13
---- ---- ----- -----
Allowance for credit losses
-- end of period............................. $683 $637 $ 683 $ 637
==== ==== ===== =====
-- as a percentage of loans outstanding...... 2.9% 2.9% 2.9% 2.9%
-- as a percentage of nonperforming loans.... 444% 208% 444% 208%
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</TABLE>
Details of the Corporation's credit risk management and performance during the
nine months ended September 30, 1994, are presented in the Credit Risk Analysis
section, beginning on page 16.
NONINTEREST INCOME
The following table provides a breakdown of the components of noninterest income
for the third quarter and first nine months of 1994 as compared to year-ago
periods.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Three Months Nine Months
Ended Ended
September 30 September 30
(In millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Combined trading account profits........... $ 41.6 $ 77.3 $ 53.6 $ 223.4
Equity securities gains.................... 20.0 228.2 158.1 440.1
Investment securities gains (losses)....... (2.2) (0.8) (1.1) (0.6)
------ ------ -------- --------
Market-driven revenues.................. 59.4 304.7 210.6 662.9
Credit card fee revenue.................... 221.1 186.7 597.3 497.6
Service charges and commissions............ 112.8 108.0 318.3 310.1
Fiduciary and investment management fees... 48.6 47.9 150.3 150.0
Net gains from accelerated disposition
portfolio activities.................... 6.2 20.0 37.7 30.0
Other...................................... 7.0 18.1 71.6 28.8
------ ------ -------- --------
Total................................... $455.1 $685.4 $1,385.8 $1,679.4
====== ====== ======== ========
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</TABLE>
9
<PAGE>
Adjusted for the effects of credit card securitization, credit card fee growth
was 15 percent for the third quarter and 16 percent for the first nine months of
1994. This increase in fee revenue resulted from both a continued growth in the
cardholder base and increased transaction volume.
Service charges and commissions for the first nine months of 1994 rose 3 percent
from the year-earlier period to $318.3 million, resulting primarily from growth
in product revenues in both the corporate and retail banking businesses.
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 third quarter of 1993 included an
$8.4 million gain on the sale of leased assets. For the first nine months of
1993, these gains totaled $12.2 million. Results for the first nine months of
1993 also reflected losses of $7.8 million related to partnership distributions
on investments in the venture capital portfolio.
Market-driven revenues include trading account profits, foreign exchange trading
profits, and both equity and investment securities gains (losses). Market-
driven revenues for the third quarter of 1994 decreased to $59.4 million from
$304.7 million for the same period in 1993. Market-driven revenues were $210.6
million for the first nine months of 1994, compared with $662.9 million for the
same period in 1993.
Combined trading profits were $41.6 million in the third quarter of 1994,
compared with near-record profits of $77.3 million a year ago. For the first
nine months of 1994, combined trading profits were $53.6 million, compared with
$223.4 million a year ago. Lower profits from foreign exchange and related
derivative trading activities contributed to the decline in combined trading
profits in the third quarter of 1994 versus a year ago. These activities
continued to be negatively affected by a lack of any significant movement in
major exchange rates. In addition, the U.S. dollar remained in a narrow trading
range, limiting profit potential.
When comparing nine-month combined trading results, lower profits from both the
fixed income and derivative trading business and emerging markets trading
activities also contributed to the decline. Fixed income and derivative trading
performance was negatively affected by increases in U.S. dollar interest rates
initiated by the Federal Reserve Bank earlier this year. In addition,
significantly reduced market liquidity related to the Corporation's holdings in
certain Latin American investments produced losses in its emerging markets
trading activities during the first six months of 1994.
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 Nine Months
Ended Ended
September 30 September 30
(In millions) 1994 1993 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Venture capital......................... $16.9 $207.4 $137.9 $360.2
Corporate finance....................... 3.1 16.6 19.7 52.5
Debt restructuring...................... - 4.2 0.5 27.4
----- ------ ------ ------
Total equity securities gains........ $20.0 $228.2 $158.1 $440.1
===== ====== ====== ======
- -------------------------------------------------------------------------------
</TABLE>
The venture capital portfolio accounted for $137.9 million of the year-to-date
gains, of which approximately 54 percent were related to the Corporation's
investment in NEXTEL Communications, Inc., a telecommunications services
company. For additional information on the Corporation's venture capital
activities, see page 12.
10
<PAGE>
NONINTEREST EXPENSE
Operating expenses were $491.4 million for the third quarter of 1994, compared
with $475.5 million a year ago. Excluding special charges, operating expense in
the third quarter was up 4 percent from a year ago.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Three Months Nine Months
Ended Ended
September 30 September 30
(In millions) 1994 1993 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and benefits................ $225.1 $217.7 $ 645.4 $ 627.4
Occupancy expense of premises, net... 32.0 37.0 102.5 112.0
Equipment rentals, depreciation and
maintenance........................ 35.1 26.5 120.7 80.0
Amortization of intangible assets.... 16.4 18.5 51.6 68.8
Deposit insurance expense............ 10.8 12.2 32.3 40.6
Other................................ 172.0 163.6 484.0 447.4
------ ------ -------- --------
Total.......................... $491.4 $475.5 $1,436.5 $1,376.2
====== ====== ======== ========
- -------------------------------------------------------------------------
</TABLE>
In the third quarter and the first nine months of 1994, total salaries and
benefits increased 3 percent over one year ago. The impact of higher staff
levels, increased 401(k) contributions and reduced pension credits was partially
offset by reduced incentive compensation accruals primarily related to lower
combined trading profits.
Occupancy expense decreased 14 percent to $32 million in the 1994 third quarter.
Year-to-date expense decreased 8 percent from a year-ago. Occupancy expense in
1993 included incremental costs associated with the relocation of the
Corporation's shareholder service business and the cost related to reducing
other corporate occupancy needs.
Equipment rentals, depreciation and maintenance grew 32 percent to $35.1 million
in the third 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,
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 third quarter of 1994 included a $7 million
restructuring charge, related primarily to staff reductions, in the
Corporation's retail banking business. Other operating expense in the first
nine months of 1994 also included $18.7 million of special corporate expense
items that were incurred primarily in the first quarter; approximately $14
million of similar charges were incurred a year ago. Excluding these charges,
other operating expense increased 6 percent, due primarily to higher marketing
and operating costs associated with growth in the credit card business.
<TABLE>
<CAPTION>
APPLICABLE INCOME TAXES
- -----------------------------------------------------------------
Three Months Nine Months
Ended Ended
September 30 September 30
(Dollars in millions) 1994 1993 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes.. $243.1 $468.0 $799.1 $1,028.3
Applicable income taxes..... 89.3 183.9 282.8 396.6
Effective tax rate.......... 36.7% 39.3% 35.4% 38.6%
- -----------------------------------------------------------------
</TABLE>
11
<PAGE>
The decrease in the effective tax rate for the third quarter of 1994 compared to
a year ago was due to recording the cumulative effect of a federal tax rate
increase in the third quarter of 1993. The decrease in the effective tax rate
for the first nine months of 1994 compared to a year ago also reflects a one-
time tax benefit for the implementation of the final I.R.S. bad-debt recapture
regulations and a favorable tax ruling, both of which occurred in 1994, and a
special intangible charge recorded in 1993.
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. Net income
attributable to the venture capital business--revenues less the portfolio's
cost-to-carry and other expenses--was $3 million, or $0.02 per share, for the
1994 third quarter, compared with net income of $118 million or $1.26 per share,
a year ago. Year-to-date net income was $69 million, or $0.69 per share,
compared with $197 million, or $2.10 per share, in 1993.
<TABLE>
<CAPTION>
Venture Capital Portfolio
- ---------------------------------------------------------------------
September 30, 1994 Investments Investments
(In millions) Held Directly Held Indirectly Total
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Publicly traded equity
investments
Gross value............. $392 $ 578 $ 970
Discount................ (18) (138) (156)
---- ----- ------
Fair value........... $374 $ 440 814
==== =====
Investments in private
companies................. 673
------
Total...................... $1,487
======
- ---------------------------------------------------------------------
</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 an 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 September 30, 1994, 62 percent of the $814 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.
12
<PAGE>
The following table provides fair value and sale information for the portfolio
for 1994.
Venture Capital Portfolio Activity
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Publicly
Traded Private
(In millions) Companies Companies Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value--December 31, 1993............ $ 759 $698 $1,457
Additional investments................... 29 71 100
Appreciation recorded as
equity securities gains (1)............. 168 7 175
Sales proceeds (1)....................... (161) (33) (194)
Other (2)................................ 19 (70) (51)
----- ---- ------
Fair value--September 30, 1994 (3)....... $ 814 $673 $1,487
===== ==== ======
Unrealized appreciation
at September 30, 1994................... $ 565 $ 3 $ 568
===== ==== ======
- -------------------------------------------------------------------------------
</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 $110 million related
to hedging instruments used to reduce the earnings volatility of the
venture capital portfolio.
In addition to the $1.5 billion of investments in the venture capital portfolio,
unfunded commitments totaled $232 million at September 30, 1994.
BALANCE SHEET ANALYSIS
ASSETS
The Corporation's assets totaled $65.7 billion at September 30, 1994, up from
$52.6 billion at year-end 1993 and $53.2 billion at September 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 27.
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 nine 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 minimum range established 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 $6.4 billion at September 30, 1994, compared with $5.0 billion at
year-end 1993 and $5.3 billion at September 30, 1993.
Federal funds sold and securities under resale agreements increased $5.0 billion
from December 31, 1993, and $5.5 billion from a year ago primarily as a result
of increased capital market activity.
13
<PAGE>
Loans increased $714 million from year-end 1993 and $1.8 billion from September
30, 1993. The change as compared to year-end 1993 was due primarily to an
increase in domestic commercial loans, including those loans acquired in the
recent merger with Lake Shore Bancorp, Inc., partially offset by a decrease in
credit card loans. The increase as compared to a year ago was due primarily to
loans acquired in the Lake Shore merger as well as growth in the credit card
portfolio.
LIABILITIES
The Corporation's total liabilities were $61.2 billion at September 30, 1994, up
from $48.3 billion at year-end 1993 and $49.0 billion at September 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.
Federal funds purchased and securities under repurchase agreements grew $4.0
billion from year-end 1993 and $4.8 billion from September 30, 1993, as a result
of increased capital market activity.
The Corporation increased the use of short-term bank notes in order to better
match asset repricing and maturity characteristics. These notes increased $1.9
billion from year-end 1993 and $2.3 billion from a year ago. At the same time,
the level of negotiable certificates of deposit declined by $345 million from
year-end 1993 and $388 million from a year ago.
Long-term debt increased $207 million from year-end 1993 and $181 million from
a year ago. This increase is primarily the result of the issuance of $200
million of subordinated debt in January 1994.
The Corporation's Statement of Cash Flows is presented on page 25.
CAPITAL
Stockholders' equity totaled $4.5 billion at September 30, 1994, up from $4.3
billion at December 31, 1993, and $4.1 billion at September 30, 1993.
The Corporation repurchased 1.2 million shares of common stock during the third
quarter of 1994. The stock buyback program authorizes the repurchase of up to 7
million shares. The purpose of this program is to repurchase shares to meet
obligations under the Corporation's employee benefit plans and to manage the
overall capital position of the Corporation. As of September 30, 1994, one-
quarter of the program (1.7 million shares) had been completed. The Corporation
also redeemed preferred stock during the quarter. On July 1, 1994, Preferred
Stock, Series D, was redeemed at a 3 percent premium, or $4.5 million. This
action reduced 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.
14
<PAGE>
The Corporation's ratio of common equity to assets, net of its investment in
FCCM, was 6.6 percent at September 30, 1994, 7.2 percent at year-end 1993 and
7.0 percent a year ago. The decrease reflects the implementation of FASB
Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts. See
Note 6 on page 27 for more information.
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 September 30 December 31 September 30
(In millions) 1994 1993 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital
Common stockholders' equity....... $3,930 $3,503 $3,378
Preferred stock................... 611 761 761
Less: 50 percent of investment
in FCCM................... (129) (69) (71)
Less: Disallowed intangibles and
other adjustments.......... (93) (97) (99)
------ ------ ------
Tier 1 capital.................. 4,319 4,098 3,969
------ ------ ------
Tier 2 capital
Allowance for credit losses (1)... 589 581 573
Qualifying long-term debt......... 1,782 1,682 1,708
Less: 50 percent of investment
in FCCM.................... (129) (69) (71)
------ ------ ------
Tier 2 capital.................. 2,242 2,194 2,210
------ ------ ------
Total capital........... $6,561 $6,292 $6,179
====== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
(1) 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.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Regulatory Capital Ratios
Minimum
September 30 December 31 September 30 Regulatory
1994 1993 1993 Requirements
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-Based Capital
Ratios
Tier 1 capital.... 9.2% 8.8% 8.7% 4.0%
Total capital..... 13.9 13.6 13.5 8.0
Leverage Ratio...... 7.8 8.0 8.0 3.0
- --------------------------------------------------------------------------------
</TABLE>
As of September 30, 1994, the regulatory capital ratios for all 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.
15
<PAGE>
CREDIT RISK ANALYSIS
Summary
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Selected Statistical Information
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(Dollars in millions) 1994 1994 1994 1993 1993
- ----------------------------------------------------------------------------------------
At period-end:
<S> <C> <C> <C> <C> <C>
Loans outstanding................. $23,817 $23,680 $23,782 $23,103 $21,969
Nonperforming loans............... 154 150 237 234 307
Other real estate, net............ 23 31 43 43 44
Nonperforming assets.............. 177 181 280 277 351
Allowance for credit losses....... 683 681 710 683 637
Nonperforming loans/
loans outstanding................ 0.6% 0.6% 1.0% 1.0% 1.4%
Nonperforming assets/loans
outstanding and other
real estate, net................. 0.7 0.8 1.2 1.2 1.6
Allowance for credit losses/
loans outstanding................ 2.9 2.9 3.0 3.0 2.9
Allowance for credit losses/
nonperforming loans.............. 444 454 300 292 208
For the quarter ended:
Average loans outstanding......... $23,468 $22,924 $22,460 $22,263 $21,588
Net charge-offs................... 38 34 33 39 37
Net charge-offs/average loans(1).. 0.6% 0.6% 0.6% 0.7% 0.7%
- ----------------------------------------------------------------------------------------
(1) Annualized.
</TABLE>
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 Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1994 1994 1994 1993 1993
- ----------------------------------------------------------------------------------------
Commercial Risk
Domestic office
<S> <C> <C> <C> <C> <C>
Commercial...................... $ 7,488 $ 7,148 $ 6,438 $ 6,007 $ 5,807
Commercial real estate
Construction.................. 273 284 302 315 384
Other......................... 2,118 2,106 2,050 2,094 2,106
Financial institutions.......... 931 1,018 1,241 1,292 1,295
Other........................... 2,641 2,639 2,631 2,746 3,258
------- ------- ------- ------- -------
Total domestic................ 13,451 13,195 12,662 12,454 12,850
Foreign office.................... 2,020 2,153 2,578 1,975 2,030
------- ------- ------- ------- -------
Total commercial.......... 15,471 15,348 15,240 14,429 14,880
------- ------- ------- ------- -------
Consumer Risk
Credit cards...................... 5,000 5,356 5,736 5,778 4,302
Secured by real estate
Mortgage........................ 1,552 1,425 1,370 1,469 1,370
Home equity..................... 836 803 767 780 813
Other............................. 958 748 669 647 604
------- ------- ------- ------- -------
Total consumer............ 8,346 8,332 8,542 8,674 7,089
------- ------- ------- ------- -------
Total..................... $23,817 $23,680 $23,782 $23,103 $21,969
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
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 Nine Months Ended
September 30, 1994 September 30, 1994
----------------------------------------------------------------
(Dollars in millions) Commercial Consumer Total Commercial Consumer Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance--beginning of period.. $502 $179 $681 $488 $ 195 $ 683
Provision for credit losses... 5 50 55 (2) 150 148
Net (charge-offs)/recoveries.. (3) (35) (38) 18 (123) (105)
Other:
- - Mergers and acquisitions... 16 - 16 16 - 16
- - Transfers related to
securitized receivables... - (31) (31) - (59) (59)
---- ---- ---- ---- ----- -----
Balance--end of period........ $520 $163 $683 $520 $ 163 $ 683
==== ==== ==== ==== ===== =====
Allowance as a percentage
of loans outstanding....... 3.4% 2.0% 2.9% 3.4% 2.0% 2.9%
Allowance as a percentage
of nonperforming loans..... 338 - 444 338 - 444
- ------------------------------------------------------------------------------------------------
</TABLE>
17
<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
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(Dollars in millions) 1994 1994 1994 1993 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans...................... $ 150 $ 146 $ 233 $ 230 $ 303
Accrual renegotiated loans............ 4 4 4 4 4
----- ----- ----- ----- -----
Total nonperforming loans........ $ 154 $ 150 $ 237 $ 234 $ 307
===== ===== ===== ===== =====
Nonperforming Loans
Commercial real estate.............. $ 79 $ 72 $ 101 $ 108 $ 151
Troubled-country debtor............. 1 1 50 50 57
Other............................... 74 77 86 76 99
----- ----- ----- ----- -----
Total nonperforming loans........ 154 150 237 234 307
----- ----- ----- ----- -----
Other real estate, net
Owned assets........................ 6 12 26 29 14
In-substance foreclosed assets...... 17 19 17 14 30
----- ----- ----- ----- -----
Total other real estate, net..... 23 31 43 43 44
----- ----- ----- ----- -----
Total nonperforming assets....... $ 177 $ 181 $ 280 $ 277 $ 351
===== ===== ===== ===== =====
Nonperforming assets as a percentage
of loans outstanding and other
real estate, net.................... 0.7% 0.8% 1.2% 1.2% 1.6%
- ------------------------------------------------------------------------------------------
</TABLE>
Loans 90 days or more past due and still accruing interest amounted to $71
million at September 30, 1994, compared with $63 million at December 31, 1993,
and $95 million at September 30, 1993.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, 1994 September 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........... $ 72 $ 78 $150 $108 $126 $234
Loans placed on nonperforming
status......................... 21 22 43 40 66 106
Charge-offs..................... (4) (9) (13) (18) (21) (39)
Transfers to other real estate.. (1) - (1) (12) - (12)
Transfers to accrual status..... - (10) (10) (19) (19) (38)
Other:
Mergers and acquisitions..... 5 21 26 5 21 26
Impact of Brazilian
debt restructuring......... - - - - (49) (49)
Principally payments......... (14) (27) (41) (25) (49) (74)
---- ---- ---- ---- ---- ----
Nonperforming loans--
end of period................. $ 79 $ 75 $154 $ 79 $ 75 $154
==== ==== ==== ==== ==== ====
- ------------------------------------------------------------------------------------------------
</TABLE>
18
<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. Consumer loans,
excluding securitized credit card receivables, totaled $8.3 billion at September
30, 1994, up 18 percent from $7.1 billion a year ago.
Total managed credit card receivables (i.e. those held in the portfolio and
those sold to investors through securitization) were $11.4 billion at
September 30, 1994, up 18 percent from a year earlier.
At September 30, 1994, the allowance for credit losses related to the consumer
portfolio was $163 million, or 2.0 percent of loans. Comparable figures for
December 31, 1993, were $195 million and 2.2 percent. Net charge-offs in the
third quarter were $35 million, compared with $21 million in the third quarter
of 1993.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Consumer Loans
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1994 1994 1994 1993 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card.............................. $ 5,000 $ 5,356 $ 5,736 $ 5,778 $ 4,302
Securitized credit card receivables...... 6,367 5,617 4,700 4,958 5,333
------- ------- ------- ------- -------
Total managed credit card receivables.. 11,367 10,973 10,436 10,736 9,635
Other consumer loans..................... 3,346 2,976 2,806 2,896 2,787
------- ------- ------- ------- -------
Total............................... $14,713 $13,949 $13,242 $13,632 $12,422
======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------
</TABLE>
Average credit card receivables for the third quarter of 1994 grew 20 percent
from the year-earlier quarter and 11 percent from the fourth quarter of 1993.
The net charge-off rate for the total average managed credit card portfolio was
3.5 percent in the third quarter of 1994. Charge-off rates for the remainder of
the year are expected to be in line with current year-to-date results.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Average Credit Card Receivables
For the Quarter Ended
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(Dollars in millions) 1994 1994 1994 1993 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans outstanding............ $ 5,067 $ 5,435 $ 5,473 $4,661 $4,014
Securitized credit card receivables...... 5,925 5,106 4,848 5,203 5,170
------- ------- ------- ------ ------
Total managed credit card receivables.. $10,992 $10,541 $10,321 $9,864 $9,184
======= ======= ======= ====== ======
Total net charge-offs
(including securitizations)............ $ 96 $ 100 $ 91 $ 88 $ 81
======= ======= ======= ====== ======
Net charge-offs/average total
receivables (1)........................ 3.5% 3.8% 3.6% 3.5% 3.5%
======= ======= ======= ====== ======
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
19
<PAGE>
COMMERCIAL RISK MANAGEMENT
Commercial loans totaled $15.5 billion at September 30, 1994, up 7.2 percent
from December 31, 1993, and 4.0 percent from September 30, 1993. This growth
includes loans acquired as a result of the Corporation's merger with Lake Shore
Bancorp, Inc.
During the third quarter, net charge-offs in the commercial portfolio totaled $3
million. The provision for credit losses related to the commercial portfolio
was $5 million, and the quarter-end reserve of $520 million represented 3.4
percent of total commercial loans and 338 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>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Commercial Real Estate Assets
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(Dollars in millions) 1994 1994 1994 1993 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial real estate loans (1)................ $2,452 $2,451 $2,416 $2,474 $2,563
Nonperforming loans............................. 79 72 101 108 151
Other real estate, net.......................... 23 31 43 43 44
Nonperforming assets............................ 102 103 144 151 195
Net charge-offs for the quarter................. 4 11 - 9 21
Nonperforming assets/loans outstanding
and other real estate, net.................... 4.1% 4.1% 5.9% 6.0% 7.5%
- ----------------------------------------------------------------------------------------------------
(1) Includes loans booked in foreign offices.
</TABLE>
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>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Commercial Real Estate Assets
September 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...................... $249 $ 29 $137 $52 $649 $647 $1,763 80%
Los Angeles.................. 20 11 16 - 11 22 80 4
Other California............. 3 31 21 - 6 19 80 4
Other Midwest................ 30 4 18 - 11 2 65 3
Southeast.................... 13 18 17 - 12 2 62 3
Arizona/Colorado/Texas....... 2 15 4 26 1 - 48 2
Other........................ 22 59 10 - 2 8 101 4
---- ---- ---- --- ---- ---- ------ ---
Total loans secured by
real estate.............. $339 $167 $223 $78 $692 $700 $2,199 100%
==== ==== ==== === ==== ==== ====== ===
- -------------------------------------------------------------------------------------------------------
Nonperforming loans secured
by real estate............. $7 $- $5 $27 $16 $24 $79
Other real estate............ 1 1 - 1 6 14 23
- -------------------------------------------------------------------------------------------------------
</TABLE>
20
<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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
HLT Credit Exposure
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1994 1994 1994 1993 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans...................... $ 547 $ 590 $ 650 $ 711 $ 871
Other credit exposure...... 525 333 309 303 344
------ ----- ----- ------ ------
Total HLT credit exposure.. $1,072 $ 923 $ 959 $1,014 $1,215
====== ===== ===== ====== ======
- -----------------------------------------------------------------------------
</TABLE>
Credit exposure to communications and to pharmaceutical products-related
industries represented the only significant HLT concentrations. These
concentrations each reflect approximately 19 percent of HLT credit exposure at
September 30, 1994.
During the third quarter of 1994, there were no charge-offs of HLT loans. HLT
net charge-offs were $2 million in the third quarter of 1993. Nonperforming HLT
loans totaled $1 million at September 30, 1994. At December 31, 1993, and
September 30, 1993, nonperforming HLT loans were $1 million and $10 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 September 30, 1994, this portfolio consisted of 38 HLT
investments, with a carrying value of $400 million. At September 30, 1994,
gross unrealized gains related to HLT investments totaled $93 million, while
gross unrealized losses were $67 million. The same portfolio at December 31,
1993, and September 30, 1993, totaled $397 million and $386 million,
respectively. At September 30, 1994, $2 million of unfunded commitments were
related to the HLT segment of the venture capital portfolio.
21
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
September 30 December 31 September 30
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1993
ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks--noninterest-bearing......................................... $ 4,096 $ 3,916 $ 6,542
Due from banks--interest-bearing..................................................... 7,827 6,037 6,335
Federal funds sold and securities under resale agreements............................ 13,804 8,783 8,320
Trading account assets............................................................... 5,327 4,536 3,443
Investment securities (fair values--$2,515, $2,264, and $2,256, respectively)........ 2,514 2,256 2,243
Loans (net of unearned income--$270, $282, and $290, respectively)................... 23,817 23,103 21,969
Less allowance for credit losses................................................... 683 683 637
------- ------- -------
Loans, net......................................................................... 23,134 22,420 21,332
Premises and equipment............................................................... 659 635 634
Accrued income receivable............................................................ 422 407 372
Customers' acceptance liability...................................................... 632 517 605
Derivative product assets............................................................ 6,016 - -
Other assets......................................................................... 1,316 3,053 3,347
------- ------- -------
Total assets............................................................... $65,747 $52,560 $53,173
======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Demand............................................................................. $ 7,217 $ 8,184 $ 6,998
Savings............................................................................ 7,426 7,541 7,392
Time............................................................................... 4,602 4,925 4,787
Foreign offices.................................................................... 10,425 7,536 10,202
------- ------- -------
Total deposits............................................................. 29,670 28,186 29,379
Federal funds purchased and securities under repurchase agreements................... 12,303 8,255 7,470
Other funds borrowed................................................................. 9,059 6,007 6,041
Long-term debt....................................................................... 2,272 2,065 2,091
Acceptances outstanding.............................................................. 632 517 605
Derivative product liabilities....................................................... 5,539 - -
Other liabilities.................................................................... 1,731 3,266 3,448
------- ------- -------
Total liabilities.......................................................... 61,206 48,296 49,034
- -------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock...................................................................... 611 761 761
Common stock--$5 par value........................................................... 465 434 433
Number of shares authorized--150,000,000
Number of shares issued--93,064,700; 86,715,812 and 86,598,419, respectively
Number of shares outstanding--91,850,482; 86,398,605 and 86,556,481, respectively
Surplus.............................................................................. 1,741 1,724 1,714
Retained earnings.................................................................... 1,788 1,358 1,234
Other adjustments.................................................................... (4) - (1)
------- ------- -------
Total...................................................................... 4,601 4,277 4,141
Less treasury stock at cost--1,214,218; 317,207 and 41,938 shares, respectively...... 60 13 2
------- ------- -------
Stockholders' equity....................................................... 4,541 4,264 4,139
------- ------- -------
Total liabilities and stockholders' equity................................. $65,747 $52,560 $53,173
======= ======= =======
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
- ------------------------------------------------------------------------------------------------------------------
(In millions, except per share data) 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................................. $476.9 $433.0 $1,384.8 $1,272.1
Interest on bank balances.............................................. 97.8 73.3 255.3 228.0
Interest on federal funds sold and securities under resale agreements.. 175.3 88.6 400.0 255.2
Interest on trading account assets..................................... 76.0 59.2 191.8 165.6
Interest on investment securities (including dividends)................ 18.2 14.6 48.7 55.5
------ ------ -------- --------
Total........................................................ 844.2 668.7 2,280.6 1,976.4
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits................................................... 203.9 155.8 540.7 487.4
Interest on federal funds purchased and securities under repurchase
agreements........................................................... 149.6 74.2 341.4 227.0
Interest on other funds borrowed....................................... 112.8 73.4 275.0 225.6
Interest on long-term debt............................................. 43.5 42.2 125.7 111.3
------ ------ -------- --------
Total........................................................ 509.8 345.6 1,282.8 1,051.3
- ------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME.................................................... 334.4 323.1 997.8 925.1
Provision for credit losses............................................ 55.0 65.0 148.0 200.0
------ ------ -------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.................. 279.4 258.1 849.8 725.1
- ------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits............................................... 41.6 77.3 53.6 223.4
Equity securities gains................................................ 20.0 228.2 158.1 440.1
Investment securities gains (losses)................................... (2.2) (0.8) (1.1) (0.6)
------ ------ -------- --------
Market-driven revenue................................................ 59.4 304.7 210.6 662.9
Credit card fee revenue................................................ 221.1 186.7 597.3 497.6
Service charges and commissions........................................ 112.8 108.0 318.3 310.1
Fiduciary and investment management fees............................... 48.6 47.9 150.3 150.0
Other income........................................................... 13.2 38.1 109.3 58.8
------ ------ -------- --------
Total........................................................ 455.1 685.4 1,385.8 1,679.4
- ------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits......................................... 225.1 217.7 645.4 627.4
Occupancy expense of premises, net..................................... 32.0 37.0 102.5 112.0
Equipment rentals, depreciation and maintenance........................ 35.1 26.5 120.7 80.0
Other expense.......................................................... 199.2 194.3 567.9 556.8
------ ------ -------- --------
Total........................................................ 491.4 475.5 1,436.5 1,376.2
- ------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES............................................. 243.1 468.0 799.1 1,028.3
Applicable income taxes................................................ 89.3 183.9 282.8 396.6
------ ------ -------- --------
NET INCOME............................................................. $153.8 $284.1 $ 516.3 $ 631.7
------ ------ -------- --------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY................. $143.8 $270.3 $ 474.2 $ 588.5
====== ====== ======== ========
- ------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
NET INCOME-PRIMARY................................................... $ 1.54 $ 3.14 $ 5.29 $ 6.94
NET INCOME-FULLY DILUTED............................................. $ 1.51 $ 2.97 $ 5.17 $ 6.63
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES TO STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30 (In millions) 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Stockholders' Equity
Balance, beginning of period......................... $4,264 $3,401
Net income......................................... 516 632
Acquisition of Lake Shore Bancorp.................. 123 -
Issuance of common stock........................... 8 141
Issuance of preferred stock........................ - 196
Redemption of preferred stock...................... (150) (108)
Issuance of treasury stock......................... 23 (2)
Treasury stock purchases........................... (76) -
Other.............................................. (2) (3)
------ ------
4,706 4,257
Cash dividends declared on preferred stock......... (42) (43)
Cash dividends declared on common stock............ (123) (75)
------ ------
1994 1993
- -----------------------------------------------------
Rate per common share for period...... $1.40 $0.90
- -----------------------------------------------------
Balance, end of period............................... $4,541 $4,139
====== ======
- -----------------------------------------------------------------------------
</TABLE>
24
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Nine Months Ended September 30 (In millions) 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................................... $ 516 $ 632
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization..................................................... 131 143
Provision for credit losses....................................................... 148 200
Equity securities gains........................................................... (158) (440)
Net (increase) in net derivative product balances................................. (245) -
Net (increase) in trading account assets.......................................... (776) (131)
Net (increase) in accrued income receivable....................................... (15) (16)
Net decrease in other assets...................................................... 111 801
Interest income from Brazilian debt restructuring................................. (16) -
Other noncash adjustments......................................................... (19) (24)
--------- --------
Total adjustments................................................................. (839) 533
--------- --------
Net cash provided by (used in) operating activities................................. (323) 1,165
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) in federal funds sold and securities under resale agreements......... (5,009) (1,428)
Purchases of investment securities.................................................. - (2,419)
Purchase of investment securities--available for sale............................... (769) -
Purchase of debt investment securities--held to maturity............................ (240) -
Purchase of venture capital investments............................................. (100) -
Proceeds from maturities of debt securities......................................... - 2,473
Proceeds from maturities of debt securities--available for sale..................... 695 -
Proceeds from maturities of debt securities--held to maturity....................... 200 -
Proceeds from sales of debt securities.............................................. - 2
Proceeds from sales of debt securities--available for sale.......................... 82 -
Proceeds from sales of equity securities............................................ - 548
Proceeds from sales of equity securities--available for sale........................ 48 -
Proceeds from sales of venture capital investments.................................. 257 -
Net (increase) in credit card receivables........................................... (1,359) (1,806)
Credit card receivables securitized................................................. 2,000 1,700
Net (increase) decrease in loans of bank subsidiaries............................... (798) 620
Loans made to customers and purchased from others by nonbank subsidiaries........... (436) (227)
Principal collected on and proceeds from sale of loans by nonbank subsidiaries...... 470 206
Loan recoveries..................................................................... 63 70
Purchases of premises and equipment................................................. (127) (153)
Proceeds from sales of premises and equipment....................................... 24 38
Net cash and cash equivalents due to mergers and acquisitions....................... 44 -
--------- --------
Net cash (used in) investing activities............................................. (4,955) (376)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) in demand and savings deposits....................................... (1,386) (803)
Net (decrease) in time deposits..................................................... (1,016) (1,475)
Net increase in deposits in foreign offices......................................... 2,993 1,980
Net increase in federal funds purchased and securities under repurchase agreements.. 3,998 508
Proceeds from other funds borrowed.................................................. 184,536 60,548
Repayment of other funds borrowed................................................... (181,392) (58,676)
Proceeds from issuance of long-term debt............................................ 203 719
Repayment of long-term debt......................................................... (7) (339)
Net increase (decrease) in other liabilities........................................ (197) 239
Dividends paid...................................................................... (155) (114)
Proceeds from issuance of common stock.............................................. 8 37
Proceeds from issuance of preferred stock........................................... - 196
Payment for purchase of treasury stock.............................................. (76) -
Proceeds from reissuance of treasury stock.......................................... 12 3
Redemption of preferred stock....................................................... (150) (1)
--------- --------
Net cash provided by financing activities........................................... 7,371 2,822
- ----------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS........................ (123) (72)
- ----------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 1,970 3,539
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 9,953 9,338
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $ 11,923 $ 12,877
========= ========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Note 7 on page 28.
25
<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>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Nine Months
Ended
(In millions) September 30
1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY
Net income......................................................... $516.3 $631.7
Preferred stock dividends (1)...................................... 42.1 43.2
------ ------
Net income attributable to common
stockholders' equity............................................. $474.2 $588.5
====== ======
Average number of common and
common-equivalent shares......................................... 89.7 84.8
====== ======
FULLY DILUTED
Net income......................................................... $516.3 $631.7
Preferred stock dividends, excluding
convertible Series A and B, where applicable (1)................. 33.5 32.7
------ ------
Fully diluted net income........................................... $482.8 $599.0
====== ======
Average number of shares,
assuming full dilution........................................... 93.5 90.3
====== ======
- -----------------------------------------------------------------------------------------------
(1) 1994 results include $4.5 million of additional preferred dividends, which represents 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.
</TABLE>
Note 3
- ------
At September 30, 1994, credit card receivables aggregated $5.0 billion. These
receivables are available for sale at face value through credit card
securitization programs.
26
<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 $268 million at September 30, 1994, compared with $196 million
at year-end 1993 and $211 million a year ago.
Note 5
- ------
Included in other assets on the Corporation's consolidated balance sheet are
accelerated disposition portfolio assets of $50 million at September 30, 1994,
compared with $107 million at year-end 1993 and $211 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, $33 million were nonperforming at September 30, 1994, compared
with $87 million at year-end 1993 and $100 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 September 30, 1993, the fair value of currency options purchased totaled $568
million, while the fair value of currency options written totaled $476 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.
27
<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 standard was
recently amended by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosure. SFAS No. 114 addresses the accounting
for loans when it is probable that all principal and interest amounts 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.
SFAS No. 118 allows for existing income recognition practices to continue.
These standards are effective for financial statements issued for periods
beginning after December 15, 1994.
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 $12 million and $32 million were transferred to other real estate in
the first nine months of 1994 and 1993, respectively.
Note 8
- ------
The ratio of income to fixed charges for the nine months ended September 30,
1994, excluding interest on deposits was 2.1x, and including interest on
deposits was 1.6x. 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.
28
<PAGE>
Note 9
- ------
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 $123 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 was approximately $323 million, which
consisted 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 was accounted for on a pooling-of-interest basis; however,
because the transaction was not considered significant from an accounting
perspective, the Corporation did not restate either 1994 or prior-year financial
data.
Note 10
- -------
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.
29
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- -----------------------------------------------------------------------------
INVESTMENT SECURITIES
Investment securities included in the consolidated balance sheet as of
September 30, 1994, were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
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...................... $ 315 $ 315 $ - $ 5 $ 310
Available for sale.................... 461 466 - 5 461
------ ------ ---- ---- ------
Total................................... 776 781 - 10 771
States and political subdivisions
Held to maturity...................... 189 189 7 1 195
Available for sale.................... - - - - -
------ ------ ---- ---- ------
Total................................... 189 189 7 1 195
Other securities
Bonds, notes and debentures
Held to maturity...................... 4 4 - - 4
Available for sale.................... 9 9 - - 9
------ ------ ---- ---- ------
Total................................... 13 13 - - 13
Equity securities (1)
Venture capital....................... 1,372 914 560 102 1,372
Available for sale (2)................ 164 163 1 - 164
------ ------ ---- ---- ------
Total................................... 1,536 1,077 561 102 1,536
Total investment securities.............. $2,514 $2,060 $568 $113 $2,515
====== ====== ==== ==== ======
- -----------------------------------------------------------------------------------------------------------
(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.
</TABLE>
30
<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 September 30, 1994 Three Months Ended September 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.. $341 $148 $489 $341 $128 $469
Provision for credit
losses................ 55 65 120 65 61 126
Noninterest income...... 455 (83) 372 685 (67) 618
Noninterest expense..... 491 - 491 476 - 476
Net income.............. 154 - 154 284 - 284
Assets--quarter-end..... $65,747 $6,367 $72,114 $53,173 $5,333 $58,506
--average......... 66,050 5,925 71,975 56,932 5,170 62,102
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1994 Nine Months Ended September 30, 1993
------------------------------------- -------------------------------------
Credit Card Credit Card
(In millions) Reported Securitizations Adjusted Reported Securitizations Adjusted
- ---------------------------------------------------------------------------------------------------------
Net interest income--
tax-equivalent basis.. $1,015 $ 398 $1,413 $ 957 $ 340 $1,297
Provision for credit
losses................ 148 183 331 200 172 372
Noninterest income...... 1,386 (215) 1,171 1,679 (168) 1,511
Noninterest expense..... 1,437 - 1,437 1,376 - 1,376
Net income.............. 516 - 516 632 - 632
Assets--quarter-end..... $65,747 $6,367 $72,114 $53,173 $5,333 $58,506
--average......... 62,672 5,293 67,965 56,570 4,718 61,288
- ---------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(In millions) September 30 June 30 March 31 December 31 September 30
1994 1994 1994 1993 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter
Commercial................................. $ 502 $ 507 $ 488 $ 490 $ 487
Consumer................................... 179 203 195 147 140
----- ----- ----- ----- -----
Total balance, beginning of quarter....... 681 710 683 637 627
- ------------------------------------------------------------------------------------------------------------
Provision for credit losses
Commercial................................. 5 (14) 7 8 19
Consumer................................... 50 57 43 62 46
----- ----- ----- ----- -----
Total provision for credit losses......... 55 43 50 70 65
- ------------------------------------------------------------------------------------------------------------
Charge-offs
Commercial
Domestic
Commercial............................... 7 2 6 5 3
Real estate.............................. 4 12 2 10 21
Other.................................... 2 - 1 1 1
Foreign, including TCD.................... - - 3 8 -
Consumer
Credit card............................... 39 49 50 39 33
Other..................................... 4 2 2 3 1
----- ----- ----- ----- -----
Total charge-offs........................ 56 65 64 66 59
- ------------------------------------------------------------------------------------------------------------
Recoveries
Commercial
Domestic
Commercial............................... 3 3 3 3 2
Real estate.............................. - 1 2 1 -
Other.................................... - 1 5 3 2
Foreign, including TCD.................... 7 18 14 7 5
Consumer
Credit card............................... 7 7 7 13 13
Other..................................... 1 1 - - -
----- ----- ----- ----- -----
Total recoveries......................... 18 31 31 27 22
- ------------------------------------------------------------------------------------------------------------
Net charge-offs/(recoveries)
Commercial................................. 3 (9) (12) 10 16
Consumer................................... 35 43 45 29 21
----- ----- ----- ----- -----
Total net charge-offs/(recoveries).......... 38 34 33 39 37
- ------------------------------------------------------------------------------------------------------------
Other
Commercial................................ 16 - - - -
Consumer.................................. (31) (38) 10 15 (18)
----- ----- ----- ----- -----
Total.................................... (15) (38) 10 15 (18)
- ------------------------------------------------------------------------------------------------------------
Balance, end of quarter
Commercial................................. 520 502 507 488 490
Consumer................................... 163 179 203 195 147
----- ----- ----- ----- -----
Total balance, end of quarter............ $ 683 $ 681 $ 710 $ 683 $ 637
===== ===== ===== ===== =====
- ------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- --------------------------------------------------------------------------------------------------------------------------------
(Three Months Ended) September 30, 1994 June 30, 1994
- --------------------------------------------------------------------------------------------------------------------------------
(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)........................ $ 8,029 $ 97.8 4.83% $ 7,556 $ 82.5 4.38%
Federal funds sold and securities under resale agreements... 15,102 175.3 4.61 13,287 133.7 4.04
Trading account assets...................................... 5,044 76.6 6.03 4,342 56.9 5.26
Investment securities
U.S. government and federal agency....................... 801 9.5 4.71 518 5.6 4.34
States and political subdivisions........................ 189 4.3 9.03 141 3.2 9.10
Other.................................................... 1,577 6.5 1.64 1,680 8.6 2.05
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities.............................. 2,567 20.3 3.14 2,339 17.4 2.98
Loans (B)(C)
Domestic offices......................................... 21,776 459.2 8.65 21,166 428.9 8.41
Foreign offices.......................................... 1,708 21.4 4.97 1,774 44.3 10.02
- --------------------------------------------------------------------------------------------------------------------------------
Total loans................................................. 23,484 480.6 8.37 22,940 473.2 8.54
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets (D)................................. 54,226 850.6 6.22 50,464 763.7 6.07
Cash and due from banks--noninterest-bearing................ 4,073 4,222
Allowance for credit losses................................. (695) (711)
Other assets................................................ 8,446 6,515
- --------------------------------------------------------------------------------------------------------------------------------
Total assets................................................ $66,050 $60,490
======= =======
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings.................................................. $ 8,174 $ 49.8 2.42% $ 8,018 $ 44.9 2.25%
Time..................................................... 4,721 46.9 3.94 4,435 34.2 3.09
Foreign offices (E)...................................... 9,509 107.2 4.47 9,553 103.8 4.36
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits--interest-bearing...................... 22,404 203.9 3.61 22,006 182.9 3.33
Federal funds purchased and securities under repurchase
agreements............................................... 13,085 149.6 4.54 11,140 110.0 3.96
Other funds borrowed........................................ 8,962 112.8 4.99 8,146 90.8 4.47
Long-term debt.............................................. 2,271 43.5 7.60 2,267 41.3 7.31
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities....................... 46,722 509.8 4.33 43,559 425.0 3.91
Demand deposits............................................. 7,005 7,003
Other liabilities........................................... 7,897 5,504
Preferred stock............................................. 611 761
Common stockholders' equity................................. 3,815 3,663
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity............ $66,050 $60,490
======= =======
Interest income/earning assets.............................. $850.6 6.22% $763.7 6.07%
Interest expense/earning assets............................. 509.8 3.73 425.0 3.38
- --------------------------------------------------------------------------------------------------------------------------------
Net interest margin......................................... $340.8 2.49% $338.7 2.69%
====== ==== ====== =====
</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 September 30,
1994, was $6.4 million, compared with $5.9 million, $4.9 million, $6.2
million and $17.5 million for the three months ended June 30, 1994, March
31, 1994, December 31, 1993, and September 30, 1993.
(E) Includes International Banking Facilities deposit balances in domestic
offices and balances of Edge Act and overseas offices.
33
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
March 31, 1994 December 31, 1993 September 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>
$ 7,974 $ 75.0 3.81% $ 7,219 $ 70.0 3.85% $ 7,582 $ 73.3 3.84%
11,744 91.0 3.14 12,171 89.6 2.92 11,610 88.6 3.03
4,672 59.5 5.16 4,595 56.8 4.90 5,152 59.7 4.60
793 7.4 3.78 810 6.8 3.33 618 6.8 4.37
150 3.3 8.92 180 4.0 8.82 211 4.9 9.21
1,667 6.8 1.65 1,622 7.9 1.93 1,458 5.3 1.44
- --------------------------------------------------------------------------------------------------
2,610 17.5 2.72 2,612 18.7 2.84 2,287 17.0 2.95
20,639 414.3 8.43 20,426 392.3 7.89 19,735 394.2 8.16
1,849 26.2 5.75 1,954 26.5 5.38 2,037 53.4 10.40
- --------------------------------------------------------------------------------------------------
22,488 440.5 8.20 22,380 418.8 7.67 21,772 447.6 8.38
- --------------------------------------------------------------------------------------------------
49,488 683.5 5.60 48,977 653.9 5.30 48,403 686.2 5.62
4,257 4,128 3,885
(693) (654) (619)
8,423 5,257 5,263
- --------------------------------------------------------------------------------------------------
$61,475 $57,708 $56,932
======= ======= =======
- --------------------------------------------------------------------------------------------------
$ 8,100 $ 41.3 2.07% $ 7,952 $ 40.6 2.03% $ 8,296 $ 40.7 1.95%
4,748 29.6 2.53 5,004 37.4 2.97 4,988 32.3 2.57
9,343 83.0 3.60 8,714 78.7 3.58 9,113 82.8 3.60
- --------------------------------------------------------------------------------------------------
22,191 153.9 2.81 21,670 156.7 2.87 22,397 155.8 2.76
10,683 81.8 3.11 10,798 81.1 2.98 9,800 74.2 3.00
7,273 71.4 3.98 7,020 70.2 3.97 7,238 73.4 4.02
2,211 40.9 7.50 2,088 39.0 7.41 2,255 42.2 7.42
- --------------------------------------------------------------------------------------------------
42,358 348.0 3.33 41,576 347.0 3.31 41,690 345.6 3.29
7,175 7,405 6,946
7,561 4,515 4,292
761 761 827
3,620 3,451 3,177
- --------------------------------------------------------------------------------------------------
$61,475 $57,708 $56,932
======= ======= =======
$683.5 5.60% $653.9 5.30% $686.2 5.62%
348.0 2.85 347.0 2.81 345.6 2.83
- --------------------------------------------------------------------------------------------------
$335.5 2.75% $306.9 2.49% $340.6 2.79%
====== ==== ====== ==== ====== =====
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- -----------------------------------------------------------------------------------------------------------------------
(Nine Months Ended September 30) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C>
Due from banks--interest-bearing (A)....................... $ 7,853 $ 255.3 4.35% $ 7,515 $ 228.0 4.06%
Federal funds sold and securities under resale agreements.. 13,378 400.0 4.00 11,395 255.2 2.99
Trading account assets..................................... 4,686 193.0 5.51 4,774 166.9 4.67
Investment securities
U.S. government and federal agency....................... 704 22.5 4.27 696 22.9 4.40
States and political subdivisions........................ 160 10.8 9.02 228 15.7 9.21
Other.................................................... 1,641 21.9 1.78 1,509 25.9 2.29
- -----------------------------------------------------------------------------------------------------------------------
Total investment securities.............................. 2,505 55.2 2.95 2,433 64.5 3.54
Loans (B)(C)
Domestic offices......................................... 21,195 1,302.4 8.50 20,149 1,175.0 8.01
Foreign offices.......................................... 1,776 91.9 6.92 2,098 118.8 7.57
- -----------------------------------------------------------------------------------------------------------------------
Total loans................................................ 22,971 1,394.3 8.37 22,247 1,293.8 7.96
- -----------------------------------------------------------------------------------------------------------------------
Total earning assets (D)............................... 51,393 2,297.8 5.98% 48,364 2,008.4 5.55%
Cash and due from banks--noninterest-bearing............... 4,184 3,708
Allowance for credit losses................................ (699) (623)
Other assets............................................... 7,794 5,121
- -----------------------------------------------------------------------------------------------------------------------
Total assets............................................... $62,672 $56,570
======= =======
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings.................................................. $ 8,097 $ 136.0 2.25% $ 8,139 $ 122.2 2.01%
Time..................................................... 4,635 110.7 3.19 5,533 106.5 2.57
Foreign offices (E)...................................... 9,468 294.0 4.15 9,367 258.7 3.69
- -----------------------------------------------------------------------------------------------------------------------
Total deposits--interest-bearing...................... 22,200 540.7 3.26 23,039 487.4 2.83
Federal funds purchased and securities under repurchase
agreements............................................... 11,636 341.4 3.92 9,884 227.0 3.07
Other funds borrowed....................................... 8,127 275.0 4.52 7,050 225.6 4.28
Long-term debt............................................. 2,250 125.7 7.47 2,047 111.3 7.27
- -----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities....................... 44,213 1,282.8 3.88 42,020 1,051.3 3.35
Demand deposits............................................ 7,061 6,839
Other liabilities.......................................... 6,988 3,934
Preferred stock............................................ 711 805
Common stockholders' equity................................ 3,699 2,972
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity............. $62,672 $56,570
======= =======
Interest income/earning assets............................. $2,297.8 5.98% $2,008.4 5.55%
Interest expense/earning assets............................ 1,282.8 3.34 1,051.3 2.91
- -----------------------------------------------------------------------------------------------------------------------
Net interest margin........................................ $1,015.0 2.64% $ 957.1 2.64%
======== ==== ======== ====
</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 $17.2 million and $32.0 million
based on 35% federal income tax rate for the nine
months ended September 30, 1994 and 1993.
(E) Includes International Banking Facilities deposit balances in domestic
offices and balances of Edge Act and overseas
offices.
35
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
FIVE-QUARTER CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(Dollars in millions, except per share data) 1994 1994 1994 1993 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................................. $476.9 $470.3 $437.6 $415.3 $433.0
Interest on bank balances.............................................. 97.8 82.5 75.0 70.0 73.3
Interest on federal funds sold and securities under resale agreements.. 175.3 133.7 91.0 89.6 88.6
Interest on trading account assets..................................... 76.0 56.7 59.1 56.3 59.2
Interest on investment securities (including dividends)................ 18.2 14.6 15.9 16.5 14.6
------ ------ ------ ------ ------
Total........................................................ 844.2 757.8 678.6 647.7 668.7
- -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits................................................... 203.9 182.9 153.9 156.7 155.8
Interest on federal funds purchased and securities under repurchase
agreements............................................................ 149.6 110.0 81.8 81.1 74.2
Interest on other funds borrowed....................................... 112.8 90.8 71.4 70.2 73.4
Interest on long-term debt............................................. 43.5 41.3 40.9 39.0 42.2
------ ------ ------ ------ ------
Total........................................................ 509.8 425.0 348.0 347.0 345.6
- -------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME.................................................... 334.4 332.8 330.6 300.7 323.1
Provision for credit losses............................................ 55.0 43.0 50.0 70.0 65.0
------ ------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.................. 279.4 289.8 280.6 230.7 258.1
- -------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits (losses)...................................... 41.6 36.7 (24.7) 61.2 77.3
Equity securities gains................................................ 20.0 3.9 134.2 40.1 228.2
Investment securities gains (losses)................................... (2.2) 0.6 0.5 0.9 (0.8)
------ ------ ------ ------ ------
Market-driven revenue............................................. 59.4 41.2 110.0 102.2 304.7
Credit card fee revenue................................................ 221.1 193.9 182.3 196.6 186.7
Service charges and commissions........................................ 112.8 104.2 101.3 122.4 108.0
Fiduciary and investment management fees............................... 48.6 49.3 52.4 50.7 47.9
Other income........................................................... 13.2 40.2 55.9 51.1 38.1
------ ------ ------ ------ ------
Total........................................................ 455.1 428.8 501.9 523.0 685.4
- -------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits......................................... 225.1 212.9 207.4 226.5 217.7
Occupancy expense of premises, net..................................... 32.0 35.7 34.8 35.7 37.0
Equipment rentals, depreciation and maintenance........................ 35.1 32.3 53.3 30.3 26.5
Other expense.......................................................... 199.2 179.7 189.0 189.4 194.3
------ ------ ------ ------ ------
Total........................................................ 491.4 460.6 484.5 481.9 475.5
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES............................................. 243.1 258.0 298.0 271.8 468.0
Applicable income taxes.............................................. 89.3 89.3 104.2 99.0 183.9
------ ------ ------ ------ ------
NET INCOME............................................................. $153.8 $168.7 $193.8 $172.8 $284.1
====== ====== ====== ====== ======
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY................. $143.8 $150.4 $180.0 $159.0 $270.3
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Net Income - Primary................................................. $1.54 $1.71 $2.05 $1.81 $3.14
Net Income - Fully diluted........................................... $1.51 $1.67 $2.00 $1.77 $2.97
- -------------------------------------------------------------------------------------------------------------------------
Average number of common and common-equivalent shares (in millions).... 93.4 88.0 87.7 87.7 86.1
Average number of shares, assuming full dilution (in millions)......... 97.1 91.8 91.6 91.5 91.9
Average full-time-equivalent staff..................................... 17,727 17,366 17,281 17,118 17,316
</TABLE>
36
<PAGE>
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1994 1993
- --------------------------------------------------------------------------------------------------------
September June March December September
(Dollars in millions, except per share data) 30 30 31 31 30
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME DATA
Actual
Net interest income--tax-equivalent basis...... $ 340.8 $ 338.7 $ 335.5 $ 306.9 $ 340.6
Average earning assets......................... 54,226 50,464 49,488 48,977 48,403
Net interest margin............................ 2.49% 2.69% 2.75% 2.49% 2.79%
Adjusted (1)
Net interest income--tax-equivalent basis...... $ 485.5 $ 463.7 $ 455.2 $ 436.6 $ 465.1
Average earning assets......................... 50,046 47,382 47,004 47,810 46,325
Net interest margin............................ 3.85% 3.93% 3.93% 3.62% 3.98%
- --------------------------------------------------------------------------------------------------------
AT QUARTER-END
BALANCE SHEET DATA
Assets........................................... $65,747 $64,089 $59,843 $52,560 $53,173
Deposits......................................... 29,670 28,577 28,833 28,186 29,379
Loans............................................ 23,817 23,680 23,782 23,103 21,969
Long-term debt................................... 2,272 2,269 2,265 2,065 2,091
Common stockholders' equity...................... 3,930 3,763 3,647 3,503 3,378
Stockholders' equity............................. 4,541 4,524 4,408 4,264 4,139
- --------------------------------------------------------------------------------------------------------
CAPITAL DATA (2)
Common equity/assets............................. 6.6% 6.5% 6.6% 7.2% 7.0%
Regulatory leverage ratio (3).................... 7.8 8.0 7.8 8.0 8.0
Risk-based capital (3)
Tier 1 capital ratio........................... 9.2 8.9 9.1 8.8 8.7
Total capital ratio............................ 13.9 13.8 14.2 13.6 13.5
Tier 1 capital................................. $ 4,319 $ 4,148 $ 4,182 $ 4,098 $ 3,969
Total capital.................................. 6,561 6,424 6,509 6,292 6,179
- --------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
FOR THE QUARTER ENDED
Net income as a percentage of:
Average stockholders' equity................... 13.8% 15.3% 17.9% 16.3% 28.2%
Average common stockholders' equity............ 15.0 16.5 20.2 18.3 33.8
Average total assets........................... 0.92 1.12 1.28 1.19 1.98
Average earning assets......................... 1.13 1.34 1.59 1.40 2.33
Stockholders' equity as a percentage of:
Total assets................................... 6.9 7.1 7.4 8.1 7.8
Total loans.................................... 19.1 19.1 18.5 18.5 18.8
Total deposits................................. 15.3 15.8 15.3 15.1 14.1
Average stockholders' equity as a percentage of:
Average assets................................. 6.7 7.3 7.1 7.3 7.0
Average loans.................................. 18.8 19.3 19.5 18.8 18.4
Average deposits............................... 15.1 15.3 14.9 14.5 13.6
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
FOR THE QUARTER ENDED
Market price
High........................................... $52 1/4 $55 1/2 $52 3/8 $50 5/8 $49 1/4
Low............................................ 45 1/2 46 5/8 41 1/8 40 7/8 40 7/8
At quarter-end................................. 45 7/8 48 1/8 48 1/8 43 1/4 48 3/4
Price earnings ratio............................. 6.5 5.5 5.5 4.9 5.8
Book value....................................... $ 42.79 $ 43.40 $ 42.19 $ 40.55 $ 39.03
Market price/book value.......................... 107% 111% 114% 107% 125%
Dividends declared on common stock............... $ 0.50 $ 0.50 $ 0.40 $ 0.40 $ 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 30, 1994 excludes $150 million of Preferred Stock, Series D, that was
redeemed on July 1, 1994.
37
<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 September 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 October 31, 1994.
Class Number of Shares Outstanding
- ------------------------- ----------------------------
Common Stock $5 par value 92,425,000
38
<PAGE>
FORM 10-Q CROSS-REFERENCE INDEX
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
ITEM 1. Financial Statements
- ----------------------------
Page
------
<S> <C>
Consolidated Balance Sheet --
September 30, 1994 and 1993 and December 31, 1993 22
Consolidated Income Statement --
Three and Nine Months Ended September 30, 1994 and 1993 23
Consolidated Statement of Changes in Stockholders' Equity --
Nine Months Ended September 30, 1994 and 1993 24
Consolidated Statement of Cash Flows --
Nine Months Ended September 30, 1994 and 1993 25
Notes to Consolidated Financial Statements 26-29
Selected Statistical Information 1,
16-18,
30-37
ITEM 2. Management's Discussion and Analysis of Financial
- ---------------------------------------------------------
Condition and Results of Operations 1-21
- ------------------------------------
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 40
- -------------------------
ITEM 2. Changes in Securities 40
- -----------------------------
ITEM 3. Defaults Upon Senior Securities 40
- ---------------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 40
- -----------------------------------------------------------
ITEM 5. Other Information 40
- -------------------------
ITEM 6. Exhibits and Reports on Form 8-K 40
- ----------------------------------------
Signatures 41
</TABLE>
39
<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
- -----------------------------------------------------------
None
ITEM 5. Other Information
- -------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibit 12 Statements re computation of ratios.
Exhibit 27 Financial Data Schedules
(b) The Registrant filed the following Current Reports on Form 8-K during the
quarter ended September 30, 1994.
<TABLE>
<CAPTION>
Date Item Reported
------- -------------
<S> <C>
7/8/94 Registrant's announcement of the completion of the
acquisition of Lake Shore Bancorp, Inc.
7/13/94 The Registrant's earnings for the quarter ended June
30, 1994.
</TABLE>
40
<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 November xx, 1994 Richard L. Thomas
--------------------- ------------------------------
Richard L. Thomas
Chairman of the Board
Date November xx, 1994 William J. Roberts
--------------------- ------------------------------
William J. Roberts
Principal Accounting Officer
41
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Page
- -------------- ---------------------- ----
<S> <C> <C>
12 - Statement re computation of ratios. 43
27 - Financial Data Schedules 44
</TABLE>
42
<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 28 of the Form 10-
Q.
43
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 4,096
<INT-BEARING-DEPOSITS> 7,827
<FED-FUNDS-SOLD> 13,804
<TRADING-ASSETS> 5,327
<INVESTMENTS-HELD-FOR-SALE> 634<F1>
<INVESTMENTS-CARRYING> 508<F1>
<INVESTMENTS-MARKET> 509<F1>
<LOANS> 23,817
<ALLOWANCE> (683)
<TOTAL-ASSETS> 65,747
<DEPOSITS> 29,670
<SHORT-TERM> 21,362
<LIABILITIES-OTHER> 1,731
<LONG-TERM> 2,272
<COMMON> 465
0
611
<OTHER-SE> 3,465<F2>
<TOTAL-LIABILITIES-AND-EQUITY> 65,747
<INTEREST-LOAN> 1,385
<INTEREST-INVEST> 49
<INTEREST-OTHER> 655
<INTEREST-TOTAL> 2,281
<INTEREST-DEPOSIT> 541
<INTEREST-EXPENSE> 1,283
<INTEREST-INCOME-NET> 998
<LOAN-LOSSES> 148
<SECURITIES-GAINS> (1)<F3>
<EXPENSE-OTHER> 1,437<F4>
<INCOME-PRETAX> 799
<INCOME-PRE-EXTRAORDINARY> 516
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 516
<EPS-PRIMARY> 5.29
<EPS-DILUTED> 5.17
<YIELD-ACTUAL> 2.64
<LOANS-NON> 150
<LOANS-PAST> 71
<LOANS-TROUBLED> 4
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 683
<CHARGE-OFFS> 185
<RECOVERIES> 80
<ALLOWANCE-CLOSE> 683
<ALLOWANCE-DOMESTIC> 0<F5>
<ALLOWANCE-FOREIGN> 0<F5>
<ALLOWANCE-UNALLOCATED> 0<F5>
<FN>
<F1>In addition to the investment securities disclosed in this Financial Data
Schedule, the Corporation has investment securities in its venture capital
business. These securities had a carrying value of $1.4 billion as of September
30, 1994.
<F2>Treasury stock of $60 million is included as a reduction of other
stockholder's equity.
<F3>Investment securities gains/losses do not include the Corporation's equity
securities gains which totalled $158 million.
<F4>Other expenses includes: Salaries and Employee benefit expense of $645
million, Occupancy expense of $103 million, Equipment rentals, depreciation and
maintenance expense of $121 million and other expenses which totalled $568
million.
<F5>Allowance-Domestic, Allowance-Foreign and Allowance-Unallocated are only
disclosed on an annual basis in the Corporation's 10-K and are therefore not
included in this Financial Data Schedule.
</FN>
</TABLE>
