<PAGE>
EXHIBIT 13
FIRST CHICAGO CORPORATION
[LOGO OF FIRST CHICAGO CORPORATION]
Annual Report
1994
<PAGE>
The mission of First Chicago Corporation
is to be a world-class financial services company with a reputation
for customer excellence.
To fulfill this mission, we commit to:
Focus on our customers. We will anticipate and meet our
customers' needs by providing quality products, technology, and service.
Invest in our employees. We will respect and value our work force
and will offer competitive opportunities for professional growth and
financial reward.
Reward our shareholders. We will produce attractive returns on
equity and long-term earnings growth based on a strong financial
position and prudent risk management practices.
Support our communities. We will be responsible corporate
citizens and participate in enriching the quality of community life.
Take personal responsibility for the success of First Chicago.
We will each demonstrate the highest level of professionalism and
integrity in all that we do.
We commit to being FIRST in all we do.
[FCC LOGO]
<PAGE>
Table of Contents
-------------------------------------------------------
3 Financial Highlights
-------------------------------------------------------
4 Letter to Stockholders
-------------------------------------------------------
12 Business Highlights, Outlook and Strategy
-------------------------------------------------------
16 Board of Directors
-------------------------------------------------------
17 Financial Review
-------------------------------------------------------
70 Executive Officers
-------------------------------------------------------
71 U.S. Offices and International Facilities
-------------------------------------------------------
72 Corporate Information
-------------------------------------------------------
First Chicago Corporation 2 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
(Dollars in millions, except per share data) 1994 1993 Change
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year
Net interest income--tax-equivalent basis...... $1,355.2 $1,264.0 + 7%
Combined credit provisions..................... 225.7 274.2 -18
Noninterest income............................. 1,874.6 2,202.4 -15
Noninterest expense*........................... 1,916.9 1,853.9 + 3
Net income..................................... 689.7 804.5 -14
Return on assets............................... 1.08% 1.42%
Return on common stockholders' equity.......... 17.0% 24.2%
-------------------------------------------------------------------------------------
At Year-End
Assets......................................... $65,900 $52,560 +25%
Loans.......................................... 25,947 23,103 +12
Deposits....................................... 31,666 28,186 +12
Common stockholders' equity.................... 3,922 3,503 +12
Risk-based capital ratio....................... 13.4% 13.6%
-------------------------------------------------------------------------------------
Average Balances
Assets......................................... $64,138 $56,854 +13%
Loans.......................................... 23,293 21,997 + 6
Deposits....................................... 29,430 29,677 -1
-------------------------------------------------------------------------------------
Common Share Data
Earnings per share
Net income--primary.......................... $ 7.04 $ 8.78 -20%
Net income--fully diluted.................... 6.88 8.43 -18
Dividends declared............................. 1.95 1.30 +50
Book value, year-end........................... 43.65 40.55 + 8
Market price, year-end......................... 47.75 43.25 +10
-------------------------------------------------------------------------------------
Nonfinancial Data (Year-End)
Number of employees (full-time-equivalent)..... 17,630 17,355
Number of common stockholders of record........ 14,773 15,034
-------------------------------------------------------------------------------------
</TABLE>
*Excludes provisions for other real estate.
First Chicago Corporation 3 Annual Report 1994
<PAGE>
To The Owners of First Chicago
Operating in the extremely competitive financial
services environment, it is our responsibility to man-
age the Corporation to produce attractive near-
term results at the same time that we provide for
the Corporation's long-term stability and growth.
First Chicago's senior management feels strongly
that communicating clearly our strategic direction,
our core values and our commitment to our various
constituencies is critically important to the
Corporation's success. For this reason, we have
developed a new corporate mission statement:
to be a world-class financial services company with
a reputation for customer excellence.
The key elements in this mission are a commit-
ment to focus on customers, to invest in employees,
to reward stockholders, to support our communi-
ties, and for each employee to take personal
responsibility for the success of First Chicago.
The basic elements of our strategy to fulfill
this mission are:
. a commitment to be a national player in both
consumer and corporate banking, and to enhance
our capability to serve corporations and institutions
on a global basis;
. a recognition that our success will depend on
tailoring and delivering value-added products to
customers;
. continued and increased investment in
technology; and
. prudent risk management and shareholder-
oriented management of our capital.
In conjunction with our mission statement, we
established a new goal for First Chicago: to become
one of the top ten U.S. bank holding companies
in market capitalization. This is an ambitious
goal, but we believe that it is attainable over time.
It symbolizes our desire to be a world-class
institution headquartered in a world-class city.
Our mission reinforces our focus on serving cus-
tomers with excellence, and it creates an energizing
environment for employees to work together toward
that purpose.
COMMITMENT TO CUSTOMERS
First Chicago's success is deeply rooted in its com-
mitment to customer relationships. This customer
focus across all our business lines -- credit card,
community banking, corporate and institutional
banking, and middle market banking -- has enabled
us to build leading market positions.
In 1994 we put even greater emphasis on
serving customers with quality and innovation. For
example, through our Corporate and Institutional
Banking "Customer First" program, we are imple-
menting new processes to deliver complex solutions
to customer needs, anchored in what our customers
tell us they value. This approach should broaden
and deepen our relationships, streamline our work
and improve our competitiveness.
Our commitment to customers is reinforced by
senior management throughout the Corporation,
particularly in programs recognizing employee
innovation and quality customer service.
We celebrate outstanding performance through
an extensive process that promotes the First
Chicago mission and recognizes "value-added"
activity, courteous action and responsive service
to external and internal customers. In this way we
continue to strengthen all parts of our franchise.
This valuable franchise provides First Chicago a
solid foundation for continued attractive financial
performance.
Information about 1994 business activities as well
as an overview of our strategy and outlook for each
business are presented in the section that follows
this letter.
First Chicago Corporation 4 Annual Report 1994
<PAGE>
RISK MANAGEMENT
Risk management has always been
an important part of First Chicago's
culture. However, the business of
banking has evolved over the past
several years in such a way that
understanding, assuming and man-
aging risk have become even more
complex and important.
[PHOTO APPEARS HERE]
We provide our diverse customer
base a broad range of products and
services to manage their risks, and
we devote substantial resources to [PHOTO CAPTION FOLLOWS]
the management of risk for our
own account. (Left to Right)
Leo F. Mullin
We believe that First Chicago's Richard L. Thomas
risk profile is excellent: David J. Vitale
. Credit quality is superior, with a low level of
non-performing assets and very strong reserves.
. Exposure to market risk is appropriate to
our size.
. Our vulnerability to changing interest rates
is minimal.
. Operating and liquidity risk are both modest.
The strength of our risk profile is the result
of a disciplined management approach and good
execution of policies over the past several years.
Our policy of minimizing structural interest rate
risk proved to be especially important in the
volatile climate of 1994 as we were able to protect
both asset values and net interest margins.
Our venture capital portfolio is another
example of our approach to risk management.
We made the strategic decision in 1992 to reduce
this portfolio over time because of its inherent
volatility and regulatory changes.
In 1994 our $1.6 billion portfolio generated
earnings of $95 million, representing a return
on equity of 26%, and we hedged a large portion
of our holdings to reduce future earnings volatility.
We anticipate that the venture capital portfolio will
continue to produce meaningful revenue over the
next several years.
CAPITAL MANAGEMENT
In conjunction with prudent risk management
policies, we are committed to managing capital
for the maximum benefit of our stockholders.
The Corporation's capital position is very
strong. Our regulatory capital ratios at year-end
continued to exceed "well-capitalized" guidelines
by a wide margin.
Our priority is to ensure that we have ample
capital to both support existing businesses and
invest in attractive new core business opportuni-
ties. When appropriate, we will also return excess
capital to stockholders. Since late 1993 we have
First Chicago Corporation 5 Annual Report 1994
<PAGE>
taken aggressive actions in this regard. During this
time we increased the annual dividend 83%, and we
repurchased 4.8 million shares of common stock.
INVESTING IN EMPLOYEES
In a rapidly changing industry like financial
services, our success depends on our talented and
motivated employees continuing to work together
in a spirit of teamwork. But this is not enough. To
accomplish First Chicago's mission, it is crucial that
we invest in our employees as both the work force
and the workplace change over time.
We must foster a healthy work environment, and
we must also provide our employees the products
and technology necessary to achieve competitive
advantage in the marketplace.
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
Based on the belief that quality health care is cost effective,
First Chicago's wellness programs promote employee health while
helping to constrain medical costs. Working in partnership
with the Benefits Unit, Medical Director Dr. Wayne Burton
develops and administers a variety of employee wellness
initiatives including prenatal care programs.
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
Investing in employees' development is an important part
of First Chicago's mission. Titus Fair, staff member of the
First Development Center, participates in a computer
training session.
We have an excellent record in addressing
issues of concern to our employees. We place
particular emphasis on providing a cost-effective,
quality health care program, and we have received
national recognition, including the C. Everett Koop
Award, for our activities related to employee wellness,
mammography, prenatal care and mental health.
In late 1993 the senior management of First
Chicago launched a new initiative to help us more
effectively promote and manage diversity through-
out the Corporation. We call this the LEAD initia-
tive, which stands for Leadership, Equality,
Affirmative Action and Diversity.
During 1994 we made significant progress with
LEAD. We strengthened our mentoring programs
to increase employee development and retention;
we expanded diversity awareness and appreciation
programs; and we initiated an awards program to
recognize employees who champion the LEAD
commitment.
First Chicago Corporation 6 Annual Report 1994
<PAGE>
Through our educational programs, we
continue to invest in our employees' ongoing
development, especially in the areas of leadership,
change management and technology-based skills.
In addition, we provide basic skills education for
entry-level employees.
Finally, we were very proud to have been select-
ed in 1994 by Working Mother magazine as one of
the 100 Best Companies in the United States. Our
award was based on our Work
and Family Resource Center,
which last year helped more
than 2,000 employees obtain
information about child care
or care for aging parents;
our continuing innovation
in helping employees design
flexible work arrangements;
our Women's Health Care
Program; and the First
Card Child Care Center.
These are just a few examples
of the ways that First Chicago is
investing in employees. And, we
are very encouraged by the fact
that employees, in turn, are
investing in First Chicago.
In aggregate, our employees
own more than 4 million shares
of the Corporation's common
stock, or nearly 5% of shares
outstanding. And, enrollment
in the 1994 offering of the
Employee Stock Purchase and
Savings Plan was at an all-time high -- nearly 43%
of our employees are participating in the program.
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
Through stock ownership, employees can experience the rewards
of taking personal responsibility for the success of First Chicago.
Executive Compensation Specialist Cristina Escueta adminis-
ters the Employee Stock Purchase and Savings Plan through
which employees can conveniently save for stock purchase
through payroll deduction.
First Chicago Corporation 7 Annual Report 1994
<PAGE>
SUPPORT FOR OUR COMMUNITIES
Although First Chicago has operations throughout
the world, we are especially fortunate to be head-
quartered in Chicago, a world-class city by any
definition. We have a sense of responsibility to
all the communities in which we do business, but
we feel a particular obligation to help make our
headquarters city and its suburban communities
an even better place in which to live and work.
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
Little Village Branch President Francisco Menchaca (right)
visits customers Mario and Guadalupe Salazar in their balloon
and party goods store, Roy's Funland. Mr. and Mrs. Salazar
were assisted in their business start-up by ACCION-Chicago,
a non-profit organization that helps Little Village entrepreneurs
obtain micro business loans. First Chicago played a key role in
establishing the ACCION program in Chicago.
First Chicago employees are active in many
facets of community life. They serve as directors
and trustees of more than 300 institutions and
organizations in Chicago, ranging from premier
health and cultural entities to small neighborhood
development associations.
Our employees also give generously to the
United Way/Crusade of Mercy. Indeed, in 1994
the combined pledges of the Corporation and the
employees to United Ways in
our various locations across the
country totaled $5.1 million.
In the Chicago area, our com-
bined pledge of $4.9 million
was the largest of the entire
metropolitan campaign.
We feel strongly that our
success is closely related to the
health and prosperity of our
community. In our lending and
investment activities we seek
to implement policies that will
benefit neighborhoods, assure
equal access to credit and
promote economic develop-
ment. We believe we are mak-
ing a difference, and we shall
strive to continue to do so.
REGIONAL ECONOMY
In the context of a national
economy that continues to
perform very well, we are
especially fortunate to be headquartered in
Chicago, one of the most vibrant metropolitan
areas in the country. Furthermore, economic
conditions in the entire Midwest region, driven
by strength in the capital goods and automotive
First Chicago Corporation 8 Annual Report 1994
<PAGE>
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
First Chicago provides community support through financial
contributions and employees' personal involvement in non-
profit organizations. As chairman of First Chicago's 1994
United Way campaign, John Ballantine tours the United Way-
funded Children's Home & Aid Society of Illinois' Rice Center
in Evanston where Occupancy Planner Penny Varnava
volunteers on weekends.
First Chicago Corporation 9 Annual Report 1994
<PAGE>
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
First Card's Visa(R) Gold Card is accepted by over 12 million
establishments around the world, including First Chicago
banking customer Keith Alm's Green Bay Maritime Galleries
in Winnetka. First Card is the world's largest issuer of
Gold Cards.
sectors, have been
exceptionally buoy-
ant during the past
year. The region
experienced record
highs in heavy manu-
facturing sector
profits, which in turn
generated service
sector gains.
With burgeoning
exports and low
unemployment,
the outlook for the
Midwest continues
to be positive, which
is very favorable for
First Chicago and
our customers.
1994 FINANCIAL RESULTS
First Chicago produced excellent results in 1994
with net income of $690 million, or $6.88 per fully
diluted share. Furthermore, with a 1994 return on
equity of 17%, we have established a pattern of
consistent performance. Our return on equity has
met or exceeded 15% for nine consecutive quar-
ters. These results reflect the superior mix of our
customer franchises as well as the diversity of our
earnings: an outstanding contribution from our
credit card, record performance in our middle
market business, improvement in community
banking and excellent venture capital results.
In large corporate banking, our business units
that serve customers in various market segments
performed well, and we continued to build our
position as a leading provider of finance, risk
management, cash management and other
First Chicago Corporation 10 Annual Report 1994
<PAGE>
operating services. However, trading results were
significantly lower due largely to very difficult
market conditions.
While achieving our earnings objectives for
1994, we further improved credit quality, strength-
ened the balance sheet, and protected our net
interest margin through disciplined management
of interest rate risk. In sum, we believe that First
Chicago is strongly positioned for 1995 and the
future.
We are very pleased that during 1994 First
Chicago stockholders saw tangible appreciation in
the value of their holdings. From year-end 1993 to
year-end 1994, the price of First Chicago common
stock increased by more than 10%, considerably
more than most bank stocks or the broader market
indices. Further, dividend increases announced
in November 1993, May 1994 and November 1994
brought the annual dividend rate from $1.20 to
$2.20 per share.
INDUSTRY OUTLOOK
As we enter 1995, the commercial banking
industry is extremely healthy. Its capital base is
stronger than at any time in recent history, credit
quality is generally very good, and the economic
environment is excellent.
Further, we are heartened by the favorable
Congressional actions of 1994: interstate banking,
regulatory relief and bankruptcy reform. In our
opinion, these legislative developments represent
a more constructive attitude in Washington
toward commercial banking.
Over the longer term, however, our industry
faces significant challenges. To compete against
financial service providers that are not subject to
bank regulations, the banking industry will need
greater authority to offer new products and to
operate with greater freedom and flexibility. We
are cautiously optimistic that we can build upon the
successes achieved in 1994, and we are committed
to working diligently to that end.
CONCLUSION
In committing to be FIRST in all we do, we are
confident that First Chicago will fulfill its mission
to be a world-class financial services company
with a reputation for customer excellence.
Our franchise is based in one of the finest
markets in the country, and our variety of
businesses provides a diversity of earnings that
serves to insulate us from unfavorable cycles in
any one market segment.
With continued focus on our customers, pru-
dent risk management and shareholder-oriented
capital management, and investments in both our
employees and our community, we are confident
that First Chicago can perform at the high level
necessary to generate superior returns for stock-
holders over time.
We are optimistic about First Chicago's future.
We are committed to fulfilling our mission. And,
we appreciate your ongoing support in our
endeavors toward that goal.
/s/ R. L. Thomas
Richard L. Thomas
Chairman
/s/ Leo F. Mullin
Leo F. Mullin
President
/s/ David J. Vitale
David J. Vitale
Vice Chairman
First Chicago Corporation 11 Annual Report 1994
<PAGE>
Business Highlights, Outlook and Strategy
CONSUMER BANKING
First Chicago has an exceptional consumer
franchise. We are a premier bankcard issuer in the
U.S. and the leader in the Chicago retail market.
Consumer banking, driven by our credit card
business, was our largest contributor to profits
in 1994 and, despite an increasingly competitive
marketplace, generated record earnings.
Credit Card
We are proud to have one of the foremost
bankcard operations in the United States. With
over 12 million customers nationwide, First Card
ranks among the industry leaders in receivables
and transaction volume and is the world's No.1
issuer of Gold Cards. First Card's extremely success-
ful Mileage Plus(R) program with United Airlines
also differentiates us from other issuers.
In 1994 First Card achieved record earnings
of $309 million, generating an exceptional return
on equity of 58%. For the third consecutive year,
more than 2 million new accounts were opened.
Average managed receivables grew about 20%,
and outstandings at year-end were $12 billion.
First Chicago has thrived in an extremely
competitive environment, which has presented
extensive challenges to all major bankcard issuers.
The reasons for our success are straightforward.
We offer valued-added competitive products; we
utilize sophisticated information-based marketing
techniques and credit management tools; our
operations are extremely efficient; and we benefit
from an experienced and loyal work force. These
strengths will continue to give us a competitive
edge.
We are committed to growing our bankcard
franchise. We will continue aggressive solicitation
and retention programs, and we may also consider
portfolio acquisitions to enhance growth.
We believe that the credit card industry will
enjoy sustained volume growth (12-15% annually)
as consumers increasingly favor the convenience of
bankcards over other forms of payment or credit.
We also anticipate that our credit card business
will equal or exceed that rate of growth for the
foreseeable future.
Although competitive price pressures are likely
to constrain earnings growth, we are confident
that our card operations will continue to generate
excellent returns.
Community Banking
With a 24% market share, First Chicago has the
strongest retail banking franchise in Chicagoland,
serving consumers and small businesses with
more than 80 branches. Including Chicago area
credit card customers, nearly 50% of the area's
2.7 million households have a relationship with
First Chicago.
To improve the profitability of this franchise,
we have implemented a three-year plan focusing
on strategy, cost and culture. Our strategy is based
on customer segmentation with approaches tailored
to customers' individual needs and preferences
for financial products and services.
Reducing cost while improving quality and
responsiveness is key to improving our retail
profitability. We have simplified sales and service
processes to increase the effectiveness of our
branches and backroom operations. And, as
recent acquisitions are integrated into Community
Banking, a common culture and operating philoso-
phy are being reinforced throughout the network.
In 1994 Community Banking generated earn-
ings of $22 million with a return on equity of 5%,
which reflect the repositioning it is undergoing.
First Chicago Corporation 12 Annual Report 1994
<PAGE>
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
Personal Banker Alice Farmer pays a call on her client
Stuart Brent at his vintage store, Stuart Brent Books, located
for 48 years on North Michigan Avenue. Having banked
with Lake Shore National Bank for 50 years, Brent is now
a valued First Chicago customer.
We believe substantial progress will be demonstrated
in 1995 toward our goals of improving net income
by $100 million and achieving a return on equity
of 15% or greater by 1997.
During 1994 the consumer business of Lake
Shore Bancorp., Inc. was successfully integrated into
Community Banking. To provide retail customers
even greater convenience and speed of service,
First Chicago will invest in emerging technology
to expand Direct Banking services in Chicago
and nationally.
In January 1995 First Chicago Investment
Management Company was launched to better
First Chicago Corporation 13 Annual Report 1994
<PAGE>
serve the mutual fund and 401(k) plan needs of
retail and business clients. We may also consider
acquisitions to bolster our product capabilities in
the investment management area.
CORPORATE BANKING
First Chicago serves the operational, financial and
advisory needs of large corporate and institutional
customers on a global basis and mid-sized compa-
nies in Chicago and throughout the Midwest. With
an excellent reputation in both our large corporate
and middle market segments, our customer rela-
tionships have never been stronger.
Corporate and Institutional Banking
In Corporate and Institutional Banking, First
Chicago ranks No.1 with Midwest companies and
among the top banks nationally. In capital markets,
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
Staying on top of fast-paced foreign exchange transactions are
(clockwise from bottom) traders Elizabeth Schulz, Joseph Busch
and Rajeev Bahri. First Chicago is well recognized as a key
player in foreign exchange, which is a critical core component
of our capital markets capabilities.
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
First Chicago's Procurement Card offers corporations like
Amoco the opportunity to reduce payment processing expense
on small-dollar purchases while maintaining appropriate
purchasing controls. Amoco employees Mark Byrnside, who
helped implement the program at Amoco, and Toni Blackmon
like the convenience the Procurement Card provides.
we are a key player in foreign exchange and in
interest rate and currency derivatives.
In operating products technology, we are a
recognized leader and rank among the top three
banks in cash management. In 1994 we won an
important new contract with the Internal Revenue
Service to process electronic tax payments, and we
made excellent progress in selling our innovative
Procurement Card to corporate customers.
Corporate and Institutional Banking had earn-
ings of $134 million and return on equity of 7%
in 1994. As discussed earlier, its performance was
affected by difficult financial market conditions.
The fundamental purpose of Corporate and
Institutional Banking is to meet our customers'
needs by providing a broad range of integrated
financial solutions in a manner that creates
shareholder value.
To accomplish this mission, we have broadened
our product range and dramatically improved our
risk profile over the past several years. Combined
with the reduction of our real estate portfolio and
a de-emphasis on customers who used only the
First Chicago Corporation 14 Annual Report 1994
<PAGE>
loan product, the broader range of product offer-
ings has significantly decreased the importance
of lending. In 1994 average loans outstanding
equaled $9.5 billion, a reduction of nearly 50%
from 1990, and loan product revenue was about
20% of Corporate and Institutional Banking's
total revenue.
Meeting the changing needs of large corporate
customers requires that we continually tailor our
approach to serving them. In this regard, we will
be making significant investments in technology
in 1995 and beyond.
During 1994 we renewed our commitment
to enhance our international capabilities
in light of our multinational customers'
increasing needs for global banking
services. We may also pursue acquisitions,
alliances and joint ventures to support
further growth and extend our capabilities
in both operating products and the
international arena.
With sound execution of our strategy,
aided by more favorable financial markets,
we believe that Corporate and Institutional
Banking offers good upside potential and
has the capacity to generate a double-digit
return on equity in 1995 and meet our
15% return on equity goal over time.
Middle Market Banking
Primarily through our subsidiary American
National Corporation, we serve the vibrant
middle market in greater Chicagoland, home
to almost 10,000 middle market companies with
annual sales of $5-$150 million. With an exemplary
reputation for customer service, American National
is the leader in the middle market with a 22%
market share. A key accomplishment in 1994 was
the integration of the commercial business of
Lake Shore Bancorp., Inc., which further
solidified American National's No.1 position
in the Chicagoland middle market.
In 1994 American National generated record
earnings, contributing net income of $74 million
and a 19% return on equity. This excellent
performance reflects strong loan growth and
the healthy Midwest economy. With this firm base,
we anticipate that American National should have
steady earnings growth and the capacity to earn
consistent returns on equity in the range of 16-18%.
[PHOTO APPEARS HERE]
[PHOTO CAPTION FOLLOWS]
Allan Maca (left), Chief Executive Officer of Sommer and Maca
Industries, meets with American National Commercial Banker
David Mook. A Cicero-based manufacturer of equipment for
the glass industry, Sommer and Maca has been an American
National customer for almost ten years. With exports growing
as trade barriers fall around the world, Sommer and Maca
benefits from American National's international banking
and trade services.
First Chicago Corporation 15 Annual Report 1994
<PAGE>
Board of Directors
Richard L. Thomas
Chairman of the Board and
Chief Executive Officer
First Chicago Corporation
Leo F. Mullin
President and
Chief Operating Officer
First Chicago Corporation
David J. Vitale
Vice Chairman of the Board
First Chicago Corporation
John H. Bryan*
Chairman of the Board and
Chief Executive Officer
Sara Lee Corporation
Global manufacturer and marketer
of brand name products
Dean L. Buntrock
Chairman of the Board and
Chief Executive Officer
WMX Technologies, Inc.
Comprehensive environmental and
engineering services company
James S. Crown
General Partner
Henry Crown and Company
(Not Incorporated)
Diversified investments
Donald V. Fites*
Chairman of the Board and
Chief Executive Officer
Caterpillar Inc.
Manufacturer of a wide range of
construction, earthmoving and
material handling equipment
and engines
Donald P. Jacobs
Dean of the J.L. Kellogg
Graduate School of Management
Northwestern University
Education and research
Andrew J. McKenna*
Chairman of the Board, President
and Chief Executive Officer
Schwarz Paper Company
Printer, converter and distributor
of packaging materials
Richard M. Morrow*
Retired Chairman
Amoco Corporation
Diversified international petroleum
company
Earl L. Neal
Principal
Earl L. Neal & Associates
Law firm
James J. O'Connor
Chairman and
Chief Executive Officer
Unicom Corporation
Production, distribution and sale
of electric energy
Jerry K. Pearlman
Chairman and
Chief Executive Officer
Zenith Electronics Corporation
Manufacturer and distributor of a
diversified line of electronics products
Jack F. Reichert
Chairman of the Board and
Chief Executive Officer
Brunswick Corporation
A multinational company with
leadership positions in marine power,
pleasure boating and recreation
Patrick G. Ryan
President and
Chief Executive Officer
Aon Corporation
A broad-based insurance holding
company
Adele Simmons
President
The John D. and Catherine T.
MacArthur Foundation
Philanthropic foundation
Roger W. Stone
Chairman of the Board, President
and Chief Executive Officer
Stone Container Corporation
Manufacturer of paper, paper-
related products and packaging
systems equipment
*Member of the Audit Committee
First Chicago Corporation 16 Annual Report 1994
<PAGE>
Index to Financial Review
- --------------------------------------------------------------------------
Five-Year Summary of Selected Financial Information 18
- --------------------------------------------------------------------------
Business Segments 19
- --------------------------------------------------------------------------
Earnings Analysis 21
- --------------------------------------------------------------------------
Risk Management 25
- --------------------------------------------------------------------------
Liquidity Risk Management 25
- --------------------------------------------------------------------------
Market Risk Management 26
- --------------------------------------------------------------------------
Credit Risk Management 31
- --------------------------------------------------------------------------
Derivative Financial Instruments 35
- --------------------------------------------------------------------------
Capital Management 37
- --------------------------------------------------------------------------
Consolidated Financial Statements 40
- --------------------------------------------------------------------------
Notes to Consolidated Financial Statements 44
- --------------------------------------------------------------------------
Report of Management on Responsibility for Financial Reporting 64
- --------------------------------------------------------------------------
Report of Independent Public Accountants 65
- --------------------------------------------------------------------------
Selected Statistical Information 66
- --------------------------------------------------------------------------
First Chicago Corporation 17 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
Five-Year Summary of Selected Financial Information
First Chicago Corporation and Subsidiaries
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Financial Data for the Year
Net interest income............................ $1,331.0 $1,225.8 $1,183.0 $1,080.0 $1,197.6
Tax-equivalent adjustment...................... 24.2 38.2 34.0 37.9 44.2
--------- -------- -------- -------- --------
Net interest income--tax-equivalent basis...... 1,355.2 1,264.0 1,217.0 1,117.9 1,241.8
Combined credit provisions
Assets held for accelerated disposition...... -- -- 625.0 -- --
Other........................................ 225.7 274.2 481.9 544.3 518.8
Noninterest income............................. 1,874.6 2,202.4 1,488.2 1,225.2 1,199.3
Noninterest expense (1)........................ 1,916.9 1,853.9 1,764.4 1,597.0 1,565.9
Income (loss) before cumulative effect of
changes in accounting principles............. 689.7 804.5 (114.5) 116.3 249.3
Cumulative effect of changes in accounting
principles................................... -- -- 208.0 -- --
Net income..................................... 689.7 804.5 93.5 116.3 249.3
- -------------------------------------------------------------------------------------------------------------------------------
Earnings per share
Primary
Income (loss) before cumulative effect
of changes in accounting principles........ $7.04 $8.78 $(2.08) $1.15 $3.35
Net income................................... 7.04 8.78 0.64 1.15 3.35
Fully diluted
Income (loss) before cumulative effect
of changes in accounting principles........ 6.88 8.43 (2.08) 1.15 3.32
Net income................................... 6.88 8.43 0.64 1.15 3.32
Dividends declared per common share............ 1.95 1.30 1.20 2.00 2.00
- -------------------------------------------------------------------------------------------------------------------------------
At Year-End
Assets......................................... $65,900 $52,560 $49,281 $48,963 $50,779
Loans.......................................... 25,947 23,103 22,692 25,661 27,706
Deposits....................................... 31,666 28,186 29,740 32,091 32,543
Long-term debt................................. 2,271 2,065 1,705 1,725 1,428
Common stockholders' equity.................... 3,922 3,503 2,732 2,401 2,393
Stockholders' equity........................... 4,533 4,264 3,401 2,970 2,812
- -------------------------------------------------------------------------------------------------------------------------------
Average Balances
Assets......................................... $64,138 $56,854 $54,768 $52,655 $53,097
Earning assets................................. 52,627 48,517 46,706 44,512 45,502
Loans.......................................... 23,293 21,997 24,347 27,281 30,609
Deposits....................................... 29,430 29,677 31,694 32,819 34,213
Common stockholders' equity.................... 3,757 3,092 2,733 2,431 2,343
Stockholders' equity........................... 4,443 3,886 3,314 2,938 2,762
- -------------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Return on stockholders' equity................. 15.5% 20.7% 2.8% 4.0% 9.0%
Return on common stockholders' equity.......... 17.0 24.2 1.8 3.2 9.4
Return on assets............................... 1.08 1.42 0.17 0.22 0.47
- -------------------------------------------------------------------------------------------------------------------------------
Capital Ratios (2)
Common-equity-to-assets........................ 6.6% 7.2% 5.9% 5.1% 4.8%
Regulatory leverage ratio...................... 7.5 8.0 6.6 5.8 5.0
Risk-based capital
Tier 1 ratio................................. 8.8 8.8 6.7 5.5 4.9
Total capital ratio.......................... 13.4 13.6 10.8 9.4 8.3
Tier 1 capital............................... $4,325 $4,098 $3,223 $2,804 $2,642
Total capital................................ 6,566 6,292 5,221 4,762 4,441
- -------------------------------------------------------------------------------------------------------------------------------
Common Share and Stockholder Data
Market price, end of year...................... $47-3/4 $43-1/4 $36-3/4 $24-5/8 $16-1/2
Book value, end of year........................ 43.65 40.55 33.19 34.90 36.27
Common dividends............................... 172.7 109.6 89.3 135.5 131.8
Preferred dividends (3)........................ 52.2 57.0 44.6 38.2 29.8
Dividend payout ratio.......................... 27.7% 14.8% 187.5% 174.0% 59.7%
Number of common stockholders of record........ 14,773 15,034 15,995 13,089 12,445
Average common and common-equivalent shares.... 90,529,136 85,173,941 76,496,506 67,666,850 65,525,045
</TABLE>
- ------------------------------------------------------------------------------
(1) Excludes provisions for other real estate.
(2) Net of investment in First Chicago Capital Markets, Inc.
(3) 1994 includes a $4.5 million premium related to the redemption of Preferred
Stock, Series D.
First Chicago Corporation 18 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
BUSINESS SEGMENTS
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer Corporate Other First Chicago
Banking Banking Activities (1) Corporation
(Dollars in millions, ---------------- ---------------- ---------------- ----------------
except where noted) 1994 1993 1994 1993 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income....................... $ 331 $ 258 $ 208 $ 291 $151 $255 $ 690 $ 804
Return on equity................. 36% 35% 9% 15% N/M N/M 17% 24%
Average assets (presecuritized)
(in billions).................. $16.0 $14.4 $52.3 $45.5 $1.4 $1.8 $69.7 $61.7
Average common equity
(in billions).................. 0.9 0.7 2.1 1.7 0.8 0.7 3.8 3.1
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes results from the accelerated asset disposition portfolio, the
venture capital group and other special corporate items. See Note 4, on page
47, for further details.
N/M--Not meaningful.
Financial results are aligned by customer segment--
Consumer and Corporate--and by major businesses within
these categories. The results are derived from the internal
profitability reporting system and reflect full allocation
of all institutional and overhead items. This system uses
a detailed funds transfer methodology and a common
equity allocation based on risk elements. Consumer Bank-
ing results are presented before the securitization of credit
card receivables (``presecuritized'') to facilitate analysis
of trends. See the discussions of net interest income on
page 22 and a reconciliation of reported to presecuritized
results on page 66.
- ----------------------------------------------------
PIE CHART:
1994 Earnings Mix
($ In millions) %
Credit Card $309 44.8%
Community Banking 22 3.2
Corporate & Institutional 134 19.4
Middle Market 74 10.7
Venture Capital 95 13.8
Other 56 8.1
Total $690 100.0
- ----------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER BANKING*
- -----------------------------------------------------------------------------------------------------------------------------------
Credit Card Community Banking
(Dollars in millions, --------------------------------- --------------------------------
except where noted) 1994 1993 1992 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income--tax-equivalent basis... $ 905 $783 $593 $363 $322 $314
Combined credit provisions.................. 454 405 349 31 26 25
Noninterest income.......................... 519 432 343 188 198 184
Noninterest expense (1)..................... 477 396 330 486 473 425
Net income.................................. $ 309 $248 $153 $ 22 $ 10 $ 29
Return on equity............................ 58% 60% 47% 5% 2% 10%
Efficiency ratio (2)........................ 33% 33% 35% 88% 91% 85%
Average assets (in billions)................ $10.5 $9.0 $7.4 $5.5 $5.4 $5.0
Average loans (in billions)................. 10.4 8.5 7.1 4.6 4.1 3.7
Average common equity (in billions)......... 0.5 0.4 0.3 0.4 0.3 0.2
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Contribution from $0.8 billion in Chicago credit card relationships is
split equally between Credit Card and Community Banking.
(1) Excludes provisions for other real estate.
(2) Noninterest expense as a percentage of total revenue.
CONSUMER BANKING
First Chicago serves local consumers and small businesses
through more than 80 retail banking branches. Nationally,
it reaches consumers through First Card, which is one of
the largest issuers of bank credit cards in the U.S. In total,
Consumer Banking earned $331 million, nearly half of the
Corporation's net income, in 1994. Return on equity, driven
by the credit card business, was 36%.
Credit Card
The Corporation continued to invest aggressively in its
credit card business, and by almost any measure First Card
had its most successful year in 1994. Despite increasing
competitive pressures, net income rose 25% to $309 mil-
lion, and return on equity was an outstanding 58%.
First Chicago Corporation 19 Annual Report 1994
<PAGE>
- -------------------------------------------------------------
Average credit card loans, including securitized receiv-
ables, increased 21%. (For business segment reporting, half
of the Chicagoland credit card accounts and profits are
included in Community Banking results.) Consequently,
net interest income for the year was up 16% and noninter-
est income grew 20%.
Community Banking
In 1994, Community Banking earned $22 million, gener-
ating a return on equity of 5%. During the year, a restruc-
turing plan was announced for this business, which calls
for a profit improvement of $100 million by 1997. A sig-
nificant initiative is under way to reduce the expense base
in Community Banking. A special charge of $7 million was
recorded related to the reduction of 600 staff positions.
Results for 1994 reflect the addition at midyear of a por-
tion of the portfolio of Lake Shore Bancorp., Inc. Net inter-
est income for the year increased 13% due to wider spreads
and higher volumes.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CORPORATE BANKING
- ------------------------------------------------------------------------------------------------------------------------
Corporate and Institutional Banking Middle Market Banking (ANC)
(Dollars in millions, ----------------------------------- -----------------------------
except where noted) 1994 1993 1992 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income--tax-equivalent basis...... $ 393 $ 416 $ 482 $257 $224 $213
Combined credit provisions..................... (36) 35 261 29 42 53
Noninterest income............................. 511 825 556 82 81 72
Noninterest expense (1)........................ 716 771 721 191 192 184
Net income..................................... $ 134 $ 247 $ 38 $ 74 $ 44 $ 29
Return on equity............................... 7% 15% 1% 19% 13% 9%
Efficiency ratio (2)........................... 79% 62% 69% 57% 63% 65%
Average assets (in billions)................... $46.5 $40.0 $39.2 $5.8 $5.5 $5.5
Average loans (in billions).................... 9.5 10.2 13.6 4.3 3.8 3.7
Average common equity (in billions)............ 1.7 1.4 1.4 0.4 0.3 0.3
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes provisions for other real estate.
(2) Noninterest expense as a percentage of total revenue.
CORPORATE BANKING
The Corporation is the leading provider of banking serv-
ices to large corporations, governments, institutions and
investors in Chicago and the Midwest. It is also among the
top U.S. banking companies serving national and interna-
tional customers. The large corporate banking business is
conducted in Corporate and Institutional Banking.
The Corporation ranks first with Chicagoland's middle
market businesses, which are primarily served by its Amer-
ican National Corporation subsidiary.
For 1994, Corporate Banking businesses contributed
$208 million, or about 30% of total corporate earnings.
Return on equity was 9%.
Corporate and Institutional Banking
Profitability in Corporate and Institutional Banking was
down substantially from 1993, principally as a result of the
weakness in financial markets. Net income was $134 mil-
lion, and return on equity was 7% for the year. Total rev-
enues, which include net interest income and noninterest
income, declined to $0.9 billion from $1.2 billion in 1993.
- -----------------------------------------------------------------
Total Revenue (In millions) 1994 1993 1992
- -----------------------------------------------------------------
Trading....................... $130 $ 387 $ 332
Servicing..................... 377 370 316
Lending....................... 186 213 186
Financing..................... 152 208 117
Other......................... 59 63 87
---- ------ ------
Total....................... $904 $1,241 $1,038
==== ====== ======
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Trading Revenue (In millions) 1994 1993 1992
- -----------------------------------------------------------------
Foreign exchange and derivatives.... $ 40 $ 98 $103
Fixed income and derivatives........ 66 114 94
Emerging markets.................... (49) 57 21
Funding and arbitrage............... 39 63 74
Other trading....................... 34 55 40
---- ---- ----
Total............................. $130 $387 $332
==== ==== ====
- -----------------------------------------------------------------
Revenue related to trading activities was $130 million,
down from a record $387 million in 1993. Most of the
shortfall came in the emerging markets segment and in
the foreign exchange and derivatives category.
Net interest income, and lending revenue in particular,
continued to decline due to careful management of the
loan portfolio. Average loans dropped to $9.5 billion from
$10.2 billion in 1993. The year's results included $17 mil-
lion of cash interest collections related to Brazilian debt,
compared with $28 million in 1993.
The largest revenue source in Corporate and Institutional
Banking in 1994 was the broad category of servicing.
Although total servicing revenue was up only slightly
from 1993, revenue from cash management operations
increased while securities services fees were essentially
flat. Financing revenues decreased primarily because of
reduced equity securities gains related to the corporate
financing business; these revenues were exceptionally
high in 1993.
First Chicago Corporation 20 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
Credit quality in the large corporate business was excellent
in 1994 as reflected in the negative provision for credit
losses. This is a benefit of the successful accelerated asset
disposition program initiated in 1992.
Noninterest expense declined 7% to $716 million in 1994.
Much of the decrease was due to lower incentive compen-
sation payments.
Middle Market Banking (American National Corporation)
American National Corporation turned in a record per-
formance in 1994, reflecting its leading share of Chicago-
land's middle market business banking. The addition of
Lake Shore Bancorp., Inc.'s middle market portfolio in
July further strengthened American National's market
leadership position. American National's contribution to
total corporate earnings was $74 million in 1994, and
return on equity was a strong 19%.
Net interest income increased 15% and average loans grew
13% from 1993. Credit quality continued to improve as
provision expense dropped to $29 million from $42 mil-
lion in 1993. American National's disciplined expense
management also contributed to its excellent 1994 per-
formance.
OTHER ACTIVITIES
The venture capital portfolio contributed gains of
$189 million in 1994, compared with $381 million in
1993. Net income was $95 million and return on equity
26% in 1994.
Net gains from the management of assets held in the accel-
erated disposition portfolio totaled $46 million for the
year. A gain of $35 million from the sale of an interest in
an investment management business is also included in
noninterest income.
Key expense components included a charge of $25 million
related to the depreciation of personal computer equip-
ment, and other corporate expenses of $19 million.
STAFFING LEVELS
Staff levels for each business segment as well as corporate
support functions were as follows.
- ---------------------------------------------------------------
Average Full-Time-
Equivalent Staff 1994 1993 1992
- ---------------------------------------------------------------
Corporate and Institutional....... 6,349 6,280 6,178
Community Banking................. 4,558 4,640 4,592
Credit Card....................... 2,874 2,664 2,436
Middle Market..................... 2,108 2,032 2,090
Corporate Support................. 1,522 1,502 1,530
------ ------ ------
First Chicago Corporation....... 17,411 17,118 16,826
====== ====== ======
- ---------------------------------------------------------------
EARNINGS ANALYSIS
Summary
Net income for 1994 was $689.7 million, or $6.88 per com-
mon share, versus $804.5 million, or $8.43 per share, in
1993 and $93.5 million, or 64 cents per share, in 1992.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(In millions, except
per share data) 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income
Income (loss) before cumu-
lative effect of changes in
accounting principles......... $689.7 $804.5 $(114.5) $116.3 $249.3
Cumulative effect of
changes in accounting
principles.................... -- -- 208.0 -- --
Net income...................... $689.7 $804.5 $ 93.5 $116.3 $249.3
Fully diluted earnings
per share
Income (loss) before cumu-
lative effect of changes in
accounting principles......... $6.88 $8.43 $(2.08) $1.15 $3.32
Cumulative effect of
changes in accounting
principles.................... -- -- 2.72 -- --
Net income...................... $6.88 $8.43 $ 0.64 $1.15 $3.32
- --------------------------------------------------------------------------------------
</TABLE>
The Corporation's 1994 results continued to reflect excel-
lent performance in its core businesses. Highlights of the
year were:
. The credit card business posted record earnings of
$309 million. Average credit card receivables increased
21% and overall managed receivables topped $12 billion
at year-end 1994.
. American National Corporation, which serves the
Corporation's middle market customers, posted record
results, principally through both loan growth and im-
proved credit quality.
. Credit quality continued to improve. Combined credit
provisions were $226 million, down 18% from 1993.
Nonperforming assets declined to $158 million at year-
end, resulting in a nonperforming asset ratio of 0.6%
and a reserve coverage ratio of 556%.
. Noninterest expense was well managed. Overall expense
growth in 1994 was limited to 3%.
. The Corporation expanded both its retail and middle
market businesses through its merger with Lake Shore
Bancorp., Inc. in July 1994.
. The venture capital portfolio produced excellent
results, with net income of $95 million and a 26% return
on equity.
. The Corporation remains in a healthy capital position
and has enhanced stockholder returns by increasing the
annual dividend to $2.20 per common share, an 83%
increase since 1993.
Return on common equity was 17.0% for 1994, compared
with 24.2% for 1993 and 1.8% for 1992. Return on assets
was 1.08% for 1994 and 1.42% for 1993.
The Corporation's regulatory capital ratios continued to
exceed the well-capitalized guidelines. At December 31,
1994, the risk-based capital ratio was 13.4%, while the reg-
ulatory leverage ratio was 7.5%. These ratios were 13.6%
and 8%, respectively, at December 31, 1993.
First Chicago Corporation 21 Annual Report 1994
<PAGE>
- ------------------------------------------------------------------------------
Net Interest Income
Net interest income includes fundamental spreads on
earning assets, as well as such items as loan fees, cash inter-
est collections on problem loans, dividend income, inter-
est reversals, and income or expense on interest rate
derivatives used to manage interest rate risk.
Net interest margin measures the efficiency of the use of
the Corporation's earning assets and its underlying capital.
In order to analyze fundamental trends in 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).
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(In millions) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reported:
Net interest income--
tax-equivalent basis....... $1,355 $1,264 $1,217 $1,118 $1,242
Average earning
assets..................... $52,627 $48,517 $46,706 $44,512 $45,502
Adjusted:
Net interest income--
tax-equivalent basis....... $1,891 $1,724 $1,554 $1,401 $1,421
Average earning
assets..................... $48,998 $46,610 $44,994 $44,857 $45,607
- -------------------------------------------------------------------------------------------
</TABLE>
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 related credit losses. The average levels of securitized
receivables were $5.5 billion in 1994, $4.8 billion in 1993
and $3.9 billion in 1992. Additional information on the
effect of securitization transactions on financial results is
presented on page 66.
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 gener-
ate substantial volumes of relatively riskless, thin-spread
earning assets that require little additional capital. The
Corporation's net interest margin trends can be better
analyzed if these earning assets and related margins are
excluded.
- --------------------------------------------------------
BAR CHART:
Net Interest Margin
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Reported 2.73% 2.51% 2.61% 2.61% 2.58%
Adjusted 3.12% 3.12% 3.45% 3.70% 3.86%
- --------------------------------------------------------
Cash interest collections related to Brazilian debt added
3 basis points to adjusted net interest margin in 1994.
For 1993, the adjusted net interest margin included 9 basis
points from Brazilian cash interest collections and the
effect of revaluing the leveraged lease portfolio because
of a change in federal income tax rates. Excluding these
special items, the adjusted net interest margin in 1994
increased 22 basis points from 1993 levels.
Improved margins over the last three years resulted from
a more profitable earning asset mix, reflecting asset growth
from the credit card, retail and middle market businesses.
In 1994, this margin improvement was achieved despite a
significant increase in short-term interest rates because of
the Corporation's practice of limiting its structural interest
rate risk through asset and liability management practices.
A breakdown of average loans adjusted for credit card
securitizations is presented in the following chart.
- ------------------------------------------------------------------
BAR CHART:
Average Loans
$ in billions 1990 1991 1992 1993 1994
Corp. & Institutional 18.2 16.5 13.6 10.2 9.5
Credit Card 6.1 6.4 7.1 8.5 10.4
Community Banking 4.0 3.7 3.7 4.1 4.6
Middle Market 4.2 3.9 3.7 3.8 4.3
Yearly Totals 32.5 30.5 28.1 26.6 28.8
Rounded To 33.0 31.0 28.0 27.0 29.0
- ------------------------------------------------------------------
The cost of carrying nonperforming assets declined as
average nonperforming assets (including those held for
accelerated disposition) decreased to $0.3 billion in 1994
from $0.6 billion in 1993 and $1.2 billion in 1992.
Provision for Credit Losses
Details of the Corporation's 1994 credit risk management
strategy and performance, including the provision for
credit losses and provision for loans held for accelerated
disposition, are presented in the Credit Risk Management
section, beginning on page 31.
First Chicago Corporation 22 Annual Report 1994
<PAGE>
- ------------------------------------------------------------------------------
Noninterest Income
Noninterest income was $1.875 billion in 1994, down from
the record $2.202 billion in 1993 and compared with
$1.488 billion in 1992.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(In millions) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Combined trading
profits................. $ 65.7 $ 284.6 $ 177.3 $ 185.8 $ 163.4
Equity securities
gains................... 228.6 480.2 204.6 63.0 105.2
Investment securities
gains (losses).......... 1.2 0.3 8.6 (3.3) 7.5
-------- -------- -------- -------- --------
Market-driven
revenue................. 295.5 765.1 390.5 245.5 276.1
Credit card fee
revenue................. 832.1 694.2 516.1 411.8 354.5
Service charges and
commissions............. 421.9 432.5 381.0 348.7 307.4
Fiduciary and invest-
ment manage-
ment fees............... 199.2 200.7 189.8 174.8 168.3
Accelerated dispo-
sition portfolio
gains................... 45.9 60.0 -- -- --
Gain on sale of
investment advi-
sory business........... 34.5 -- -- 15.0 --
Gain on lease-
financing
residuals............... 7.4 18.1 3.0 14.7 1.6
Other..................... 38.1 31.8 7.8 14.7 35.9
Gain on partial settle-
ment of pension
obligations............. -- -- -- -- 55.5
-------- -------- -------- -------- --------
Total............. $1,874.6 $2,202.4 $1,488.2 $1,225.2 $1,199.3
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------
</TABLE>
The significant reduction in market-driven revenue, prin-
cipally trading profits and equity securities gains, was the
cause of the decline in noninterest income in 1994.
Combined trading profits were $65.7 million, compared
with a record $284.6 million in 1993 and $177.3 million
in 1992. The following factors contributed to depressed
trading profits in 1994:
. reduced market liquidity and significant volatility, which
caused losses in emerging market trading activities;
. the sharp rise in short-term interest rates, which led to
reduced financial asset values and profit opportunities;
and
. well-publicized issues related to the use of derivative
financial instruments throughout the banking industry,
which resulted in reduced customer transaction activity.
Equity securities gains during 1994 were $228.6 million,
compared with a record $480.2 million in 1993 and
$204.6 million in 1992. Equity securities gains arise prin-
cipally from the Corporation's venture capital activities,
and to a lesser extent from corporate finance activities
and from the sale of securities received in troubled-debt
restructurings, as presented in the following schedule.
- -----------------------------------------------------------------
(In millions) 1994 1993 1992
- -----------------------------------------------------------------
Venture capital.................... $189.3 $380.7 $188.1
Corporate finance.................. 38.6 65.0 6.3
Debt restructuring................. 0.7 34.5 10.2
------ ------ ------
Total equity securities gains...... $228.6 $480.2 $204.6
====== ====== ======
- -----------------------------------------------------------------
The venture capital and corporate finance gains include
changes in the fair value of investments. Details of the
venture capital activities are presented on page 30.
Fee-based revenue from credit card, fiduciary and invest-
ment management, and other product areas totaled
$1.45 billion in 1994, compared with $1.33 billion in 1993
and $1.09 billion in 1992.
Credit card fee revenue, adjusted for the effects of credit
card securitizations, grew 17% in 1994 to $535.5 million
and 26% in 1993 to $457.1 million. Revenue growth in both
periods resulted from increased transaction volume, due
in part to a growing cardholder base. The total number
of accounts at year-end 1994 was 12.2 million, compared
with 10.3 million in 1993 and 8.9 million in 1992.
Fiduciary and investment management fees were
$199.2 million in 1994, compared with $200.7 million
in 1993 and $189.8 million in 1992. First Chicago Trust
Company of New York, a leading provider of corporate
shareholder services, generated $80.6 million of these
revenues in 1994, compared with $81.4 million in 1993
and $72 million in 1992. Revenue growth in this business
was dampened somewhat by industry consolidation and
price competition.
Service charges and commissions in 1994 were $421.9 mil-
lion, compared with $432.5 million in 1993 and $381 mil-
lion in 1992. During 1994, the growth in retail deposit fees
was more than offset by a decline in deficient balance fees
and fees from corporate lending and syndication activities.
Net gains from the active management of assets held in
the accelerated disposition portfolio totaled $45.9 million
in 1994, compared with $60 million in 1993. Details of
the asset disposition portfolio activities are presented on
page 31 in the Credit Risk Management section.
Other noninterest income in 1994 included a $34.5 mil-
lion gain related to the sale of the Corporation's remaining
interest in Brinson Holdings, Inc. to Brinson's management.
First Chicago Corporation 23 Annual Report 1994
<PAGE>
- ------------------------------------------------------------------------------
Noninterest Expense
Operating expense in 1994 was $1.917 billion, compared
with $1.854 billion in 1993 and $1.764 billion in 1992.
Expense growth in 1994 was limited to 3%, representing
higher staff costs, increased equipment costs and invest-
ments in selected businesses.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and em-
ployee benefits......... $ 868.9 $ 853.9 $ 748.0 $ 722.8 $ 688.8
Occupancy expense
of premises, net........ 137.3 147.7 186.0 152.8 138.9
Equipment rentals,
depreciation, and
maintenance............. 157.4 110.3 111.2 107.5 101.5
Amortization of
intangible assets....... 67.1 87.4 76.1 69.5 68.3
Deposit insurance
expense................. 43.1 52.9 49.9 44.0 23.2
Other..................... 643.1 601.7 593.2 433.4 526.7
-------- -------- -------- -------- --------
Operating
expense............. 1,916.9 1,853.9 1,764.4 1,530.0 1,547.4
Provision for other
real estate held
for accelerated
disposition............. -- -- 134.0 -- --
Provision for other
real estate............. 1.7 4.2 56.9 104.3 24.8
Restructuring
provision............... -- -- -- 67.0 18.5
-------- -------- -------- -------- --------
Total............. $1,918.6 $1,858.1 $1,955.3 $1,701.3 $1,590.7
======== ======== ======== ======== ========
Average Full-Time-
Equivalent Staff........ 17,411 17,118 16,826 17,018 17,153
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------
</TABLE>
Employee expense increased in both 1994 and 1993 as a
result of higher staffing levels in specific business units as
well as increased pension and medical costs. This was par-
tially offset in 1994 by lower performance-based incentive
expense accruals related primarily to lower trading profits.
Occupancy expense declined by 7% in 1994 to $137.3 mil-
lion. Occupancy expense in 1993 included the incremental
costs associated with both the relocation of the Corpora-
tion's shareholder services business and a reduction in
other occupancy needs. Relocation and space reduction
costs of $29.1 million were included in occupancy expense
in 1992. Excluding these charges, occupancy expense was
6% lower in 1993 than in 1992.
Equipment expense in 1994 increased 43% to $157.4 mil-
lion, reflecting the expensing of personal computer equip-
ment; previously, purchases of such equipment were cap-
italized and depreciated. A special charge of $24.5 million
was taken in 1994 to reflect the reduction in the estimated
useful life of existing personal computer equipment.
Intangible amortization expense decreased $20.3 million
in 1994 as core deposit intangibles related to certain acqui-
sitions became fully amortized. 1993 results included a
$12.4 million charge for the accelerated amortization of
certain acquired intangibles.
Excluding special corporate expense items, other operat-
ing expense increased 6.2% in 1994 and 9.6% in 1993. The
expense growth in both periods reflects increased bank-
card solicitation and volume-related costs as well as costs
associated with the continued integration and reengineer-
ing of the Corporation's Consumer and Corporate Banking
businesses.
Special corporate expenses totaled $19 million in 1994,
$13.8 million in 1993 and $57 million in 1992, primarily
representing costs associated with litigation and other cor-
porate activities.
Applicable Income Taxes
The following table shows the Corporation's income before
income taxes, applicable income taxes and effective tax
rate for each of the past five years.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) before
income taxes................ $1,063.0 $1,300.1 $(200.1) $163.9 $312.2
Applicable income
taxes (benefit)............. 373.3 495.6 (85.6) 47.6 62.9
Effective tax rate............ 35.1% 38.1% 42.8% 29.0% 20.1%
- -------------------------------------------------------------------------------------
</TABLE>
The decrease in the effective tax rate for 1994 compared
with 1993 reflects a one-time tax benefit related to the
implementation of the final Internal Revenue Service bad
debt recapture regulations as well as the effect of favor-
able tax rulings, which occurred in 1994, and the effect of
an accelerated intangible charge in 1993.
Income tax expense for 1990 was reduced by tax benefits
related to the 1987 book net-operating loss and tax credit
carryforwards, which totaled $28.2 million. Excluding
these benefits, the effective tax rate in 1990 was 29.2%.
Also contributing to the difference in effective tax rates
between 1992 and both 1991 and 1990 is the relationship
between tax-exempt income and the level of income (loss)
before income taxes.
First Chicago Corporation 24 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
RISK MANAGEMENT
The Corporation's various business activities generate
liquidity, market and credit risks:
o Liquidity risk is the possibility of being unable to meet
all present and future financial obligations in a timely
manner.
o Market risk is the possibility that changes in future mar-
ket rates or prices will make the Corporation's positions
less valuable.
o Credit risk is the possibility that a loss might occur from
the failure of a customer to perform according to the
terms of a transaction.
The Corporation is compensated by customers for assum-
ing these risks; this compensation is reflected in interest
income, trading profits and fee income. In addition, the
Corporation considers these risks in allocating capital to
support its various business activities, as discussed in the
Capital Management section, on page 37.
The Corporation is a party to a broad range of financial
instruments that create risks that may or may not be
reflected in a traditional balance sheet. The Corporation's
risk management policies monitor and limit exposure to
liquidity, market and credit risks that arise from all these
financial instruments, which can be subdivided into three
categories:
o Cash financial instruments, generally characterized as
on-balance-sheet transactions, include such instruments
as loans, bonds, stocks and deposits.
o Credit-related financial instruments include such instru-
ments as commitments to extend credit and standby
letters of credit.
o Derivative financial instruments include such instru-
ments as interest rate, foreign exchange, commodity
price and equity price contracts, including forwards,
swaps and options.
Credit-related and derivative financial instruments are
generally characterized as off-balance-sheet transactions;
however, the carrying values of derivative financial instru-
ments are reflected in the Corporation's balance sheet.
LIQUIDITY RISK MANAGEMENT
Liquidity is used to satisfy customer needs and provide a
cushion for unforeseen events. In order to meet these obli-
gations, the Corporation has fashioned liquidity manage-
ment policies and guidelines, which are designed to cover
balance sheet assets and liabilities as well as off-balance-
sheet items that are potential sources and uses of liquidity.
The policy objectives are to:
o maintain adequate liquid assets;
o maintain liability diversification among markets, instru-
ments, maturities and customers;
o maintain a continuously strong market presence and
customer funding base;
o minimize total funds-gathering expense; and
o improve credit ratings.
The Corporation views strong capital ratios, high credit
quality and solid core earnings as essential to retaining
high credit ratings and, thereby, cost-effective access to
market liquidity. In addition to these policies, a contin-
gency funding plan has been established that identifies
actions to be taken in response to a liquidity event.
The Corporation's Statement of Cash Flows, on page 43,
presents data on cash and cash equivalents provided and
used by the Corporation in its operating, investing and
financing activities.
Asset Liquidity
The Corporation considers liquid assets to be an effective
and important vehicle for managing and providing overall
liquidity. Liquid assets are defined as federal funds sold
and interest-bearing deposit placements with other banks.
In 1994, as part of its overall liquidity management, the
Corporation set a minimum guideline of liquid assets to
total assets at 12% for The First National Bank of Chicago
(FNBC) and FCC National Bank (FCCNB) combined.
During 1994, as well as in 1993, these combined entities
maintained an average liquid asset ratio of 20%. While
there is a cost to providing higher liquidity by maintain-
ing lower-spread assets, this emphasis on liquidity allows
the Corporation to pursue such market opportunities as
offering unfunded commitments to customers, and the
Corporation believes that the capital necessary to support
these activities is minimal.
The investment securities portfolio includes U.S. govern-
ment, municipal and other debt securities, and equity
investments. The non-equity portion of the investment
portfolio is primarily used to meet collateral requirements
for certain customer deposits. The equity securities pri-
marily represent the Corporation's venture capital invest-
ments. These investments ultimately provide an additional
source of liquidity, but generally are not readily saleable
due to the form or size of the Corporation's equity interest
in the underlying entity. Also, the portfolio is not com-
monly used to manage structural interest rate risk but is
included in the Corporation's overall interest rate sensi-
tivity position. Note 5, on page 49, provides a detailed
breakdown of the investment portfolio.
As part of the Corporation's normal liquidity management
process, assets are securitized and sold. Securitization of
credit card receivables is an important funding vehicle that
enables the Corporation to diversify its funding sources
and to access large amounts of term funding in a cost-
effective manner. During 1994, $2 billion of credit card
receivables was securitized, bringing the total amount of
securitized credit card receivables to $6.1 billion at year-
end 1994.
Liability Liquidity
The Corporation, through FNBC, FCCNB and American
National Bank and Trust Company of Chicago (ANB),
maintains direct access to the local retail market as a source
of funds and uses a network of brokers for gathering retail
certificates of deposits on a national basis. The Corpora-
tion depends less on wholesale funding as the growth of
its retail deposits continues. However, the wholesale mar-
ket continues to be an important source of liquidity where
customer relationships are important to retaining a diver-
sified funding base. Consequently, it is the Corporation's
policy to maintain direct relationships with its large insti-
tutional funding customers. This approach has proved
successful in creating reliable sources of funds as the
Corporation maintains its active participation in global
capital markets.
First Chicago Corporation 25 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
The Corporation benefits from its diversified institutional
customer base in which concentrations among funding
sources are closely monitored. Commercial paper, cus-
tomer deposits, bank notes, bank investment contracts,
medium-term notes and long-term debt also provide fund-
ing for the Corporation and its subsidiaries. Access to
a variety of funding markets and customers is vital both
to liquidity management and to cost minimization.
The Corporation believes it has prudent policies to ensure
adequate liquidity to fund anticipated needs based on its
assessment of asset liquidity, core deposit levels, wholesale
funding sources, and contractual asset and liability matu-
rities. The following table shows the Corporation's funding
source mix.
<TABLE>
<CAPTION>
Deposits and Other Purchased Funds
- ------------------------------------------------------------------------------------------------------------
December 31 (In millions) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic offices
Demand............................................ $ 7,647 $ 8,184 $ 7,575 $ 6,200 $ 7,065
Savings........................................... 7,448 7,541 7,618 7,059 5,166
Time
Under $100,000.................................. 2,548 2,312 2,737 3,865 3,828
$100,000 and over............................... 2,601 2,613 3,525 5,666 6,074
Foreign offices
Banks in foreign countries........................ 4,836 2,463 2,693 2,599 2,372
Foreign governments and official institutions..... 1,469 750 926 983 784
Other time and savings............................ 4,847 4,126 4,493 5,439 7,022
Other demand...................................... 270 197 173 280 232
------- ------- ------- ------- -------
Total deposits.............................. 31,666 28,186 29,740 32,091 32,543
- ------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities under
repurchase agreements............................. 13,026 8,255 6,962 5,145 6,250
Commercial paper.................................... 147 164 172 226 237
Other funds borrowed................................ 7,518 5,843 3,997 2,712 2,770
Long-term debt...................................... 2,271 2,065 1,705 1,725 1,428
------- ------- ------- ------- -------
Total other purchased funds................. 22,962 16,327 12,836 9,808 10,685
------- ------- ------- ------- -------
Total....................................... $54,628 $44,513 $42,576 $41,899 $43,228
======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------
</TABLE>
MARKET RISK MANAGEMENT
Overview
Market risk arises from changes in interest rates, exchange
rates, commodity prices and equity prices. The Corpora-
tion maintains risk management policies that monitor and
limit exposure to market risk. Through its trading activi-
ties, it strives to take advantage of profit opportunities avail-
able in interest and exchange rate movements. In asset and
liability management activities, the Corporation attempts
to minimize structural interest rate and foreign exchange
rate risk. The measurement of market risk associated with
financial instruments is meaningful only when all related
and offsetting on- and off-balance-sheet transactions are
aggregated, and the resulting net positions are identified.
Disclosures about fair value of financial instruments, which
reflect changes in market prices and rates, can be found
in Note 17, beginning on page 61.
Trading Activities
The Corporation maintains active trading positions in a
variety of markets and instruments, including U.S. govern-
ment, municipal and money market securities. It also main-
tains positions in derivative products associated with these
markets and instruments, such as interest rate and cur-
rency swaps, and commodity and equity index options.
Most of the Corporation's trading activities are customer-
oriented, and trading positions are established as necessary
for customers. However, in order to anticipate customer
demand for such transactions, the Corporation also car-
ries an inventory in capital markets instruments, and main-
tains its access to market liquidity by making bid-offer
prices to other market makers. Although these two activi-
ties constitute its proprietary trading business, they are
essential in order to continue providing customers with
capital markets products at competitive prices.
Many trading positions are kept open for brief periods of
time, often less than one day. Other trading positions are
maintained for longer periods, and these positions are
valued at prevailing market rates on a present value basis.
Realized and unrealized gains and losses on these trading
positions are also included in noninterest income as com-
bined trading profits.
The Corporation has adopted policies designed to strictly
monitor trading positions at all times. The overall market
risk that any business unit can assume is approved by a
committee of the Board of Directors through a risk point
limit. Risk points represent the Corporation's estimate of
the amount of potential overnight loss in a capital markets
product. Products that have more inherent price volatility
incur more risk points. A business unit will use up more
of its risk point limit if it trades in the more volatile prod-
ucts. The risk point system, therefore, is the means by
which the Corporation manages its value at risk.
First Chicago Corporation 26 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
The Corporation monitors value at risk in each of its signif-
icant trading portfolios on a daily basis. The following
charts show average, maximum and minimum daily value
at risk for each quarter of 1994, and the actual trading
revenue for each quarter.
- ---------------------------------------------------------------
BAR CHART:
Daily Value at Risk -- 1994 (In Millions)
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
Average $55 $41 $44 $42
Maximum $66 $46 $53 $47
Minimum $42 $34 $36 $38
BAR CHART:
Trading Revenue -- 1994* (In Millions)
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
$2 $42 $56 $30
*Includes trading profits and net interest income
- ---------------------------------------------------------------
Value at risk is estimated using statistical models calibrated
at a three-standard-deviation confidence interval, which
means that the actual daily result should exceed the value
at risk one day out of each two hundred. The value at risk
shown represents portfolio aggregates and overstates the
Corporation's value at risk because it only partially con-
siders offsets and correlations across different trading port-
folios. The Corporation is continuing its progress toward
a fully consolidated view of market risk.
A committee of the Board of Directors also approves the
Corporation's overall policies governing market risk. More
specific market risk policies are approved by the Corpora-
tion's Market Risk Committee, which is composed of senior
capital markets managers.
In addition to managing market risk through the risk point
system, each business unit establishes dollar limits govern-
ing intra-day trading activity, and allocates them to the
dealers depending on their trading experience. These
dollar limits are reviewed and approved by the Market Risk
Committee. This committee also reviews and approves
statistical models used for measuring market risk, or for
pricing and hedging transactions; reviews audit and inter-
nal control issues arising from the Corporation's trading
operations; and approves the business plans for new capi-
tal markets activities.
Independent oversight of trading activities is provided by
the Market Risk Management Department. As part of this
oversight role, the department monitors the credit risk
associated with capital markets products.
The credit exposure for certain derivative financial instru-
ments fluctuates as market prices change. As a result, the
credit exposure for these instruments includes both the
current fair value of the instrument and an incremental
amount that represents the potential adverse movement
in its fair value over its remaining life. This incremental
amount of credit exposure is calculated using statistical
models that estimate the change over time in exchange
rates, interest rates and other market indices.
The resultant credit exposure is used to monitor total cus-
tomer credit exposure and manage credit risks associated
with capital markets products.
Structural Interest Rate Risk Management
The Corporation actively manages its asset and liability
positions with the goal of minimizing the impact on earn-
ings of interest rate market volatility. Conservative manage-
ment of its asset and liability positions has allowed the
Corporation to maintain a relatively consistent net inter-
est margin despite a sharp rise in short-term interest rates.
As a result of this neutral interest rate risk profile, it is
estimated that an immediate change in rates of 100 basis
points would affect annual pretax earnings by only
$12 million.
Net interest income can fluctuate with movements in the
interest rate market due to an imbalance in the repricing
or maturity of the Corporation's assets and liabilities.
Whenever possible, assets are matched with liabilities of
similar repricing characteristics. However, the loans and
deposits generated through the Corporation's ordinary
business activity do not naturally create offsetting positions
with respect to repricing or maturity. For assets having
indefinite maturities or repricing sensitivities, liability
pools based on such assets' estimated maturities and repric-
ing characteristics may be used to match the interest rate
risk. Finally, asset and liability positions that are not appro-
priately offset with either specific on-balance-sheet trans-
actions or with liability pools are offset through off-balance-
sheet derivatives positions (ALM derivatives).
Traditional gap analysis is one of a variety of measure-
ment tools used to monitor and control the Corporation's
interest rate risk position. Gap analysis measures the dif-
ference between the volume of assets and liabilities matur-
ing or repricing in a given future time period. Certain
assumptions are made for those assets or liabilities whose
expected prepayment or withdrawal behavior may not be
reflected by their maturity dates. In addition, credit card
securitizations, which subject credit card servicing fee rev-
enue to interest rate risk, are included in the gap analysis
measure. In addition to static gap analysis, the Corpora-
tion identifies the more dynamic interest rate risk expo-
sures of its businesses through duration of equity measures,
stress testing of earnings simulation, and income sensitiv-
ity measurement of specific key portfolios.
First Chicago Corporation 27 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
The following table shows the "managerial" interest rate
gap analysis as of December 31, 1994, used to identify the
Corporation's exposure from domestic asset and liability
positions. Interest rate risks in trading and overseas earn-
ing asset and liability positions are excluded from the gap
analysis and managed principally as trading risks. A posi-
tive cumulative one-year gap position indicates more assets
than liabilities are anticipated to reprice over the next
12-month period. Such a position implies that, assuming
no management action, the Corporation's net interest
income would be positively affected by rising interest rates
and negatively affected by falling rates.
Interest Rate Sensitivity
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
December 31, 1994 0-90 91-180 181-365 1-5 Beyond
(Dollars in millions) days days days years 5 years Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans.......................................... $21,569 $1,376 $ 390 $ 2,171 $ 4,977 $30,483
Investment securities.......................... 341 161 194 1,556 392 2,644
Other earning assets........................... 21,057 95 70 181 281 21,684
Nonearning assets.............................. 5,816 39 47 127 438 6,467
------- ------ ------- ------- ------- -------
Total domestic assets...................... $48,783 $1,671 $ 701 $ 4,035 $ 6,088 $61,278
======= ====== ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------
Deposits....................................... $14,045 $1,030 $ 1,792 $ 1,195 $ 4,125 $22,187
Other interest-bearing liabilities............. 25,225 439 161 3,733 1,604 31,162
Noninterest-bearing liabilities................ 2,386 15 16 390 620 3,427
Equity......................................... 311 -- -- 100 4,091 4,502
------- ------ ------- ------- ------- -------
Total domestic liabilities and equity...... $41,967 $1,484 $ 1,969 $ 5,418 $10,440 $61,278
======= ====== ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------
Balance sheet sensitivity gap.................. $ 6,816 $ 187 $(1,268) $(1,383) $(4,352) --
- -----------------------------------------------------------------------------------------------------------------
Cumulative gap as % of domestic assets......... 11.12% 11.43% 9.36% 7.10% -- --
- -----------------------------------------------------------------------------------------------------------------
Effect of off-balance-sheet ALM
derivative transactions:
Specific transactions...................... $(2,522) $ (653) $ 347 $ 1,632 $ 1,196 --
Specific asset or liability pools.......... (2,632) (54) 730 1,864 92 --
- -----------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap.................. $ 1,662 $ (520) $ (191) $ 2,113 $(3,064) --
- -----------------------------------------------------------------------------------------------------------------
Cumulative gap................................. $ 1,662 $ 1,142 $ 951 $ 3,064 -- --
- -----------------------------------------------------------------------------------------------------------------
Cumulative gap as % of domestic assets......... 2.71% 1.86% 1.55% 5.00% -- --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1994, the Corporation's on-balance-
sheet assets and liabilities created a cumulative one-year
gap position of 9.36% of total domestic assets. Because it is
the Corporation's policy to remain structurally neutral to
interest rate changes, off-balance-sheet transactions, prin-
cipally interest rate swaps, have been used to adjust the
interest sensitivity of specific transactions as well as pools
of assets or liabilities. The net result of the ALM deriva-
tives is to reduce the cumulative one-year gap position
from 9.36% to 1.55% of total domestic assets. It is the Cor-
poration's policy to maintain the cumulative one-year gap
position, including ALM derivatives, to within 2% of total
domestic assets.
The stability of this interest rate risk position is evident in
the following charts. Between year-end 1991 and year-end
1994, the Corporation's cumulative one-year gap has con-
sistently been within 2% of total domestic assets. This has
allowed the Corporation to maintain a consistent adjusted
net interest margin (adjusted for credit card securitizations
and FCCM) of between 3.5% and 4.0% despite a rise in
short-term interest rates of approximately 275 basis points
since the first quarter of 1993.
- ---------------------------------------------------------------
BAR CHART:
Cumulative 1-Year Gap as % of Total Domestic Assets
12/91 12/92 12/93 3/94 6/94 9/94 12/94
----- ----- ----- ---- ---- ---- -----
0.68% -0.24% 1.42% 1.42% 0.13% 1.12% 1.55%
Policy Guideline = -2% to +2%
- ---------------------------------------------------------------
First Chicago Corporation 28 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
2-LINE GRAPH:
Adjusted Net Interest Margin vs. Short-Term Interest Rates
3/93 6/93 9/93 12/93 3/94 6/94 9/94 12/94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adj. Net Int. Margin 3.610% 3.580% 3.980% 3.620% 3.930% 3.930% 3.850% 3.740%
1-Month LIBOR 3.125% 3.125% 3.125% 3.190% 3.630% 4.500% 5.000% 5.940%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Access to the derivatives market is an important element
in the Corporation's ability to maintain its gap position
within policy guidelines. As of year-end 1994, the Corpo-
ration had a total of $8.5 billion in ALM interest rate swaps,
including $4.6 billion of ALM interest rate swaps against
specific transactions and $3.9 billion against specific pools
of assets or liabilities. Swaps used to adjust the interest
rate sensitivity of specific transactions will not need to be
replaced as they mature since the corresponding asset or
liability will mature along with the swap. However, swaps
against the asset and liability pools will have an impact on
the Corporation's risk position as they mature and, assum-
ing no change to the underlying pool's characteristics, will
need to be reissued to maintain the same neutral interest
rate risk profile. These swaps could create modest sensi-
tivity of earnings to changes in interest rates. Growth in
the volume of stable retail liabilities and declines in the
volume of longer-term fixed rate assets over the last few
years have made it necessary to increase the use of swaps
associated with specific pools of assets or liabilities to bal-
ance the Corporation's repricing risk. The following table
summarizes the interest rate swaps used by the Corpora-
tion for asset and liability management purposes.
Asset and Liability Management Swaps
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
December 31, 1994 Receive Fixed Pay Fixed Basis
(Notional amounts in millions) Pay Floating Receive Floating Swaps Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swaps associated with: Specific Pool Specific Pool Pool
-------- ---- -------- ---- ----
Loans........................... $ -- $ 561 $ 30 $223 $275 $1,089
Securitizations................. 1,725 -- -- -- -- 1,725
Deposits........................ 306 2,325 -- -- 175 2,806
Other funds borrowed............ 429 -- 916 -- 325 1,670
Long-term debt.................. 1,238 -- -- -- -- 1,238
------ ------ ---- ---- ---- ------
Total......................... $3,698 $2,886 $946 $223 $775 $8,528
====== ====== ==== ==== ==== ======
- ----------------------------------------------------------------------------------------------------------
</TABLE>
For most of its asset and liability management swaps, the
Corporation receives a fixed rate and pays a floating rate
of interest. Substantially all interest rate swaps used by the
Corporation for asset and liability management activity are
standard interest rate swap contracts. The table that fol-
lows summarizes the contractual maturities and weighted
average pay and receive rates for the asset and liability
management swap position at December 31, 1994. The vari-
able interest rates, which generally are the three-month
and six-month LIBOR rates in effect on the date of repric-
ing, have been assumed to remain constant. However, the
variable interest rates will change with changes in interest
rates and would affect the related weighted average infor-
mation presented in the following table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(Dollars in millions) 1995 1996 1997 1998 1999 Thereafter Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed swaps
Notional amount......... $1,731 $1,858 $1,373 $229 $86 $1,307 $6,584
Weighted average:
Receive rate........ 5.57% 6.96% 6.29% 6.57% 8.69% 7.21% 6.51%
Pay rate............ 6.14% 6.18% 6.34% 6.55% 7.32% 6.50% 6.29%
Pay fixed swaps
Notional amount......... $1,118 $ 25 $ 7 -- -- $ 19 $1,169
Weighted average:
Receive rate........ 6.25% 5.91% 6.47% 6.15% 6.24%
Pay rate............ 9.26% 7.34% 5.18% 6.23% 9.14%
Basis swaps
Notional amount......... $ 775 -- -- -- -- -- $ 775
Weighted average:
Receive rate........ 5.68% 5.68%
Pay rate............ 5.78% 5.78%
- -------------------------------------------------------------------------------------------------------
Total notional amount....... $3,624 $1,883 $1,380 $229 $86 $1,326 $8,528
- -------------------------------------------------------------------------------------------------------
</TABLE>
First Chicago Corporation 29 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
Foreign Exchange Risk Management
Wherever possible, foreign currency-denominated assets
are funded with liability instruments denominated in the
same currency. If a liability denominated in the same cur-
rency is not immediately available or desired, a forward
foreign exchange contract is used to fully hedge the for-
eign exchange risk due to cross-currency funding.
To minimize the earnings and capital impact of transla-
tion gains or losses measured on an after-tax basis, the
Corporation uses forward foreign exchange contracts to
hedge the exposure created by investments in overseas
branches and subsidiaries.
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
(e.g., through limited partnerships), and investments in
private companies. Equity securities gains related to ven-
ture capital activities totaled $189.3 million in 1994,
$380.7 million in 1993 and $188.1 million in 1992. Net
income related to the venture capital portfolio in 1994
was $95 million, or $0.94 per share, compared with
$204 million, or $2.16 per share, in 1993.
While the Corporation intends to reduce its exposure to
equity risk in its existing venture capital portfolio, it will
continue to participate in this business primarily through
participation in a venture capital fund established by the
former management of the Corporation's venture capital
subsidiaries, through existing investment commitments
and through other corporate financing activities.
The Corporation uses fair value accounting for its venture
capital portfolio. Under this method, fair value of publicly
traded securities is determined by quoted market valua-
tions, adjusted for illiquidity due to the size or nature of
the Corporation's holdings. Privately held securities are
valued using traditional valuation techniques conser-
vatively applied.
Venture Capital Portfolio
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Investments Investments
December 31, 1994 Held Held
(In millions) Directly Indirectly Total
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Publicly traded equity investments
Gross value....................... $448 $ 544 $ 992
Discount.......................... (15) (129) (144)
---- ----- ------
Fair value...................... $433 $ 415 848
==== =====
Investments in private companies.... 731
------
Total........................... $1,579
======
- --------------------------------------------------------------------------
</TABLE>
The Corporation has instituted a program intended to
reduce volatility relative to expected returns through the
use of equity derivatives, including options, 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. At December 31, 1994, 68% of the
Corporation's $848 million in publicly traded investments
was hedged under this program. Management intends to
continue to use these and other techniques to hedge the
price risk inherent in this portfolio.
The following table provides fair value and sale informa-
tion on the portfolio during 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.............. 92 124 216
Appreciation recorded as
equity securities gains........... 189 56 245
Sales proceeds (1).................. (189) (57) (246)
Other (2)........................... (3) (90) (93)
----- ---- ------
Fair value, December 31, 1994 (3)... $ 848 $731 $1,579
===== ==== ======
Unrealized appreciation at
December 31, 1994................. $ 554 $ 45 $ 599
===== ==== ======
- ------------------------------------------------------------------------
</TABLE>
(1) Net of transaction costs.
(2) Includes principal repayments, fund distribution and sales, and
certain reclassifications.
(3) Publicly traded amount includes net unrealized gains of $166 mil-
lion related to hedging instruments used to reduce the earnings
volatility of the venture capital portfolio.
In addition to the $1.6 billion of investments in the ven-
ture capital portfolio at December 31, 1994, there were
unfunded commitments of $145 million.
First Chicago Corporation 30 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
CREDIT RISK MANAGEMENT
Overview
The Corporation has developed policies and procedures
to manage the level and composition of risk in its credit
portfolio. The objective of this credit risk management
process is to reduce the risk of a loss resulting from a
customer's failure to perform according to the terms of
a transaction.
Customer transactions create credit exposure that is
reported both on and off the Corporation's balance sheet.
On-balance-sheet credit exposure includes such items as
loans and derivative financial instruments. Off-balance-
sheet credit exposure includes credit-related and deriv-
ative financial instruments.
Credit exposure is managed according to a clearly defined
process. The Credit Strategy Committee is responsible for
the strategic direction and management oversight of that
process, the elements of which include:
o identifying the types of customers that are consistent
with the Corporation's strategic business objectives;
o assessing the credit structure, return and potential risk
of loss for any extension of credit within market-driven
guidelines and prudent banking practice;
o monitoring the financial performance and compliance
with contractual obligations of credit customers in order
to identify deterioration on a timely basis;
o reviewing the credit portfolio to verify the risk assess-
ment of individual credits and to assess the risk profile
and composition of the portfolio; and
o verifying that policies and procedures have been fol-
lowed in the initial underwriting and ongoing monitor-
ing of the credit portfolio.
A major element of the credit risk management process
is portfolio diversification, which is achieved by limiting
credit concentrations in a number of ways. Concentrations
to individual customers or a related group of customers
are limited according to the degree of repayment risk. In
addition, concentrations are limited on a portfolio basis
by risk rating, credit product, industry and geography.
During 1994, the Corporation developed a commercial
credit risk measurement framework that incorporates sev-
eral dimensions of risk, including credit risk classification,
industry risk classification, term of the facility, funding
assumptions in the event of default, and severity of loss.
The Corporation believes this framework improves its
ability to allocate capital and set commercial portfolio
diversification limits.
Accelerated Asset Disposition Portfolio
During the third quarter of 1992, the Corporation segre-
gated approximately $2.0 billion of commercial real estate
exposure at The First National Bank of Chicago to be
managed under an accelerated disposition program. By
year-end 1994, the liquidation of this portfolio had been
virtually completed.
During 1994, assets having nearly $250 million in original
contractual exposure were sold or otherwise liquidated.
This resulted in a $75 million reduction in the portfolio's
carrying value and the recognition of net gains of $46 mil-
lion in noninterest income during 1994. The carrying value
of the remaining assets in the portfolio was $51 million at
year-end 1994, representing 22% of original contractual
exposure.
Remaining Credit Portfolio
The quality of the remaining credit portfolio, which
includes all credit exposure that was not transferred to
the accelerated asset disposition portfolio, continued to
improve in 1994. Nonperforming assets at year-end 1994
were $158 million, or 0.6% of total loans and other real
estate. This was the lowest absolute level of nonperforming
assets since 1976.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Five-Year Selected Statistical Information
- ---------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At Year-End
Loans outstanding............................................ $25,947 $23,103 $22,692 $25,661 $27,706
Nonperforming loans.......................................... 130 234 391 843 854
Other real estate, net....................................... 28 43 23 457 529
Nonperforming assets......................................... 158 277 414 1,300 1,383
Allowance for credit losses (1).............................. 723 683 624 759 897
Nonperforming assets/loans outstanding and
other real estate, net..................................... 0.6% 1.2% 1.8% 5.0% 4.9%
Allowance for credit losses/loans outstanding (1)............ 2.8 3.0 2.8 3.0 3.2
Allowance for credit losses/nonperforming loans (1).......... 556 292 160 90 105
For the Year
Average loans outstanding.................................... $23,293 $21,997 $24,347 $27,281 $30,609
Net charge-offs (2).......................................... 151 182 373 550 781
Net charge-offs/average loans................................ 0.6% 0.8% 1.5% 2.0% 2.6%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The reserve related to securitized credit card receivables has been
reclassified to other assets for all periods presented.
(2) Excludes $636 million of charge-offs in 1992 recorded upon transfer to the
accelerated disposition portfolio.
First Chicago Corporation 31 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
Allowance for Credit Losses
Although the allowance for credit losses is available to
absorb potential losses inherent in the Corporation's total
credit portfolio, its composition reflects an internal alloca-
tion to the consumer and commercial segments.
The allowance for credit losses is tested by analyzing on-
balance-sheet credit exposure for such items as loans and
derivative financial instruments and off-balance-sheet
exposure for credit-related and derivative financial instru-
ments. The method used to test the adequacy of the allow-
ance has four elements. First, the consumer reserve is
established based on a statistical analysis of historical loss.
Second, specific reserves are allocated for commercial
credits that have identified loss potential. Third, a reserve
for potential losses not specifically identified, which are
inherent in the commercial credit portfolio, is computed
by assigning a specific reserve factor to each risk category
of the portfolio based on a statistical analysis of the
Corporation's history. Fourth, management's best judgment
is applied to determine any additional amount needed
for loss potential based largely on portfolio trends and
an assessment of the impact of the current economic
environment.
Allowance for Credit Losses
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(Dollars in millions) 1994
- --------------------------------------------------------------------------
Commercial Consumer Total
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of period........ $488 $ 195 $ 683
Provision for credit losses......... 3 221 224
Net charge-offs..................... 9 (160) (151)
Other, transferred to other
assets, related to securitized
receivables....................... -- (49) (49)
Acquisitions and dispositions,
net............................... 16 -- 16
---- ----- -----
Balance, end of period.............. $516 $ 207 $ 723
==== ===== =====
Allowance/loans outstanding......... 3.2% 2.1% 2.8%
Allowance/nonperforming loans....... 397 -- 556
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
(Dollars in millions) 1993
- --------------------------------------------------------------------------
Commercial Consumer Total
- --------------------------------------------------------------------------
Balance, beginning of period........ $488 $ 136 $ 624
Provision for credit losses......... 78 192 270
Net charge-offs..................... (78) (104) (182)
Other, transferred to other
assets, related to securitized
receivables....................... -- (29) (29)
---- ----- -----
Balance, end of period.............. $488 $ 195 $ 683
==== ===== =====
Allowance/loans outstanding......... 3.4% 2.2% 3.0%
Allowance/nonperforming loans....... 209 -- 292
- --------------------------------------------------------------------------
</TABLE>
The allowance for credit losses is maintained at a level
considered adequate to provide for inherent losses in the
credit portfolio. The Corporation evaluates the adequacy
of the allowance each quarter and reports the findings to
a committee of the Board of Directors. After reviewing the
adequacy of the allowance, the committee approves the
provision for credit losses.
- -------------------------------------------------------------------------------
BAR CHART:
Allowance for Credit Losses as % of Nonperforming Loans*
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
105% 90% 160% 292% 556%
*At year-end
- -------------------------------------------------------------------------------
The Corporation's provision for credit losses decreased to
$224 million in 1994 from $270 million in 1993. A $29 mil-
lion increase in the consumer provision in 1994 was offset
by a $75 million reduction in the commercial provision.
The increase in the consumer provision was primarily the
result of growth in credit card receivables. The decline
in the commercial provision to only $3 million reflects
the Corporation's judgment as to the portfolio's improved
overall credit quality.
At year-end 1993, the Corporation reclassified its reserve
for securitized credit card receivables from the allowance
for credit losses to other assets. This reclassification was
made to conform to prevalent industry practice and had
no impact on reserves available for losses or on reported
earnings. The reserve totaled $255 million at December
31, 1994, compared with $196 million at year-end 1993.
Effective January 1, 1995, the Corporation adopted new
Financial Accounting Standards addressing "impaired
loans," which include loans where it is probable that all
principal and interest amounts due will not be collected
in accordance with contractual terms. The Corporation
does not expect the adoption of these standards to have
a material effect on its earnings or its allowance for
credit losses.
First Chicago Corporation 32 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
Nonperforming Assets
Nonperforming assets, which consist of nonperforming
loans and other real estate, decreased from $277 million
at December 31, 1993, to $158 million at December 31,
1994. Although quarterly fluctuations may occur, the
Corporation does not expect nonperforming assets to
increase significantly in 1995.
Nonperforming Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
December 31 (Dollars in millions) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Commercial real estate.................... $ 68 $108 $ 93 $ 309 $ 274
Troubled-country debtor................... 1 50 76 150 210
Other..................................... 61 76 222 384 370
---- ---- ---- ------ ------
Total nonperforming loans............... 130 234 391 843 854
Other real estate, net
Owned assets.............................. 14 29 10 283 433
In-substance foreclosed assets............ 14 14 13 174 96
---- ---- ---- ------ ------
Total other real estate, net............ 28 43 23 457 529
---- ---- ---- ------ ------
Total nonperforming assets.............. $158 $277 $414 $1,300 $1,383
==== ==== ==== ====== ======
- -------------------------------------------------------------------------------------------
Nonperforming loans/loans outstanding....... 0.5% 1.0% 1.7% 3.3% 3.1%
Nonperforming assets/loans outstanding and
other real estate......................... 0.6 1.2 1.8 5.0 4.9
- -------------------------------------------------------------------------------------------
</TABLE>
Nonperforming Loans
Nonperforming loans include loans on which the Corpo-
ration does not accrue interest (nonaccrual loans) and
loans that bear a rate of interest that has been reduced
below market rates due to the deteriorating financial con-
dition of the borrower (accrual renegotiated loans).
Other Real Estate
Other real estate includes assets that either have been
acquired in satisfaction of debt or have been classified as
in-substance foreclosures. The Corporation had $28 mil-
lion of other real estate at year-end 1994, compared with
$43 million at year-end 1993. The provision for other real
estate was $2 million in 1994, compared with $4 million
in 1993.
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. The consumer loan portfolio
increased $1.2 billion during the year to $9.9 billion at
year-end 1994. Including securitized credit card receiv-
ables, the consumer portfolio increased $2.4 billion, or
18%, to $16.0 billion at year-end 1994.
The consumer risk management process focuses on the
credit card segment separately from other parts of the
portfolio. For both the on-balance-sheet and the securi-
tized credit card portfolios, loss potential is tested using
statistically expected levels of losses based on the source,
age and other risk characteristics of each portfolio.
For the other segments of the consumer portfolio, reserve
factors are based on historical loss rates by loan type and
vintage that are adjusted to reflect changes in the credit
risk of new accounts and forecasted regional delinquency
levels and trends.
- ---------------------------------------------------------------
BAR CHART:
Nonperforming Assets as % of Loans and Other Real Estate*
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
4.9% 5.0% 1.8% 1.2% 0.6%
* At year-end
- ---------------------------------------------------------------
Total credit card receivables (held in the portfolio plus
sold to investors through securitization transactions) were
$12.5 billion at December 31, 1994, a 16% increase from
$10.7 billion at December 31, 1993. Average credit card
receivables rose to $10.9 billion in 1994, up 21% from 1993.
Net charge-offs in 1994 for the total owned and securitized
credit card portfolio were $394 million, or 3.6% of aver-
age receivables, compared with net charge-offs of $332 mil-
lion, or 3.7% of receivables, in 1993. In 1994, the increase
in net charge-offs primarily reflects continued portfolio
growth; the Corporation expects the net charge-off rate
in 1995 to be similar.
At year-end 1994, the allowance for credit losses related to
the consumer portfolio was $207 million, or 2.1% of loans.
Comparable figures for 1993 were $195 million, or 2.2%.
Net charge-offs were $160 million in 1994, compared with
$104 million in 1993.
First Chicago Corporation 33 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Consumer Loans
- ---------------------------------------------------------------------------------------------------------
December 31 (In millions) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans................................... $ 6,337 $ 5,778 $ 4,135 $3,843 $3,930
Securitized credit card receivables................. 6,117 4,958 4,500 3,573 3,130
------- ------- ------- ------ ------
Total managed credit card receivables........... 12,454 10,736 8,635 7,416 7,060
Other consumer loans................................ 3,580 2,896 2,737 2,482 2,494
------- ------- ------- ------ ------
Total....................................... $16,034 $13,632 $11,372 $9,898 $9,554
======= ======= ======= ====== ======
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average Credit Card Receivables
- ---------------------------------------------------------------------------------------------------------
(Dollars in millions) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans outstanding....................... $ 5,320 $ 4,170 $ 3,537 $3,516 $4,497
Securitized credit card receivables................. 5,538 4,839 3,918 3,320 2,063
------- ------- ------- ------ ------
Total credit card receivables....................... $10,858 $ 9,009 $ 7,455 $6,836 $6,560
======= ======= ======= ====== ======
Total net charge-offs (including securitizations)... $ 394 $ 332 $ 316 $ 309 $ 245
======= ======= ======= ====== ======
Net charge-offs/average total receivables........... 3.6% 3.7% 4.2% 4.5% 3.7%
=== === === === ===
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Commercial Risk Management
Commercial credit quality continued to improve as recov-
eries exceeded charge-offs in 1994. This compares with
commercial net charge-offs totaling $78 million in 1993.
In addition, the provision for commercial credit losses
decreased to $3 million in 1994 from $78 million in 1993;
this represents 2 basis points of related loans, a significant
improvement from 54 basis points in 1993. The year-end
commercial reserve of $516 million represented 3.2% of
total commercial loans and 397% of related nonperform-
ing loans.
Commercial loans increased 11% from $14.4 billion at
December 31, 1993, to $16.0 billion at December 31, 1994.
The increase primarily reflects growth in the middle mar-
ket portfolio.
The commercial risk portfolio includes all domestic com-
mercial credit exposure and all foreign exposure. Credit
exposure includes the credit risks associated with both on-
and off-balance-sheet financial instruments. Credit risks
from off-balance-sheet instruments arise from credit-
related and derivative financial instruments. See Note 15,
on page 58, for information on the credit exposure associ-
ated with these off-balance-sheet instruments.
In the commercial portfolio, credit quality is rated accord-
ing to nine defined levels of credit risk. The lower five
categories of credit risk are equivalent to the four bank
regulatory classifications: Special Mention, Substandard,
Doubtful and Loss. These categories define levels of credit
deterioration where it may be increasingly difficult for the
Corporation to be fully repaid without restructuring the
credit. Credits that are Doubtful are likely to result in some
principal loss. Credits classified as Loss are charged off.
Each quarter, the Corporation conducts an asset-by-asset
review of significant lower-rated credit or country expo-
sure. Potential losses are identified during this review, and
reserves are established accordingly.
Commercial Real Estate
Commercial real estate consists primarily of loans secured
by real estate as well as certain loans that are real estate-
related. A loan is categorized as real estate-related when
80% or more of the borrower's revenues are derived from
real estate activities and the loan is not collateralized by
cash or marketable securities.
At December 31, 1994, commercial real estate loans totaled
$2.5 billion. During 1994, net charge-offs in the commer-
cial real estate portfolio segment were $19 million. Non-
performing commercial real estate assets, including other
real estate, totaled $96 million, or 3.7% of related assets, at
December 31, 1994.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Commercial Real Estate Assets
- -------------------------------------------------------------------------------------------------
December 31 (Dollars in millions) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial real estate loans.............. $2,544 $2,474 $2,795 $4,403 $4,927
Nonperforming loans....................... 68 108 93 309 274
Other real estate, net.................... 28 43 23 457 529
Nonperforming assets...................... 96 151 116 766 803
Net loan charge-offs...................... 19 51 127 183 79
Nonperforming assets/loans outstanding
and other real estate, net.............. 3.7% 6.0% 4.1% 15.8% 14.7%
- -------------------------------------------------------------------------------------------------
</TABLE>
First Chicago Corporation 34 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation enters into a variety of derivative finan-
cial instruments in its trading, asset and liability manage-
ment, and venture capital activities. These instruments
include interest rate, currency, commodity and equity
swaps, forwards, futures, options, caps, floors, forward rate
agreements, and other conditional or exchange contracts,
and include both exchange-traded and over-the-counter
contracts. See Note 15, on page 58, for a discussion of the
nature and terms of derivative financial instruments.
Notional Principal or Contractual Amounts
of Derivative Financial Instruments
The following tables represent the gross notional princi-
pal or contractual amounts of outstanding derivative finan-
cial instruments used in the Corporation's trading, asset
and liability management, and venture capital activities.
They include swaps, forwards, futures, options, caps,
floors, forward rate agreements, and other conditional
or exchange contracts. These amounts do not represent
the market or credit risk associated with these instruments
but instead indicate the volume of the transactions. The
amounts greatly exceed the credit risk associated with these
instruments and do not reflect the netting of offsetting
transactions.
- ------------------------------------------------------------------------
Asset and
December 31, 1994 Liability Venture
(In billions) Trading Management Capital Total
- ------------------------------------------------------------------------
Foreign exchange
contracts.............. $291.7 $1.2 $ -- $292.9
Interest rate
contracts.............. 317.6 8.5 -- 326.1
Commodity contracts...... 0.1 -- -- 0.1
Equity contracts......... 2.7 -- 0.3 3.0
------ ---- ---- ------
Total................ $612.1 $9.7 $0.3 $622.1
====== ==== ==== ======
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Asset and
December 31, 1993 Liability Venture
(In billions) Trading Management Capital Total
- ------------------------------------------------------------------------
Foreign exchange
contracts.............. $219.4 $1.1 $ -- $220.5
Interest rate
contracts.............. 202.0 8.5 -- 210.5
Commodity contracts...... 0.2 -- -- 0.2
Equity contracts......... 0.1 -- 0.1 0.2
------ ---- ---- ------
Total................ $421.7 $9.6 $0.1 $431.4
====== ==== ==== ======
- ------------------------------------------------------------------------
Accounting for Derivative Financial Instruments
Derivative financial instruments used in trading and ven-
ture capital activities are valued at prevailing market rates
on a present value basis. Realized and unrealized gains
and losses are included in noninterest income as com-
bined trading profits and equity securities gains. Where
appropriate, compensation for credit risk and ongoing ser-
vicing is deferred and taken into income over the term of
the derivatives. Any gain or loss on the early termination
of an interest rate swap used in trading activities is recog-
nized currently in combined trading profits.
Income or expense on most derivative financial instru-
ments used to manage interest rate exposure is recorded
on an accrual basis as an adjustment to the yield of the
related interest rate exposures over the periods covered
by the contracts. If an interest rate swap that is used to
manage interest rate risk is terminated early, any resulting
gain or loss is deferred and amortized as an adjustment to
the yield of the underlying interest rate exposure position
over the remaining periods originally covered by the ter-
minated swap.
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. Derivative financial instruments executed with
the same counterparty under a legally enforceable master
netting arrangement are reported on a net basis as deriva-
tive product assets or liabilities.
First Chicago Corporation 35 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
Income Resulting from Derivative Financial Instruments
A discussion of the Corporation's income from derivatives
used in trading and venture capital activities, is presented
on pages 20 and 30, respectively.
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 the effective use
of these derivatives. Without their use, net interest income
would have been lower by $84 million in 1994, $169 mil-
lion in 1993 and $149 million in 1992.
The sale of fixed- and floating-rate credit card receivables
as securities to investors subjects the Corporation's servic-
ing revenue to interest rate risk. The Corporation uses
interest rate derivatives to reduce the volatility of the serv-
icing income on credit card securitizations. Without the
use of these instruments, credit card fee revenue would
have been reduced by $39 million in 1994, $67 million in
1993 and $57 million in 1992. The terms of these deriva-
tives match the terms of the credit card securitizations.
Deferred gains and losses on the early termination of inter-
est rate swaps used to manage interest rate risk total a net
deferred gain of $46 million as of December 31, 1994, and
a net deferred gain of $93 million as of December 31, 1993.
A significant portion of these deferred gains was related to
securitized credit card receivables. The amount at Decem-
ber 31, 1994, is scheduled to be amortized into income in
the following periods: $28 million in 1995, $19 million in
1996, $1 million in 1997 and $(2) million thereafter.
Credit Exposure Resulting from
Derivative Financial Instruments
The Corporation maintains risk management policies that
monitor and limit exposure to credit risks. For a further
discussion of credit risks, see the Credit Risk Management
section, on page 31.
The Corporation's credit exposure resulting from deriva-
tive financial instruments is represented by their fair value
amounts, increased by an estimate of maximum adverse
position exposure. The incremental amount of credit
exposure for potential adverse movement is calculated by
using a statistical model that estimates changes over time
in exchange rates, interest rates and other relevant factors.
Credit exposure amounts fluctuate as a function of matu-
rity, interest rates, foreign exchange rates, commodity
prices and equity prices. Gross credit exposure may be
overstated because it does not consider collateral and
other security or the offsetting of losses with the same
counterparties based on legally enforceable termination
and netting rights. A reconciliation between gross credit
exposure and balance sheet exposure is presented below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
December 31, 1994 (In billions)
- ------------------------------------------------------------
<S> <C>
Gross credit exposure.............................. $12.3
Less additional exposure based on estimate of
maximum adverse position exposure................ 5.4
-----
Gross fair value exposure.......................... $ 6.9
=====
Gross fair value exposure by type of contract
Interest rate contracts.......................... $ 3.6
Foreign exchange contracts....................... 3.2
Equity contracts................................. 0.1
-----
Gross fair value exposure...................... $ 6.9
Less netting adjustments due to
master netting agreements........................ 2.5
Add unrecognized net loss due to non-trading
activities....................................... --
-----
Balance sheet exposure............................. $ 4.4
=====
- ------------------------------------------------------------
</TABLE>
At December 31, 1993, the gross credit exposure and the
gross fair value exposure resulting from derivative financial
instruments were $10.6 billion and $6.5 billion, respectively.
There were no net charge-offs in 1994 related to derivative
financial instruments.
First Chicago Corporation 36 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Selected Capital Ratios
- ----------------------------------------------------------------------------------
Corporate
December 31 1994 1993 1992 1991 1990 Guideline
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common equity/total assets (1)..... 6.6% 7.2% 5.9% 5.1% 4.8% N/A
Tangible common equity ratio (1)... 6.2 6.6 5.0 4.1 3.9 N/A
Stockholders' equity/total assets.. 6.9 8.1 6.9 6.1 5.5 N/A
Risk-based capital ratios (1)(2)
Tier 1........................... 8.8 8.8 6.7 5.5 4.9 7-8%
Total............................ 13.4 13.6 10.8 9.4 8.3 11-12
Leverage ratio (1)(2).............. 7.5 8.0 6.6 5.8 5.0 N/A
Double leverage ratio.............. 117 110 114 116 119 115-125
Dividend payout ratio.............. 28 15 188 174 60 30-35
- ----------------------------------------------------------------------------------
</TABLE>
(1) Net of investment in First Chicago Capital Markets, Inc.
(2) Under 1992 risk-based capital rules.
N/A--Not applicable.
Introduction
Capital represents the stockholders' investment on which
the Corporation strives to generate attractive returns.
It supports business growth and provides protection to
depositors and creditors. Banking is a risk-taking activity,
and management believes that capital is the foundation of
a cohesive risk management framework in which the Cor-
poration's risks and returns come together. Capital ade-
quacy objectives have been developed for the Corporation
and its principal banking subsidiaries to meet these needs
and also maintain a well-capitalized regulatory position.
Management believes that a strong capital base coupled
with attractive earnings are instrumental in enhancing long-
term stockholder value. To that end, the Corporation's key
capital management objectives are to:
o maintain a capital base commensurate with its overall
risk profile;
o maintain strong capital ratios relative to its peers;
o meet or exceed all regulatory guidelines; and
o generate attractive returns.
To achieve these objectives, the Finance Committee, which
oversees the Corporation's capital goals, annually estab-
lishes a capital plan. This plan is intended to ensure that
the Corporation and each of its subsidiaries have capital
structures consistent with prudent management principles
and regulatory requirements.
Economic Capital
In the normal course of business, the Corporation takes
on several types of risk: credit, liquidity, structural interest
rate, market and operating/fiduciary. As discussed in the
Risk Management section, frameworks have been devel-
oped to independently monitor and control many of these
exposures. To integrate these processes, an economic cap-
ital framework has been constructed to allocate capital to
business segments, products and customers based on the
amount and type of risk inherent in the activity. Once eco-
nomic capital is allotted, returns can be computed to deter-
mine if the activity earns an adequate return on risk. This
process forms a key decision-making tool for managing
risk-taking activities as well as ensuring that capital is
profitably employed.
A financial instrument or business activity attracts economic
capital based on its potential for loss of value over a par-
ticular time period. Losses result from adverse price move-
ments for market and interest rate risk, failure of a counter-
party to perform according to the terms of an agreement
for credit risk, and operating errors and negligence for
operating/fiduciary risk. Generally, statistical analysis of
historical data provides the volatility estimates using a
three-standard-deviation confidence interval in determin-
ing the appropriate levels of economic capital. Capital is
designed to cover most loss occurrences, but not the max-
imum loss possible. Credit and operating loss experiences
form the basis for assessing the volatility of these risks.
Volatility of interest and exchange rates and commodity
and equity prices is used to determine the capital for
market risk.
Although capital is allocated to specific activities and
instruments, a diverse portfolio of activities requires less
capital than the sum of the individual components because
it is unlikely that all activities will experience large value
declines at the same time. Consequently, the Corporation's
total capital level will be less than the sum of the individual
requirements.
Total economic capital will vary proportionately with the
level and riskiness of the Corporation's businesses and
products. The Corporation's primary exposure is to credit
risk, which during 1994 consumed the largest amount of
economic capital. The Corporation intends to maintain
capital commensurate with its risk profile and intermedi-
ary requirements, and to deploy its capital resources in
activities that earn attractive returns for stockholders.
Because of dissimilar measurement techniques, book cap-
ital, economic capital and intermediary capital differ, and
the management of these differences is another task of
the capital planning process.
The Corporation has established a capital level that it
believes is necessary to provide flexibility while maintain-
ing an adequate base for its risk profile and in relation to
its peers. This target, or intermediary capital, is expressed
in terms of Tier 1 capital and ranges from 7% to 8%.
First Chicago Corporation 37 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
As the following chart shows, the Corporation's average
common equity during 1994 exceeded its economic
capital--that needed for current business risks--and was
more than sufficient to meet its intermediary capital goals.
Excess capital above the intermediary capital target is
available for investments and acquisitions; it averaged
about $450 million during 1994. If attractive long-term
opportunities are not available over time in the Corpora-
tion's core businesses, any excess capital will be returned
to stockholders, typically via stock repurchase programs
and/or dividend increases.
Inherent in capital management is the ability of the Cor-
poration to generate acceptable returns on stockholders'
capital. Even with excess capital, the Corporation has been
able to earn attractive returns on equity. Over the past two
years, the return on average common stockholders' equity
has been greater than the Corporation's goal of consis-
tently earning at least 15%.
- ------------------------------------------------------------------------------
BAR CHART:
Average Economic Capital
(In billions)
1992* 1993 1994
----- ----- -----
2.9 3.1 3.8
*Economic capital and targeted intermediary capital exceeded actual common
equity due largely to the effect of the accelerated asset disposition program
- ------------------------------------------------------------------------------
Regulatory Capital
The Corporation endeavors to maintain regulatory capital
ratios, including those of its principal banking subsidiaries,
in excess of the well-capitalized guidelines. To assure meet-
ing this goal, the Corporation has established target ranges
of 7% to 8% for Tier 1 capital and 11% to 12% for total
risk-based capital. Both targets exceed the respective well-
capitalized guidelines of 6% and 10%. As shown in the
following chart, these ratios have improved over the past
three years, with the 1993 and 1994 figures exceeding the
upper end of the Corporation's target ranges.
- ---------------------------------------------------------------
BAR CHART:
Tier 1 and Total Capital Ratios*
1992 1993 1994
---- ---- ----
Tier 1 6.7% 8.8% 8.8%
Total 10.8% 13.6% 13.4%
*At year-end
- ---------------------------------------------------------------
The Corporation's principal banking subsidiaries--The First
National Bank of Chicago (FNBC), FCC National Bank
(FCCNB), and American National Bank and Trust Com-
pany of Chicago (ANB)--have exceeded the regulatory
well-capitalized guidelines for the past two years, as shown
in the following table.
It is important to note that by maintaining regulatory well-
capitalized status, the subsidiary banks benefit from lower
Federal Deposit Insurance Corporation deposit premiums.
Principal Banking Subsidiaries
Regulatory Capital Ratios
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
December 31, 1994 December 31, 1993 December 31, 1992
---------------------- ---------------------- ----------------------
FNBC FCCNB ANB FNBC FCCNB ANB FNBC FCCNB ANB
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Risk-based capital ratios
Tier 1 capital............ 8.1% 12.1% 9.5% 7.7% 10.0% 10.1% 5.5% 6.4% 9.4%
Total capital............. 12.5 15.0 12.0 11.8 12.9 11.8 9.3 10.1 11.4
Leverage ratio................ 6.3 14.4 9.1 6.7 12.3 8.7 5.3 7.4 8.0
- --------------------------------------------------------------------------------------------------------------
</TABLE>
First Chicago Corporation 38 Annual Report 1994
<PAGE>
- ---------------------------------------------------------------
Tier 1 capital expanded in 1994 due largely to earnings
retained in common stockholders' equity, while Tier 2 cap-
ital increased because of the issuance of qualifying long-
term debt. The following tables show the components of
the Corporation's regulatory risk-based capital and risk-
weighted assets.
Regulatory Capital
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
December 31 (In millions) 1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital
Common stockholders' equity............ $3,922 $3,503 $2,732
Preferred stock........................ 611 761 669
Less 50% of investment in First
Chicago Capital Markets, Inc......... (128) (69) (59)
Less disallowed intangibles and
other adjustments.................... (80) (97) (119)
------ ------ ------
Tier 1 capital....................... $4,325 $4,098 $3,223
Tier 2 capital
Allowance for credit losses (1)........ 616 581 605
Qualifying long-term debt.............. 1,753 1,682 1,452
Less 50% of investment in First
Chicago Capital Markets, Inc. ....... (128) (69) (59)
------ ------ ------
Tier 2 capital....................... 2,241 2,194 1,998
------ ------ ------
Total capital...................... $6,566 $6,292 $5,221
====== ====== ======
- -------------------------------------------------------------------------
(1) Limited to 1.25% of risk-weighted assets.
Regulatory Risk-Weighted Assets*
- -------------------------------------------------------------------------
December 31 (In billions) 1994 1993 1992
- -------------------------------------------------------------------------
Balance-sheet risk-weighted assets..... $33.0 $30.5 $30.1
Off-balance-sheet risk-weighted
assets............................... 16.2 15.8 18.3
----- ----- -----
Total risk-weighted assets............. $49.2 $46.3 $48.4
===== ===== =====
- -------------------------------------------------------------------------
*Based on Federal Reserve Board definitions.
</TABLE>
Dividends
Dividends are an integral part of the capital management
and stockholder value program. The Corporation's com-
mon dividend policy reflects its earnings outlook, dividend
payout ratios, peer comparisons, the need to maintain an
adequate capital level and alternative investment oppor-
tunities. Given these factors, the Corporation presently
intends to maintain a common dividend payout ratio over
time in the range of 30% to 35% of operating earnings.
During 1994, the Corporation declared two increases in
its quarterly common dividend. The $0.55 per share com-
mon dividend declared on November 11, 1994, and paid
on January 1, 1995, represents a 38% increase from the
$0.40 per share common dividend paid on January 1, 1994,
and an 83% increase from the $0.30 per share paid on
October 1, 1993.
Stock Repurchase Program and Other Capital Activities
The repurchase of shares is another technique used to
manage capital and enhance stockholder value. During
1994, the Corporation repurchased 4.6 million shares of
common stock at an average price of $47.94 per share.
This brings the total number of shares repurchased under
the 7 million share buyback program to 4.8 million, and
represents approximately 70% of the shares authorized
under the program. The program is designed to meet pro-
jected requirements of the Corporation's employee benefit
plans and to manage the Corporation's overall capital
position.
On July 1, 1994, the Corporation redeemed its $150 mil-
lion issue of Preferred Stock, Series D, reducing annual
dividend requirements by $15 million. Regulatory total
capital was increased in January 1994 through the issuance
of $200 million of subordinated debt.
Double Leverage
Double leverage is the extent to which holding company
debt is used to finance equity investments in subsidiaries.
Presently, the Corporation intends to limit its double lev-
erage ratio to no more than 125% at any time and 115%
on average. On December 31, 1994, the Corporation's
double leverage was 117%, compared with 110% at year-
end 1993.
First Chicago Corporation 39 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet
First Chicago Corporation and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------
December 31 (Dollars in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks--noninterest-bearing.................................... $ 4,265 $ 3,916
Due from banks--interest-bearing................................................ 8,066 6,037
Federal funds sold and securities under resale agreements....................... 13,302 8,783
Trading account assets.......................................................... 4,967 4,536
Investment securities (fair values--$2,589 in 1994 and $2,264 in 1993).......... 2,592 2,256
Loans (net of unearned income--$297 in 1994 and $282 in 1993)................... 25,947 23,103
Less allowance for credit losses.............................................. 723 683
------- -------
Total loans, net.............................................................. 25,224 22,420
Premises and equipment.......................................................... 665 635
Accrued income receivable....................................................... 485 407
Customers' acceptance liability................................................. 526 517
Derivative product assets....................................................... 4,389 --
Other assets.................................................................... 1,419 3,053
------- -------
Total assets.......................................................... $65,900 $52,560
======= =======
- ---------------------------------------------------------------------------------------------------------------
Liabilities
Deposits
Demand........................................................................ $ 7,647 $ 8,184
Savings....................................................................... 7,448 7,541
Time.......................................................................... 5,149 4,925
Foreign offices............................................................... 11,422 7,536
------- -------
Total deposits........................................................ 31,666 28,186
Federal funds purchased and securities under repurchase agreements.............. 13,026 8,255
Other funds borrowed............................................................ 7,665 6,007
Long-term debt.................................................................. 2,271 2,065
Acceptances outstanding......................................................... 526 517
Derivative product liabilities.................................................. 4,097 --
Other liabilities............................................................... 2,116 3,266
------- -------
Total liabilities..................................................... 61,367 48,296
- ---------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock--without par value, authorized 15,000,000 shares
Outstanding:
- ----------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------
Series A ($ 50 stated value)....................... 2,410,000 2,410,000 121 121
Series B ($100 stated value)....................... 1,191,000 1,191,000 119 119
Series C ($100 stated value)....................... 713,800 713,800 71 71
Series D ($ 25 stated value)....................... -- 6,000,000 -- 150
Series E ($625 stated value)....................... 160,000 160,000 100 100
Convertible Series B ($5,000 stated value)......... 40,000 40,000 200 200
Common stock--$5 par value........................................................ 466 434
- ----------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------
Number of shares authorized.......................... 150,000,000 150,000,000
Number of shares issued.............................. 93,148,134 86,715,812
Number of shares outstanding......................... 89,859,798 86,398,605
Surplus........................................................................... 1,712 1,724
Retained earnings................................................................. 1,905 1,358
Other adjustments................................................................. (4) --
------- -------
Total................................................................... 4,690 4,277
Less treasury stock at cost, 3,288,336 shares in 1994 and 317,207 shares in 1993.. 157 13
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity.................................................... 4,533 4,264
------- -------
Total liabilities and stockholders' equity.............................. $65,900 $52,560
======= =======
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.
First Chicago Corporation 40 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
Consolidated Income Statement
First Chicago Corporation and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------------------
For the Year (In millions, except per share data) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans.......................................................... $1,897.2 $1,687.4 $1,894.4
Interest on bank balances........................................................... 361.7 298.0 358.0
Interest on federal funds sold and securities under resale agreements............... 615.2 344.8 284.8
Interest on trading account assets.................................................. 277.7 221.9 259.0
Interest on investment securities (including dividends)............................. 68.2 72.0 73.4
-------- -------- --------
Total..................................................................... 3,220.0 2,624.1 2,869.6
- ---------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest on deposits................................................................ 779.5 644.1 973.7
Interest on federal funds purchased and securities under repurchase agreements...... 526.2 308.1 345.3
Interest on other funds borrowed.................................................... 413.2 295.8 240.7
Interest on long-term debt.......................................................... 170.1 150.3 126.9
-------- -------- --------
Total..................................................................... 1,889.0 1,398.3 1,686.6
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income................................................................. 1,331.0 1,225.8 1,183.0
Provision for credit losses......................................................... 224.0 270.0 425.0
Provision for loans held for accelerated disposition................................ -- -- 491.0
-------- -------- --------
Net Interest Income After Provision for Credit Losses and
Provision for Loans Held for Accelerated Disposition.............................. 1,107.0 955.8 267.0
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest Income
Combined trading profits............................................................ 65.7 284.6 177.3
Equity securities gains............................................................. 228.6 480.2 204.6
Investment securities gains......................................................... 1.2 0.3 8.6
-------- -------- --------
Market-driven revenue............................................................. 295.5 765.1 390.5
Credit card fee revenue............................................................. 832.1 694.2 516.1
Service charges and commissions..................................................... 421.9 432.5 381.0
Fiduciary and investment management fees............................................ 199.2 200.7 189.8
Net gains from accelerated disposition portfolio activities......................... 45.9 60.0 --
Other income........................................................................ 80.0 49.9 10.8
-------- -------- --------
Total..................................................................... 1,874.6 2,202.4 1,488.2
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and employee benefits...................................................... 868.9 853.9 748.0
Occupancy expense of premises, net.................................................. 137.3 147.7 186.0
Equipment rentals, depreciation and maintenance..................................... 157.4 110.3 111.2
Other expense....................................................................... 753.3 742.0 719.2
-------- -------- --------
Subtotal.................................................................... 1,916.9 1,853.9 1,764.4
Provision for other real estate held for accelerated disposition.................... -- -- 134.0
Provision for other real estate..................................................... 1.7 4.2 56.9
-------- -------- --------
Total..................................................................... 1,918.6 1,858.1 1,955.3
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes................................................... 1,063.0 1,300.1 (200.1)
Applicable income taxes (benefit)................................................... 373.3 495.6 (85.6)
-------- -------- --------
Income (Loss) Before Cumulative Effect of Changes in Accounting Principles.......... 689.7 804.5 (114.5)
Cumulative Effect of Changes in Accounting Principles--
Valuation of Venture Capital Investment Securities................................ -- -- 220.7
Recognition of Credit Card Solicitation Costs..................................... -- -- (12.7)
-------- -------- --------
Net Income.......................................................................... $ 689.7 $ 804.5 $ 93.5
======== ======== ========
Net Income Attributable to Common Stockholders' Equity.............................. $ 637.5 $ 747.5 $ 48.9
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------
Common Share Data
Primary
Income (loss) before cumulative effect of changes in accounting principles........ $7.04 $8.78 $(2.08)
Cumulative effect of changes in accounting principles--
Valuation of venture capital investment securities.............................. -- -- 2.89
Recognition of credit card solicitation costs................................... -- -- (0.17)
----- ----- ------
Net income.......................................................................... $7.04 $8.78 $ 0.64
===== ===== ======
Fully Diluted
Income (loss) before cumulative effect of changes in accounting principles........ $6.88 $8.43 $(2.08)
Cumulative effect of changes in accounting principles--
Valuation of venture capital investment securities.............................. -- -- 2.89
Recognition of credit card solicitation costs................................... -- -- (0.17)
----- ----- ------
Net income.......................................................................... $6.88 $8.43 $ 0.64
===== ===== ======
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
First Chicago Corporation 41 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Stockholders' Equity
First Chicago Corporation and Subsidiaries
- --------------------------------------------------------------------------------------------------------------------------------
For the Three Years Ended Treasury
December 31, 1994 Preferred Common Retained Other Stock
(In millions) Stock Stock Surplus Earnings Adjustments (at Cost) Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991................ $ 569 $345 $1,297 $ 760 $ 3 $ (4) $2,970
Net income.............................. -- -- -- 94 -- -- 94
Issuance of common stock................ -- 67 306 -- -- -- 373
Issuance of preferred stock............. 100 -- (4) -- -- -- 96
Cash dividends declared
Preferred stock....................... -- -- -- (44) -- -- (44)
Common stock.......................... -- -- -- (89) -- -- (89)
Other................................... -- -- -- -- (2) 3 1
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992................ $ 669 $412 $1,599 $721 $ 1 $ (1) $3,401
Net income.............................. -- -- -- 804 -- -- 804
Issuance of common stock................ -- 7 37 -- -- -- 44
Issuance of preferred stock............. 200 -- (4) -- -- -- 196
Redemption of preferred stock........... (108) 15 92 -- -- -- (1)
Cash dividends declared
Preferred stock....................... -- -- -- (57) -- -- (57)
Common stock.......................... -- -- -- (110) -- -- (110)
Treasury stock purchases................ -- -- -- -- -- (12) (12)
Other................................... -- -- -- -- (1) -- (1)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993................ $ 761 $434 1,724 $1,358 $-- $ (13) $4,264
Net income.............................. -- -- -- 690 -- -- 690
Issuance of common stock................ -- 1 12 -- -- -- 13
Issuance of treasury stock.............. -- -- (38) -- -- 87 49
Redemption of preferred stock........... (150) -- -- -- -- -- (150)
Acquisition of
Lake Shore Bancorp. .................... -- 31 18 78 (4) -- 123
Cash dividends declared
Preferred stock....................... -- -- (4) (48) -- -- (52)
Common stock.......................... -- -- -- (173) -- -- (173)
Treasury stock purchases................ -- -- -- -- -- (231) (231)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994................ $ 611 $466 $1,712 $1,905 $(4) $(157) $4,533
===== ==== ====== ====== === ===== ======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
First Chicago Corporation 42 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
First Chicago Corporation and Subsidiaries
- --------------------------------------------------------------------------------------------------------------------------------
For the Year (In millions) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income.......................................................................... $ 690 $ 804 $ 94
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization..................................................... 175 188 173
Combined credit provisions (including accelerated disposition provision).......... 226 274 1,107
Equity securities gains........................................................... (229) (480) (205)
Net (increase) in net derivative product balances................................. (57) -- --
Net gains from accelerated disposition portfolio activities....................... (46) (60) --
Cumulative effect of changes in accounting principles............................. -- -- (208)
Net (increase) in trading account assets.......................................... (416) (1,224) (1,346)
Net (increase) decrease in accrued income receivable.............................. (78) (51) 174
Net decrease in other assets...................................................... 51 76 678
Interest income from Brazilian debt restructuring................................. (17) -- --
Other noncash adjustments......................................................... 69 6 (87)
--------- -------- ---------
Total adjustments................................................................. (322) (1,271) 286
Net cash provided by (used in) operating activities................................. 368 (467) 380
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Net (increase) in federal funds sold and securities under resale agreements......... (4,506) (1,891) (1,684)
Purchase of investment securities................................................... -- (3,068) (1,202)
Purchase of investment securities--available for sale............................... (1,287) -- --
Purchase of debt investment securities--held to maturity............................ (289) -- --
Purchase of venture capital investments............................................. (181) -- --
Proceeds from maturities of debt securities......................................... -- 3,047 703
Proceeds from maturities of debt securities--available for sale..................... 982 -- --
Proceeds from maturities of debt securities--held to maturity....................... 299 -- --
Proceeds from sales of debt securities.............................................. -- -- 366
Proceeds from sales of debt securities--available for sale.......................... 191 -- --
Proceeds from sales of equity securities............................................ -- 598 244
Proceeds from sales of equity securities--available for sale........................ 54 -- --
Proceeds from sales of venture capital investments.................................. 333 -- --
Net (increase) in credit card receivables........................................... (2,880) (3,493) (1,515)
Credit card receivables securitized................................................. 2,000 1,700 1,000
Net (increase) decrease in loans of bank subsidiaries............................... (1,480) 973 1,186
Loans made to customers and purchased from others by nonbank subsidiaries........... (499) (142) (181)
Principal collected on and proceeds from sale of loans by nonbank subsidiaries...... 506 302 377
Loan recoveries..................................................................... 74 97 88
Net proceeds from sales of assets held for accelerated disposition.................. 112 829 174
Purchases of premises and equipment................................................. (170) (213) (151)
Proceeds from sales of premises and equipment....................................... 38 71 63
Net cash and cash equivalents due to mergers and acquisitions....................... 44 -- --
--------- -------- ---------
Net cash (used in) investing activities............................................. (6,659) (1,190) (532)
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net increase (decrease) in demand and savings deposits.............................. (934) 525 1,934
Net (decrease) in time deposits..................................................... (470) (1,342) (3,269)
Deposits acquired................................................................... -- 12 --
Net increase (decrease) in deposits in foreign offices.............................. 3,799 (687) (978)
Net increase in federal funds purchased and securities
under repurchase agreements....................................................... 4,722 1,293 1,817
Net (decrease) in commercial paper.................................................. (17) (8) (54)
Proceeds from other funds borrowed.................................................. 249,952 80,869 110,418
Repayment of other funds borrowed................................................... (248,139) (79,024) (109,134)
Proceeds from issuance of long-term debt............................................ 204 826 234
Repayment of long-term debt......................................................... (10) (471) (257)
Net increase (decrease) in other liabilities........................................ 2 285 (1,102)
Dividends paid...................................................................... (211) (158) (145)
Proceeds from issuance of common stock.............................................. 12 41 375
Proceeds from reissuance of treasury stock.......................................... 39 4 6
Purchase of treasury stock.......................................................... (231) (13) (1)
Proceeds from issuance of preferred stock........................................... -- 196 96
Payment for redemption of preferred stock........................................... (150) (1) --
--------- -------- ---------
Net cash provided by (used in) financing activities................................. 8,568 2,347 (60)
- --------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents........................ 101 (75) (45)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents................................ 2,378 615 (257)
Cash and cash equivalents at beginning of year...................................... 9,953 9,338 9,595
--------- -------- ---------
Cash and cash equivalents at end of year............................................ $ 12,331 $ 9,953 $ 9,338
========= ======== =========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest paid in cash by the Corporation totaled $1.8 billion in 1994, $1.4
billion in 1993 and $1.9 billion in 1992. Income taxes paid in cash by the
Corporation totaled $355 million in 1994, $175 million in 1993 and $50 million
in 1992.
The Corporation financed the sale of other real estate in the amount of $2
million, $2 million and $135 million in 1994, 1993 and 1992, respectively. Loans
transferred to other real estate were $20 million, $51 million and $192 million
in 1994, 1993 and 1992, respectively.
The accompanying notes to consolidated financial statements are an integral part
of this statement.
First Chicago Corporation 43 Annual Report 1994
<PAGE>
Notes to Consolidated Financial Statements
First Chicago Corporation and Subsidiaries
- -------------------------------------------------------------------------------
N O T E 1--Summary of Significant Accounting Policies
The consolidated financial statements for First Chicago
Corporation (the Corporation) and subsidiaries have been
prepared in conformity with generally accepted account-
ing principles. A description of those accounting policies
of particular significance follows.
(a) Principles of Consolidation
The Corporation's consolidated financial statements in-
clude the accounts of all subsidiaries more than 50%
owned. All significant intercompany accounts and trans-
actions have been eliminated in consolidation.
(b) Intangible Assets
Goodwill, representing the cost of investments in subsid-
iaries and affiliated companies in excess of the fair value
of net assets acquired, is amortized on a straight-line basis
over periods ranging from 10 to 25 years.
Other intangible assets, such as the value of acquired cus-
tomer lists, core deposits and credit card relationships, are
amortized using various methods over the periods bene-
fited, ranging from 5 to 17 years.
(c) Investment Securities
In 1993, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, for debt
and equity securities except those held by its venture
capital subsidiaries. This adoption did not have a material
impact on the Corporation's financial statements.
Under SFAS No. 115, debt investment securities are desig-
nated as either held to maturity or available for sale at
the time of acquisition and are reevaluated to determine
appropriate classification in subsequent reporting periods.
Debt securities that the Corporation has the positive intent
and ability to hold to maturity are carried at historical
cost, adjusted for amortization of premiums and accretion
of discounts. Previously, such accounting treatment was
applied to debt securities that were intended to be held
as long-term investments. All other debt and equity invest-
ment securities covered by SFAS No. 115 are classified
as available for sale and are carried at fair value, with
unrealized gains and losses and applicable income taxes
reported in other adjustments in stockholders' equity.
Previously, these securities were carried at the lower of
cost or fair value.
Realized gains and losses and other than temporary im-
pairments related to debt and equity securities, are deter-
mined using the specific identification method and are
reported in noninterest income as investment securities
gains for debt securities and as equity securities gains for
equity securities.
The Corporation adopted fair value accounting for invest-
ments of its venture capital subsidiaries on January 1, 1992.
Changes in the fair value of such investments are recog-
nized in noninterest income as equity securities gains.
Previously, such investments were carried at the lower of
aggregate cost or fair value.
The fair value of publicly traded investments takes into
account their quoted market prices with adjustments made
for market liquidity or sale restrictions. For investments
that are not publicly traded, estimates of fair value have
been made by management that consider the investees'
financial results, conditions and prospects, and the values
of comparable public companies.
Because of the nature of these investments, the equity
method of accounting is not used in situations where the
Corporation has a greater than 20% ownership interest.
(d) Trading Account Activities
Trading account assets are stated at fair value. Realized
and unrealized gains and losses on trading account activ-
ities are reflected in noninterest income as combined trad-
ing profits.
Combined trading profits include interest rate, exchange
rate, commodity price, and equity price trading results
from both cash and derivative financial instruments, ex-
cluding equity securities and related hedges. Cash financial
instruments include U.S. government and agency obliga-
tions, municipal obligations, asset-backed securities, and
other types of securities, loans and deposits. Derivative
financial instruments include swaps, forwards, futures,
options, caps, floors, forward rate agreements, and other
conditional or exchange contracts. The table on page 20
reports the Corporation's net trading revenue by activity,
including both combined trading profits and related net
interest income.
(e) Derivative Financial Instruments
For a discussion of the Corporation's accounting policies
for derivative financial instruments, see the Derivative
Financial Instruments section, on page 35.
(f) Nonperforming Loans
Loans, including lease-financing receivables, are consid-
ered nonperforming when placed on nonaccrual status,
or when a loan is renegotiated and the renegotiated terms
represent an economic concession to the borrower.
A loan, excluding a credit card loan, is placed on non-
accrual status when the collection of contractual principal
or interest is deemed doubtful by management or becomes
90 days or more past due, and the loan is not well secured
or in the process of collection. Accrued but uncollected
interest on a loan is reversed and charged against interest
income when the loan is placed on nonaccrual status.
Accrued but uncollected interest on a credit card loan is
charged against interest income when the loan becomes
180 days past due.
Interest payments received on nonaccrual loans are re-
corded as reductions of principal if the collection of the
remaining carrying amount is doubtful; otherwise, such
payments are recorded as interest income.
An economic concession on a renegotiated loan is made
when the yield under the renegotiated terms is reduced
below current market rates by an agreement with the bor-
rower. Generally, this occurs when the borrower's cash flow
First Chicago Corporation 44 Annual Report 1994
<PAGE>
- ------------------------------------------------------------------------------
is insufficient to service the loan under its original terms.
Subject to the above nonaccrual policy, interest on these
loans is accrued at the reduced rates.
(g) Credit Card Securitization
The Corporation actively packages and sells credit card
receivables as securities to investors. Since the receivables
are sold at par value, no gains or losses are recorded at
the time of sale.
The amount of credit card interest income and fee rev-
enue in excess of interest paid to certificate holders, credit
losses and other trust expenses is recognized monthly as
servicing fees in credit card fee revenue over the term of
the transaction. Other transaction costs are deferred and
amortized ratably as a reduction of servicing fees over the
terms of the related securitizations.
(h) Other Real Estate
Other real estate includes assets that have been either
acquired in satisfaction of debt (assets owned) or substan-
tively repossessed (in-substance foreclosures). In-substance
foreclosures occur when the market value of the collateral
is less than the legal obligation of the borrower and the
Corporation expects repayment of the loan to come only
from collateral. Other real estate is recorded at fair value
at the date of transfer. Any valuation adjustments required
at the date of transfer are charged to the allowance for
credit losses. Subsequent to acquisition, other real estate
is carried at the lower of cost or fair value, based on
periodic evaluations that consider changes in market con-
ditions, development and disposition costs, and estimated
holding periods. Operating results from assets acquired
in satisfaction of debt, including rental income less oper-
ating costs and depreciation, are recorded in other non-
interest income.
(i) Allowance for Credit Losses
The allowance for credit losses is maintained at a level
that in management's judgment is adequate to provide for
estimated probable credit losses resulting from on-balance-
sheet credit exposure for items such as loans and deriv-
ative financial instruments, and off-balance-sheet credit
exposure for credit-related and derivative financial instru-
ments. The amount of the allowance is based on manage-
ment's formal review and analysis of potential credit losses,
as well as prevailing economic conditions. The allowance is
increased by provisions for credit losses, which are charged
to earnings, and is reduced by charge-offs net of recoveries.
(j) Assets Held for Accelerated Disposition
In 1992, the Corporation segregated certain commercial
real estate assets and related commitments in an acceler-
ated disposition portfolio. The Corporation transferred
assets to this portfolio at their estimated disposition val-
ues. The assets in this portfolio are carried at the lower of
the initially established carrying values or newly estimated
disposition values. The credit and valuation process related
to this portfolio is performed quarterly to assess the on-
going condition of each individual credit, to determine any
change in credit risk classification, and to determine the
need, if any, for additional valuation adjustments. Income
recognition is based on the credit characteristics of the
individual assets in the disposition portfolio. Net gains as
a result of transaction activity related to disposition port-
folio assets are included in noninterest income.
(k) Premises and Equipment
Premises and equipment are stated at cost less accumu-
lated depreciation and amortization, which are computed
principally on the straight-line method over the estimated
useful lives of the related assets. Gains and losses on dis-
positions are reflected in other noninterest income. Main-
tenance and repairs are charged to noninterest expense as
incurred.
(l) Foreign Currency Translation
The Corporation's translation policies are based on a
determination of the primary operating currency (func-
tional currency) for each foreign installation. If a foreign
installation's functional currency is the U.S. dollar, assets
and liabilities carried in local currency are translated to
U.S. dollars at current exchange rates except for premises
and equipment, which are translated at historic rates.
Translation effects and results of related hedging trans-
actions, neither of which is material, are included in other
noninterest income.
If the foreign installation's functional currency is its local
currency, all assets and liabilities are translated at current
exchange rates. Translation adjustments, related hedging
results and applicable income taxes are included in other
adjustments within stockholders' equity. If a foreign instal-
lation is to be sold or liquidated, the related accumulated
other adjustments balance is reversed and recognized as
part of the gain or loss on disposition.
Operating results of foreign installations are translated at
averages of exchange rates prevailing during the year. The
interest element of hedging transactions is included in
interest expense.
(m) Income Taxes
The Corporation's accounting for income taxes is based
on an asset and liability approach. The Corporation rec-
ognizes the amount of taxes payable or refundable for the
current year, and deferred tax assets and liabilities for the
future tax consequences that have been recognized in its
financial statements or tax returns. The measurement of
tax assets and liabilities is based on the provisions of en-
acted tax laws.
(n) Fees Related to Lending Activities
Lending origination fees, net of costs, and loan commit-
ment fees, in general, are deferred and amortized as inter-
est income over the life of the related loan. The deferred
fees and costs are netted against outstanding loan balances.
Certain credit-related fees, such as syndication manage-
ment fees, commercial letters of credit fees, and fees on
unused, available lines of credit, are recorded as service
charges and commissions in noninterest income when
earned. Fees on standby letters of credit and guarantees
are recorded as service charges and commissions on a
straight-line basis over the term of the related agreements.
(o) Pension, Other Postretirement
and Postemployment Plans
The Corporation maintains a noncontributory defined
benefit plan covering all eligible, salaried domestic em-
ployees. Retirement benefits are primarily a function of
both an employee's years of service and final levels of com-
pensation. The Corporation's funding policy is to contrib-
ute an amount equal to the net periodic pension cost for
First Chicago Corporation 45 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
the year, but not less than the minimum required by ERISA
or more than the maximum tax deductible amount based
on IRS limits. For 1994, no contribution was required.
Net experience gains and losses are amortized over three
years. Settlement gains, which occur when vested former
employees elect to receive lump sum cash payments, are
recorded as net periodic pension credits. Such gains repre-
sent the accelerated recognition of the transition asset and
net experience gains and losses.
Employees in foreign offices participate to varying degrees
in local pension plans, the forms of which are often pre-
scribed by local laws and customs. These plans in the
aggregate are not significant.
The Corporation has no material other postretirement or
postemployment obligations.
(p) Offsetting of Amounts Related to Certain Contracts
In 1994, the Corporation prospectively adopted Financial
Accounting Standards Board (FASB) Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts. This
interpretation is applicable to the balance sheet presenta-
tion of derivative financial instruments. These derivatives
include interest rate, currency, commodity and equity
swaps, forwards, options, caps, floors, forward rate agree-
ments, 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 prod-
uct assets or liabilities.
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. These
amounts are recorded in other assets and other liabilities,
respectively.
FASB Interpretation No. 41, Offsetting of Amounts Related
to Certain Repurchase and Reverse Repurchase Agree-
ments, was issued in December 1994. This interpretation
is effective for 1994 financial statements. It modifies FASB
Interpretation No. 39 to permit but not require offsetting
in the balance sheet of securities under repurchase agree-
ments and securities under resale agreements that meet
certain conditions. Net receivable positions may not be
offset against net payable positions. The Corporation has
not adopted this interpretation in 1994; however, it may
be adopted in a subsequent reporting period pending a
review of its potential effect on the Corporation.
(q) Accounting for Credit Card Solicitation Costs
The Corporation changed its accounting policy in 1992 to
expense certain credit card solicitation costs. Previously,
these costs were deferred and amortized over the esti-
mated life of the account. The Corporation made this
change to reflect the more prevalent industry practice.
(r) Cash Flow Reporting
The Corporation uses the indirect method to report cash
flows from operating activities. Under this method, net
income is adjusted to reconcile it to net cash flow from
operating activities. Net reporting of cash transactions has
been used when the balance sheet items consist predom-
inantly of maturities of three months or less, or where
otherwise permitted. Other items are reported on a gross
basis. Cash flows related to sales of debt investment secu-
rities within three months of the maturity date are classi-
fied as maturities in the consolidated statement of cash
flows. Cash and cash equivalents consist of cash and due
from banks, whether interest-bearing or not.
Cash flows from derivative financial instruments are
reported net as operating activities. Upon adopting FASB
Interpretation No. 39 on January 1, 1994, a noncash trans-
fer of balances attributable to derivative financial instru-
ments on December 31, 1993, was made from other assets
($573 million), accrued income receivable ($941 million)
and other liabilities ($1.3 billion) to net derivative product
balances for purposes of reporting the Consolidated State-
ment of Cash Flows.
(s) Accounting for Loan Impairment
In May 1993, the FASB issued SFAS No. 114, Accounting
by Creditors for Impairment of a Loan. This standard was
recently amended by SFAS No. 118, Accounting by Credi-
tors 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 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 im-
paired loan exceeds the present value of the loan's ex-
pected future cash flows or other measures of value,
a valuation allowance is established for the difference.
The corresponding allocation or charge will be to either
the allowance for credit losses or to the provision for credit
losses, respectively, depending on the adequacy of the
overall allowance for credit losses. SFAS No. 114 also
changes the definition of In-Substance Foreclosures (ISFs),
which will result in currently reported ISFs being reclas-
sified as nonaccrual loans. SFAS No. 118 allows for existing
income recognition practices to continue.
The Corporation has adopted SFAS No. 114 and SFAS
No. 118 as of January 1, 1995. It is expected that the adop-
tion of these standards will not have a material effect on the
Corporation's net income. The allowance for credit losses
allocated to impaired loans is estimated at $26 million.
The January 1, 1995, aggregate recorded investment of
loans that will be reclassified from ISFs to nonaccrual loans
is approximately $15 million. In general, the Corporation
will retain its existing income recognition practices as
described in Note 1(f), on page 44.
First Chicago Corporation 46 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
N O T E 2--Earnings per Share
The Corporation presents earnings per share on both a
primary and a fully diluted basis. Primary earnings per
share were computed by dividing net income, after deduct-
ing 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.
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 following table.
- -------------------------------------------------------------------------
(In millions) 1994 1993 1992
- -------------------------------------------------------------------------
Primary
Net income.......................... $689.7 $804.5 $93.5
Preferred stock dividends (1)....... 52.2 57.0 44.6
------ ------ -----
Net income attributable to
common stockholders' equity....... $637.5 $747.5 $48.9
====== ====== =====
Average number of common and
common-equivalent shares.......... 90.5 85.2 76.5
Fully Diluted
Net income.......................... $689.7 $804.5 N/M
Preferred stock dividends,
excluding convertible Series A
and B, where applicable (1)..... 40.7 43.7 N/M
------ ------ -----
Fully diluted net income............ $649.0 $760.8 N/M
====== ====== =====
Average number of shares,
assuming full dilution............ 94.2 90.3 N/M
- -------------------------------------------------------------------------
(1) 1994 preferred dividends include a 3% premium, totaling $4.5 mil-
lion, paid on the redemption of the Corporation's Cumulative
Preferred Stock, Series D, par value $150 million.
N/M--Not meaningful.
For 1992, the calculation of fully diluted earnings per share
would have produced an anti-dilutive result and, there-
fore, is not shown in the preceding table.
- ------------------------------------------------------------
N O T E 3--Business Acquisitions
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 Corpora-
tion. 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. Con-
sideration tendered for Lake Shore shares and stock
options was approximately $323 million, which consisted
of approximately 6.4 million common shares and share
equivalents of the Corporation. The agreement provided
that each share or share equivalent of Lake Shore com-
mon 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 finan-
cial data.
- ------------------------------------------------------------
N O T E 4--Business Segments
An analysis of the Corporation's results on a line-of-business
basis is shown in the table on page 19. The following table
further details results for other corporate activities that are
not specifically allocated to a business segment.
- ------------------------------------------------------------------
Venture Capital Other
Activities Activities (1)
(Dollars in millions, ------------------ -----------------
except where noted) 1994 1993 1992 1994 1993 1992
- ------------------------------------------------------------------
Net interest income--
tax-equivalent basis.... $(37) $(30) $(37) $ 24 $ 20 $ 11
Combined credit
provisions.............. -- -- (1) -- -- 625
Noninterest income........ 189 371 179 89 58 --
Noninterest expense....... 1 4 12 46 18 92
Net income (loss)......... 95 204 80 56 51 (235)
Return on equity.......... 26% 37% 14% N/M N/M N/M
Average assets
(in billions)........... $1.3 $1.3 $1.3 $0.1 $0.5 $ 0.3
Average loans
(in billions)........... -- -- -- -- $0.5 $ 0.4
Average common equity
(in billions)........... $0.3 $0.5 $0.5 $0.5 $0.2 $ 0.3
- ------------------------------------------------------------------
(1) Includes disposition portfolio activities since initiated in Septem-
ber 1992, other special corporate items, and the cumulative effect
of changes in accounting principles.
N/M--Not meaningful.
The Corporation is primarily engaged in the banking busi-
ness, and with the continuing globalization of financial
markets, the distinction between international and domes-
tic activities has become less important. The following table
shows approximate consolidated financial data for the three
years ended December 31, 1994, attributable to domestic
and foreign operations by geographic area in accordance
with current regulatory reporting requirements.
First Chicago Corporation 47 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Income
(Loss)
Before Net
Income Income Total
(In millions) Revenues(1) Expenses(2) Taxes (Loss) Assets
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Domestic operations........................ $4,445 $3,411 $1,034 $676 $52,815
Foreign operations
Europe-Middle East-Africa................ 387 376 11 6 8,084
Asia-Pacific............................. 122 135 (13) (12) 3,826
Other.................................... 141 110 31 20 1,175
------ ------ ------ ---- -------
Total foreign operations................. 650 621 29 14 13,085
------ ------ ------ ---- -------
Consolidated............................... $5,095 $4,032 $1,063 $690 $65,900
====== ====== ====== ==== =======
- -----------------------------------------------------------------------------------------------------------
1993
Domestic operations........................ $4,130 $2,966 $1,164 $712 $44,301
Foreign operations
Europe-Middle East-Africa................ 399 348 51 32 3,937
Asia-Pacific............................. 149 156 (7) (5) 2,921
Other.................................... 148 56 92 65 1,401
------ ------ ------ ---- -------
Total foreign operations................. 696 560 136 92 8,259
------ ------ ------ ---- -------
Consolidated............................... $4,826 $3,526 $1,300 $804 $52,560
====== ====== ====== ==== =======
- -----------------------------------------------------------------------------------------------------------
1992
Domestic operations........................ $3,620 $3,963 $ (343) $(12) $40,163
Foreign operations
Europe-Middle East-Africa................ 439 387 52 41 4,496
Asia-Pacific............................. 160 149 11 7 2,887
Other.................................... 139 59 80 58 1,735
------ ------ ------ ---- -------
Total foreign operations................. 738 595 143 106 9,118
------ ------ ------ ---- -------
Consolidated............................... $4,358 $4,558 $ (200) $ 94 $49,281
====== ====== ====== ==== =======
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes interest income and noninterest income.
(2) Includes interest expense, provision for credit losses and
noninterest expense.
The 1992 results from domestic operations include
$611.3 million of provisions for assets held for accelerated
disposition and $208.0 million related to the cumulative
effect of changes in accounting principles.
Results from foreign operations include provisions for
credit losses of $(52) million in 1994, $13 million in 1993
and $(3) million in 1992. Brazilian bonds received as part
of a debt restructuring, which were treated as loan loss
recoveries, and other recoveries related to foreign loans
were the primary reasons for the negative provision in 1994.
Because many of the resources employed by the Corpora-
tion are common to both its foreign and domestic activ-
ities, it is difficult to segregate assets, related revenues and
expenses into their foreign and domestic components. The
amounts in the preceding table are estimated on the basis
of internally developed assignment and allocation proce-
dures, which to some extent are subjective. The principal
internal allocations used to prepare this information are
described in the following text.
The allocation of corporate overhead expense is based on
allocations appropriate to individual activities. Expenses
incurred for the benefit of another geographic area, in-
cluding certain domestic administrative expenses, are allo-
cated to the area benefited.
Total assets and revenues reflect the allocation of loans
and related interest income among geographic areas based
on the domicile of the customer. Deposit placements and
related revenues are allocated geographically based on the
domicile of the depository institution.
Differences between contractual spreads and actual funding
results are reflected in the earnings of the areas providing
the funding. Distribution of certain fee income among geo-
graphic areas is reflected on the basis of services rendered.
Capital, with the exception of capital at foreign subsidiar-
ies, has been allocated to domestic operations.
First Chicago Corporation 48 Annual Report 1994
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
N O T E 5--Investment Securities
Investment securities in the consolidated balance sheet at December 31, 1994 and 1993, are summarized as follows.
- ------------------------------------------------------------------------------------------------------------------------------------
Book Cost Unrealized Unrealized Fair
December 31, 1994 (In millions) Value Basis Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. government and federal agency
Held to maturity............................ $ 276 $ 276 $ -- $ 8 $ 268
Available for sale.......................... 465 472 -- 7 465
------ ------ ---- ---- ------
Total................................. 741 748 -- 15 733
States and political subdivisions
Held to maturity............................ 176 176 7 2 181
Available for sale.......................... -- -- -- -- --
------ ------ ---- ---- ------
Total................................. 176 176 7 2 181
Other bonds, notes and debentures
Held to maturity............................ 4 4 -- -- 4
Available for sale.......................... 51 51 -- -- 51
------ ------ ---- ---- ------
Total................................. 55 55 -- -- 55
Equity securities (1)
Venture capital............................. 1,406 974 525 93 1,406
Available for sale (2)...................... 214 213 1 -- 214
------ ------ ---- ---- ------
Total................................. 1,620 1,187 526 93 1,620
Total investment securities........... $2,592 $2,166 $533 $110 $2,589
====== ====== ==== ==== ======
- ------------------------------------------------------------------------------------------------------------------------------------
Book Cost Unrealized Unrealized Fair
December 31, 1993 (In millions) Value Basis Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. government and federal agency
Held to maturity........................... $ 245 $ 245 $ 2 $ 1 $ 246
Available for sale......................... 243 243 -- -- 243
------ ------ ---- ---- ------
Total................................ 488 488 2 1 489
States and political subdivisions
Held to maturity........................... 162 162 7 -- 169
Available for sale......................... -- -- -- -- --
------ ------ ---- ---- ------
Total................................ 162 162 7 -- 169
Other bonds, notes and debentures
Held to maturity........................... 4 4 -- -- 4
Available for sale......................... 15 15 -- -- 15
------ ------ ---- ---- ------
Total................................ 19 19 -- -- 19
Equity securities (1)
Venture capital............................ 1,465 955 627 117 1,465
Available for sale (2)..................... 122 121 1 -- 122
------ ------ ---- ---- ------
Total................................ 1,587 1,076 628 117 1,587
Total investment securities.......... $2,256 $1,745 $637 $118 $2,264
====== ====== ==== ==== ======
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fair values of certain securities for which market quotations were not
available were estimated. In addition, the fair values reflect liquidity and
other market-related factors.
(2) Includes Federal Reserve stock.
Gross proceeds from the sale of available for sale invest-
ment securities were $245 million for the year ended
December 31, 1994, reflecting gross realized gains of
$6.5 million and gross realized losses of $5.3 million.
Gross proceeds from the sale of debt investment securities
were $0.2 million and $366 million for the two years ended
December 31, 1993 and 1992, respectively.
For 1993 and 1992, gross debt investment securities gains
were $1.5 million and $8.6 million, respectively, and gross
debt investment securities losses were $1.2 million and
$17 thousand, respectively. The applicable income taxes
were $0.1 million and $3.2 million, respectively.
The pretax change in net unrealized gain (loss) on avail-
able for sale securities included in other adjustments in
stockholders' equity was $(7.5) million in 1994.
First Chicago Corporation 49 Annual Report 1994
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1994, debt investment securities--held to maturity and available for sale--had the following maturity
characteristics.
- -------------------------------------------------------------------------------------------------------------------------------
Held to Maturity Available for Sale
------------------------ ------------------------
Cost Fair Cost Fair
(In millions) Basis Value Basis Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Federal Agency
Maturing within one year............................ $ 84 $ 83 $369 $368
Maturing after one but within five years............ 191 184 97 92
Maturing after five but within ten years............ -- -- 4 3
Maturing after ten years............................ 1 1 2 2
---- ---- ---- ----
$276 $268 $472 $465
==== ==== ==== ====
- -------------------------------------------------------------------------------------------------------------------------------
States and Political Subdivisions
Maturing within one year............................ $ 20 $ 21 $ -- $ --
Maturing after one but within five years............ 74 78 -- --
Maturing after five but within ten years............ 51 52 -- --
Maturing after ten years............................ 31 30 -- --
---- ---- ---- ----
$176 $181 $ -- $ --
==== ==== ==== ====
- -------------------------------------------------------------------------------------------------------------------------------
Other Bonds, Notes and Debentures
Maturing within one year............................ $ 1 $ 1 $ 2 $ 2
Maturing after one but within five years............ 1 1 2 2
Maturing after five but within ten years............ 1 1 -- --
Maturing after ten years............................ 1 1 47 47
---- ---- ---- ----
$ 4 $ 4 $ 51 $ 51
==== ==== ==== ====
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------
N O T E 6--Loans
Following is a breakdown of loans included in the consol-
idated balance sheet as of December 31, 1994 and 1993.
- ---------------------------------------------------------------
<TABLE>
(In millions) 1994 1993
- ---------------------------------------------------------------
<S> <C> <C>
Commercial Risk
Domestic
Commercial........................ $ 7,806 $ 6,007
Real estate
Construction.................... 256 315
Other........................... 2,240 2,094
Financial institutions............ 1,027 1,292
Other............................. 2,869 2,746
Foreign............................. 1,832 1,975
------- -------
Subtotal...................... 16,030 14,429
- ---------------------------------------------------------------
Consumer Risk
Credit cards........................ 6,337 5,778
Secured by real estate
Mortgage.......................... 1,581 1,469
Home equity lines................. 832 780
Other............................... 1,167 647
------- -------
Subtotal...................... 9,917 8,674
------- -------
Total......................... $25,947 $23,103
======= =======
- ---------------------------------------------------------------
</TABLE>
The amount of interest shortfall (the difference between
contractual interest due and interest actually recorded)
related to nonperforming loans at year-end was $6 million
in 1994 and $14 million in 1993.
Credit card receivables are available for sale through the
Corporation's credit card securitization program. Since
these receivables are sold at face value, their sale would
have no impact on the Corporation's financial results.
The Corporation has loans outstanding to certain of its
directors and executive officers and to partnerships or
companies in which a director or executive officer has at
least a 10% beneficial interest. At December 31, 1994 and
1993, $180 million and $295 million, respectively, of such
loans to related parties were outstanding. An analysis of
the activity during 1994 with respect to such loans includes
additions of $123 million and reductions of $238 million.
First Chicago Corporation 50 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------
NOTE 7--Allowance for Credit Losses
Changes in the allowance for credit losses for the three
years ended December 31, 1994, were as follows.
- ---------------------------------------------------------------------------
(In millions) 1994 1993 1992
- ---------------------------------------------------------------------------
Balance, beginning of year................ $ 683 $ 624 $ 759
Additions (deductions)
Charge-offs............................. (242) (279) (461)
Recoveries.............................. 91 97 88
----- ----- -----
Net charge-offs......................... (151) (182) (373)
Provision for credit losses............. 224 270 425
Provision for loans held for
accelerated disposition............... -- -- 491
Charge-offs of loans upon
transfer to accelerated
disposition portfolio............... -- -- (636)
Other:
Mergers and acquisitions................ 16 -- --
Transfers related to
securitized receivables............... (49) (29) (42)
----- ----- -----
Balance, end of year...................... $ 723 $ 683 $ 624
----- ----- -----
----- ----- -----
- ---------------------------------------------------------------------------
- ------------------------------------------------------------
NOTE 8--Pledged and Restricted Assets
Assets carried at $16.5 billion in the consolidated balance
sheet at December 31, 1994, were pledged as collateral for
borrowings, to secure government and trust deposits, and
for other purposes as required by law.
Based on the types and amounts of deposits received,
banks must maintain noninterest-bearing cash balances in
accordance with Federal Reserve Bank reserve require-
ments. The average noninterest-bearing cash balance
maintained to meet reserve requirements was $598 million
in 1994 and $574 million in 1993.
- ------------------------------------------------------------
NOTE 9--Lease Commitments
The Corporation has entered into a number of operating
and capitalized lease agreements for premises and equip-
ment. The minimum annual rental commitments under
these leases are shown below.
- ------------------------------------------------------------
(In millions)
- ------------------------------------------------------------
1995............................................ $ 61
1996............................................ 57
1997............................................ 55
1998............................................ 50
1999............................................ 49
2000 and beyond................................. 304
----
Total................................... $576
----
----
- ------------------------------------------------------------
Occupancy expense has been reduced by rental income
from premises leased to others in the amount of $27.1 mil-
lion in 1994, $28.1 million in 1993 and $25.0 million in
1992.
- ------------------------------------------------------------
NOTE 10--Long-Term Debt
Long-term debt consists of borrowings having an original
maturity of seven years or more. Long-term debt at Decem-
ber 31, 1994 and 1993, was as follows.
- --------------------------------------------------------------------
(In millions) 1994 1993
- --------------------------------------------------------------------
8-1/2% notes due 1998......................... $ 100 $ 99
Subordinated 9% notes due 1999................ 199 199
Subordinated 9-7/8% notes due 2000............ 99 99
Subordinated 9-1/5% notes due 2001............ 5 5
Subordinated 9-1/4% notes due 2001............ 100 100
Subordinated 10-1/4% notes due 2001........... 100 100
Subordinated 11-1/4% notes due 2001........... 96 96
Subordinated 8-7/8% notes due 2002............ 100 100
Subordinated 8-1/4% notes due 2002............ 100 100
Subordinated 7-5/8% notes due 2003............ 199 199
Subordinated 6-7/8% notes due 2003............ 200 200
Subordinated floating rate notes due 2003..... 149 149
Subordinated 6-3/8% notes due 2009............ 198 --
Equity commitment notes
Subordinated 9-7/8% notes due 1999.......... 200 200
Equity contract notes
Subordinated floating rate capital
notes due 1996............................ 125 125
Other long-term debt.......................... 301 294
------ ------
Total................................. $2,271 $2,065
------ ------
------ ------
- --------------------------------------------------------------------
8-1/2% Notes
These notes are direct, unsecured obligations of the Cor-
poration and are not subordinated to any other indebted-
ness of the Corporation. They may not be redeemed prior
to their stated maturity.
Subordinated Notes
These notes are direct obligations of the Corporation and
are subordinated to other indebtedness of the Corpora-
tion. They may not be redeemed prior to their stated
maturity. They have fixed interest rates that range from
6-3/8% to 11-1/4% and maturities that range from 1999 to
2009. The floating rate notes due in 2003 have an interest
rate priced at the greater of 4-1/4% or the three-month
London interbank offered rate plus 1/8%. During 1993,
$3.4 million of the 11-1/4% subordinated notes were
repurchased at a premium in open market transactions.
A charge of $419,000 related to these transactions was
included in other noninterest income.
Equity Commitment Notes
The subordinated notes maturing in 1999 are direct obli-
gations of the Corporation and may not be redeemed prior
to their stated maturity. Such notes are subordinated to
other indebtedness of the Corporation.
The agreements under which these notes were issued
require the Corporation, prior to maturity, to issue com-
mon stock, perpetual preferred stock or other forms of
equity approved by the Federal Reserve Board in an
amount equal to the original aggregate principal amount
of the notes. As of December 31, 1994, the Corporation
had issued all of the equity securities required by the
agreements.
First Chicago Corporation 51 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
Equity Contract Notes
The subordinated floating rate capital notes maturing in
1996 are a direct obligation of the Corporation and are
subordinated to other indebtedness of the Corporation.
The interest rate on these notes is reset quarterly at 3/16%
over the average offered rate quoted in the London inter-
bank market for three-month Eurodollar deposits. The
effective interest rate on this issue as of December 31, 1994,
was 6.625%.
Other Long-Term Debt
Other long-term debt of $301 million includes various
notes with maturities ranging from 1995 to 2026 and inter-
est rates at December 31, 1994, ranging from 5.5% to 13%.
Of this amount, $276 million relates to the sale and lease-
back of certain bank properties. The effective interest rate
related to this transaction is 8.7%, with expected maturity
in 2018.
Original issue discount and deferred issuance costs are
amortized over the terms of the related notes.
- ------------------------------------------------------------
N O T E 11--Preferred Stock
The Corporation currently is authorized to issue 15,000,000
shares of preferred stock, without par value. The Board
of Directors is authorized to fix the particular designa-
tions, preferences, rights, qualifications and restrictions for
each series of preferred stock issued. All preferred shares
rank prior to common shares both as to dividends and
liquidation, but have no general voting rights. The divi-
dend rate on each of the cumulative adjustable rate series
is based on stated value and adjusted quarterly, based on
a formula that considers the interest rates for selected
short- and long-term U.S. Treasury securities prevailing at
the time the rate is set. The minimum, maximum and cur-
rent dividend rates as of December 31, 1994, are presented
in the following table.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Annual Dividend Rate
Preferred Shares Stated Value --------------------------- Earliest Redemption
Stock Series Outstanding Per Share Maximum Minimum Current Redemption Date Price (1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative Adjustable Rate:
Series A......................... 2,410,000 $ 50.00 15.00% 7.00% 7.00% (2) $ 50.00
Series B......................... 1,191,000 100.00 12.00 6.00 6.00 (2) 100.00
Series C......................... 713,800 100.00 12.50 6.50 6.50 (2) 100.00
Cumulative Fixed Rate:
Series E (3)..................... 160,000 625.00 8.45 8.45 8.45 11/16/97 (4) 625.00
Cumulative Convertible Fixed Rate:
Series B (5)..................... 40,000 5,000.00 5.75 5.75 5.75 04/01/97 (6) 5,172.50
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued and unpaid dividends.
(2) Currently redeemable.
(3) Represented by 4,000,000 depositary shares, with a corresponding annual
dividend rate of $2.11 each and a $25 stated value.
(4) The preferred shares are redeemable on or after November 16, 1997, at $625
per share (equivalent to $25 per depositary share).
(5) Represented by 4,000,000 depositary shares, with a corresponding annual
dividend rate of $2.875 each and a $50 stated value.
(6) The preferred shares may be converted into shares of the Corporation's
common stock at the option of the stockholders at any time at the
conversion price of $53.625 per common share, subject to adjustment under
certain conditions. Shares are redeemable beginning April 1, 1997, at the
option of the Corporation, at a price of $5,172.50 ($51.725 per depositary
share), with the redemption price decreasing annually until the shares are
redeemable on or after April 1, 2003, at their stated value of $5,000 per
share ($50 per depositary share).
All shares of the Corporation's 10% Cumulative Preferred
Stock, Series D, were called for redemption on July 1, 1994.
The redemption price of $25.75 per share plus accrued
and unpaid dividends incorporates a 3% premium, total-
ing $4.5 million.
All shares of the Corporation's Cumulative Convertible
Preferred Stock, Series A, were called for redemption on
September 2, 1993. Each Series A share was convertible
into 1.391 shares of the Corporation's common stock at
the option of the stockholder, and approximately 2,100,000
shares of the stock were converted into approximately
3,000,000 shares of common stock. Resultant fractional
shares were paid in cash. On September 2, 1993, the Corpo-
ration redeemed the remaining shares of the Cumulative
Convertible Preferred, Series A, at the redemption price
of $51.50 per share plus accrued and unpaid dividends.
In December 1988, the Corporation paid a dividend of one
Preferred Share Purchase Right (a Right) for each outstand-
ing share of common stock of the Corporation. Similar
Rights are issued by the Corporation with each share of
the Corporation's common stock issued after December 2,
1988, subject to adjustment. Until a person or group
acquires beneficial ownership of, or begins a tender or
exchange offer for, 20% or more of the Corporation's com-
mon stock, the Rights will not be exercisable and will be
transferred upon the transfer of shares of the Corporation's
common stock. Upon the occurrence of certain events, each
Right entitles the holder to purchase one one-hundredth
of a share of the Corporation's Series A Junior Participating
Preferred Stock, without par value, at a price of $130.
Under certain other circumstances, the holder of a Right
may have the right to receive upon payment of the Right's
$130 exercise price: 1) common stock of a company acquir-
ing control of the Corporation that has a market value of
two times the exercise price of the Right, or 2) common
stock of the Corporation having a market value of two
times the exercise price of the Right.
The Rights, which expire December 2, 1998, are redeem-
able in whole, but not in part, at the Corporation's option
prior to the time they are exercisable, for a price of $.01
per Right.
First Chicago Corporation 52 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
NOTE 12--Income Taxes
The components of total applicable income taxes (bene-
fits) reported in the consolidated income statement for
the years ended December 31, 1994, 1993 and 1992, are
as follows.
- ---------------------------------------------------------------------
(In millions) 1994 1993 1992
- ---------------------------------------------------------------------
Current tax expense (benefit)
Federal........................... $202.1 $177.3 $ (1.9)
Foreign........................... 7.4 29.1 20.5
State............................. 45.8 42.6 4.9
------ ------ -------
Total....................... 255.3 249.0 23.5
Deferred tax expense (benefit)
Federal........................... 115.8 230.0 (101.3)
State............................. 2.2 16.6 (7.8)
------ ------ -------
Total....................... 118.0 246.6 (109.1)
------ ------ -------
Applicable income taxes (benefit)... $373.3 $495.6 $ (85.6)
------ ------ -------
------ ------ -------
- ---------------------------------------------------------------------
The preceding table excludes the tax expense (benefit)
recorded directly in stockholders' equity of $0.7 million,
$(4.7) million and $(0.4) million in 1994, 1993 and 1992,
respectively. The table also excludes $122.6 million of
1992 taxes related to the cumulative effect of changes in
accounting principles.
A net deferred tax liability is included in other liabilities
in the consolidated balance sheet as a result of temporary
differences between the carrying amounts of assets and lia-
bilities in the financial statements and their related tax
bases. The components of the net deferred tax liability as
of December 31, 1994 and 1993, are as follows.
- ---------------------------------------------------------------------
(In millions) 1994 1993
- ---------------------------------------------------------------------
Deferred Tax Liabilities
Deferred income on lease financing........... $ 762.9 $ 745.3
Appreciation of venture capital
investments................................ 219.0 181.9
Prepaid pension asset........................ 135.1 133.1
Other........................................ 145.2 145.6
-------- --------
Gross deferred tax liabilities............... 1,262.2 1,205.9
-------- --------
Deferred Tax Assets
Allowance for credit losses.................. 286.9 292.5
Securitization of credit card receivables.... 86.0 65.5
Alternative minimum tax credit
carryforward............................... -- 115.9
Other........................................ 250.2 255.9
-------- --------
Gross deferred tax assets.................... 623.1 729.8
Valuation allowance.......................... -- --
-------- --------
Gross deferred tax assets,
net of valuation allowance................. 623.1 729.8
-------- --------
Net deferred tax liability................... $ 639.1 $ 476.1
-------- --------
-------- --------
- ---------------------------------------------------------------------
The reasons for the differences between applicable income
taxes and the amounts computed at the applicable regular
federal tax rates of 35% in 1994, 35% in 1993 and 34% in
1992 were as follows.
- ---------------------------------------------------------------------
(In millions) 1994 1993 1992
- ---------------------------------------------------------------------
Taxes at statutory federal income
tax rate........................... $372.1 $455.0 $(68.0)
Increase (decrease) in taxes
resulting from
Tax-exempt income (net)............ (10.3) (12.0) (13.8)
State income taxes, net of
federal income taxes............. 31.6 31.8 (1.9)
Goodwill........................... 2.8 7.5 3.4
Other.............................. (22.9) 13.3 (5.3)
------ ------ ------
Applicable income taxes (benefit).... $373.3 $495.6 $(85.6)
------ ------ ------
------ ------ ------
- ---------------------------------------------------------------------
The Corporation had no alternative minimum tax credit
carryforward for tax purposes at December 31, 1994. The
Corporation had an alternative minimum tax credit carry-
forward for tax purposes of $109.2 million at December 31,
1993, and $41.3 million at December 31, 1992.
The Corporation had a foreign tax credit carryforward of
$42.9 million at December 31, 1992, that was fully utilized
in 1993. The Corporation also had a federal tax return net-
operating loss carryforward of $644.4 million at Decem-
ber 31, 1992, which was also fully utilized in 1993.
First Chicago Corporation 53 Annual Report 1994
<PAGE>
- ------------------------------------------------------------------------------
N O T E 13--Employee Benefit and Incentive Plans
(a) Pension Plans
Net periodic pension credit was $7.3 million in 1994,
$18 million in 1993 and $31.5 million in 1992.
The assumptions used in determining the projected bene-
fit obligation and the net periodic pension credit, as appro-
priate, are shown below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate................................ 9.0% 7.5% 8.5%
Rate of increase in future salary levels..... 5.0 4.5 5.0
Expected long-term rate of return............ 9.5 9.5 9.5
- ------------------------------------------------------------------------
</TABLE>
The following table reconciles the plans' funded status with
the amounts recorded in the Corporation's consolidated
balance sheet.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
December 31 (In millions) 1994 1993
- --------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation:
Vested benefits.......................... $(419.0) $(430.6)
Nonvested benefits....................... (54.1) (60.9)
------- -------
Accumulated benefit obligation........... (473.1) (491.5)
Effect of projected future compensation
levels................................. (91.1) (99.3)
------- -------
Projected benefit obligation............... (564.2) (590.8)
Plans' assets at fair value (1)............ 931.0 968.4
------- -------
Plans' assets in excess of projected
benefit obligation....................... 366.8 377.6
Unrecognized net gain due to experience
different from assumptions............... (31.1) (37.4)
Unrecognized net transition asset (2)...... (32.5) (37.2)
Unrecognized prior service cost............ 87.0 74.6
------- -------
Prepaid pension cost....................... $ 390.2 $ 377.6
======= =======
- --------------------------------------------------------------------
</TABLE>
(1) Includes shares of the Corporation's common stock with a market
value of $20.1 million in 1994 and $17.9 million in 1993.
(2) The unrecognized net transition asset will be amortized over
approximately 6.5 years.
The components of the net periodic pension credit for
each of the last three years are as follows.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(In millions) 1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service costs--benefits earned
during period........................ $ 29.2 $ 22.3 $ 20.9
Interest cost on projected benefit
obligation........................... 49.6 43.8 41.5
Return on plan assets.................. (0.6) (109.6) (80.1)
Net amortization, deferral
and other............................ (85.5) 25.5 (13.8)
------ ------- ------
Net periodic pension credit............ $ (7.3) $ (18.0) $(31.5)
====== ======= ======
- ----------------------------------------------------------------------
</TABLE>
(b) Savings Incentive Plan
The Corporation and its subsidiaries maintain the Savings
Incentive Plan, a qualified 401(k) program. The plan is
available to all U.S.-based salaried employees of The First
National Bank of Chicago and certain other subsidiaries
of the Corporation. Participation is completely voluntary,
and participants may contribute from 1% to 6% of their
salary on a pretax basis, and an additional 1% to 10% of
salary on an after-tax basis. Beginning in 1994, the Corpo-
ration's contribution to the plan was determined as 100%
of the first $750 of pretax contributions made by partici-
pants and 50% of any pretax contributions in excess of
$750. The plan was amended in 1993 to allow the Board
of Directors to make a supplemental profit-based contri-
bution to the plan. For 1994, that contribution was $250
for each eligible salaried employee and $125 for each eli-
gible hourly employee. All participants are 100% vested in
their account balances and are able to direct the invest-
ment of their savings into several investment options.
Expense under this plan, included in noninterest expense
as employee benefits expense, was $21.4 million in 1994,
$19.6 million in 1993 and $13.0 million in 1992.
(c) Employee Stock Purchase and Savings Plan
The Employee Stock Purchase and Savings Plan allows
eligible employees to authorize payroll deductions for
deposit in interest-bearing savings accounts for up to two
years. Employees then have the option to either withdraw
their savings balance in cash or purchase shares of the
Corporation's common stock at a price fixed under the
plan. The Corporation recognizes no expense in connec-
tion with such stock purchases. The plan authorizes a max-
imum of 6,000,000 shares, of which 4,407,130 shares have
been issued.
During 1994, 743,885 shares of common stock were pur-
chased by 4,143 employees under the 1992 offering and
subsequent quarterly offerings for newly eligible employ-
ees, at prices ranging from $32.54 to $45.84 per share.
Eligible employees also were offered an opportunity to
enroll in a new offering in August 1994 at a stock pur-
chase price of $47.98. Employees participating in the plan
numbered 7,539 as of December 31, 1994. Projected con-
tributions and interest represent a potential future pur-
chase of approximately 887,829 shares of common stock.
(d) Other Incentive Plans
The Corporation maintains various cash incentive, stock
incentive and stock option plans.
Cash incentive plans, including certain specialized busi-
ness unit incentives, are based on attainment of certain
financial goals and a combination of business unit and
corporate objectives.
First Chicago Corporation 54 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
The 1983 Strategic Stock Option Plan and the Strategic
Stock Incentive Plan were both terminated in 1991;
however, options and shares from those programs are still
outstanding and are included, where appropriate, in the
discussion below.
The Stock Incentive Plan allows the Corporation to grant
stock options, restricted shares or other stock-based awards
to eligible employees. Restricted shares granted to key offi-
cers require them to continue employment from one to
seven years beginning on the original grant date before
they can sell those shares. The market value of the re-
stricted shares as of the date of grant is amortized to sala-
ries expense over the restriction period. In 1994, the Board
approved a performance-based restricted stock program
under the terms of the Stock Incentive Plan. The shares
issued under this program become unrestricted only if
performance criteria are met. The ultimate expense attrib-
utable to this program will be based on the market value
of the shares on the date they become unrestricted. As of
December 31, 1994, the Stock Incentive Plan had 1,224,781
restricted shares outstanding. The maximum number of
shares of the Corporation's common stock that may be
granted annually pursuant to the Stock Incentive Plan is
2% of the shares outstanding; however, any portion of the
2% limit not granted in a previous year may be awarded
prospectively.
In 1994, the Board approved a new ``restorative'' stock
option program under the terms of the Stock Incentive
Plan. Under the program, optionees are granted a ``restor-
ative'' stock option when: 1) they exercise an option by
exchanging shares owned for at least six months to pay
both the purchase price and related tax withholding obli-
gation, and 2) the current market price of First Chicago
common stock is at least 25% higher than the original stock
option exercise price. The restorative stock option pro-
vides optionees with a replacement stock option for the
number of shares exchanged, has a purchase price set at
the market price on date of grant, becomes exercisable six
months from date of grant, and expires at the end of the
term set for the original stock option.
The following table summarizes 1994 activity and the
December 31, 1994, status of the Stock Incentive Plan and
the 1983 Stock Option Plan, inclusive of restorative stock
options granted.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Outstanding Options Exercisable Options
-------------------------------- -----------------------------
Option Option
(Shares in thousands) Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993.............. 4,739 $18-1/2 - $49-1/8 3,228 $18-1/2 - $43-5/8
Granted................................. 2,361 $41-3/4 - $49-7/16 -- --
Became exercisable...................... -- -- 979 $24 - $49-1/8
Exercised............................... 1,464 $18-1/2 - $36-13/16 1,464 $18-1/2 - $36-13/16
Expired or canceled..................... 9 $24 - $31-7/8 9 $24 - $31-7/8
Forfeited (unvested).................... 51 $27-11/16 - $47-7/16 -- --
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994............ 5,576 $18-7/8 - $49-7/16 2,734 $18-7/8 - $49-7/16
- -------------------------------------------------------------------------------------------------------------
</TABLE>
First Chicago Corporation 55 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
NOTE 14--First Chicago Corporation (Parent Company Only) Condensed Financial Statements
Condensed Balance Sheet
- -------------------------------------------------------------------------------------------------------------------------------
December 31 (In millions) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks
Bank subsidiaries--noninterest-bearing.................................................... $ 2 $ 21
Bank subsidiaries--interest-bearing....................................................... 161 156
Other interest-bearing.................................................................... 396 348
Investment securities....................................................................... 75 14
Loans....................................................................................... -- 1
Investment in and advances to subsidiaries
Bank subsidiaries......................................................................... 5,829 5,278
Nonbank subsidiaries...................................................................... 1,857 1,728
Other assets................................................................................ 106 124
------ ------
Total assets........................................................................ $8,426 $7,670
------ ------
------ ------
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities
Commercial paper and other notes payable
Nonbank subsidiaries...................................................................... $ 83 $ 29
Other..................................................................................... 1,492 1,378
Long-term debt.............................................................................. 1,993 1,796
Other liabilities........................................................................... 325 203
------ ------
Total liabilities................................................................... 3,893 3,406
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity........................................................................ 4,533 4,264
------ ------
Total liabilities and stockholders' equity.......................................... $8,426 $7,670
------ ------
------ ------
- -------------------------------------------------------------------------------------------------------------------------------
Condensed Income Statement
- -------------------------------------------------------------------------------------------------------------------------------
For the Year (In millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
Operating Income
Dividends
Bank subsidiaries............................................................... $259.5 $129.0 $ 89.7
Nonbank subsidiaries............................................................ 106.7 68.9 197.2
Interest income
Bank subsidiaries............................................................... 113.3 110.8 104.2
Nonbank subsidiaries............................................................ 59.1 76.7 96.4
Other........................................................................... 28.1 13.9 15.8
Other income (loss)............................................................... 37.9 (2.4) 1.9
------ ------ ------
Total..................................................................... 604.6 396.9 505.2
- -------------------------------------------------------------------------------------------------------------------------------
Operating Expense
Interest expense
Nonbank subsidiaries............................................................ 1.3 3.8 5.6
Other........................................................................... 246.9 233.7 250.0
Other expense..................................................................... 6.9 6.4 23.7
------ ------ ------
Total..................................................................... 255.1 243.9 279.3
- -------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes and Equity in Undistributed
Net Income of Subsidiaries........................................................ 349.5 153.0 225.9
Applicable income tax benefit................................................... (11.4) (18.6) (22.8)
- -------------------------------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed
Net Income of Subsidiaries........................................................ 360.9 171.6 248.7
Equity in undistributed net income (loss) of subsidiaries before
cumulative effect of changes in accounting principles
Bank subsidiaries............................................................. 311.0 471.7 (230.0)
Nonbank subsidiaries.......................................................... 17.8 161.2 (133.2)
------ ------ ------
Income (loss) before cumulative effect of changes in accounting principles........ 689.7 804.5 (114.5)
Equity in cumulative effect of changes in accounting principles................... -- -- 208.0
------ ------ ------
Net Income........................................................................ $689.7 $804.5 $ 93.5
------ ------ ------
------ ------ ------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Parent Company Only Statement of Changes in Stockholders' Equity is the same
as the Consolidated Statement of Changes in Stockholders' Equity (see page 42).
First Chicago Corporation 56 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Condensed Statement of Cash Flows
- --------------------------------------------------------------------------------------------------------------------------
For the Year (In millions) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income......................................................................... $ 690 $ 804 $ 94
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income (loss) of subsidiaries before cumulative
effect of changes in accounting principles..................................... (695) (831) 76
Equity in cumulative effect of changes in accounting principles.................. -- -- (208)
Net decrease in net derivative product balances.................................. 3 -- --
(Increase) decrease in accrued income receivable................................. (3) 7 (1)
(Decrease) in accrued interest payable........................................... (2) (3) (4)
Dividends received from subsidiaries............................................. 366 195 288
Net decrease in other assets..................................................... 14 31 15
Other noncash adjustments........................................................ 7 (26) (5)
------- ------- -------
Total adjustments................................................................ (310) (627) 161
------- ------- -------
Net cash provided by operating activities.......................................... 380 177 255
- --------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Principal collected on loans to subsidiaries....................................... 1,262 2,410 4,179
Loans made to subsidiaries......................................................... (1,355) (2,172) (4,443)
Capital investments in subsidiaries................................................ (141) (161) (571)
Purchase of investment securities--available for sale.............................. (214) (13) (24)
Proceeds from maturities of investment securities--available for sale.............. 42 8 22
Proceeds from sales of investment securities--available for sale................... 107 2 2
------- ------- -------
Net cash provided by (used in) investing activities................................ (299) 74 (835)
- --------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net increase (decrease) in commercial paper........................................ (34) 5 (67)
Proceeds from other funds borrowed................................................. 785 20 533
Repayment of other funds borrowed.................................................. (422) (374) (560)
Proceeds from issuance of long-term debt........................................... 204 557 234
Repayment of long-term debt........................................................ (10) (344) (248)
Net increase (decrease) in other liabilities....................................... (29) 48 (23)
Dividends paid..................................................................... (211) (158) (145)
Proceeds from issuance of common stock............................................. 12 41 375
Proceeds from reissuance of treasury stock......................................... 39 4 6
Purchase of treasury stock......................................................... (231) (13) (1)
Proceeds from issuance of preferred stock.......................................... -- 196 96
Payment for redemption of preferred stock.......................................... (150) (1) --
------- ------- -------
Net cash provided by (used in) financing activities................................ (47) (19) 200
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents............................... 34 232 (380)
Cash and cash equivalents at beginning of year..................................... 525 293 673
------- ------- -------
Cash and cash equivalents at end of year........................................... $ 559 $ 525 $ 293
======= ======= =======
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Dividends that may be paid by national bank subsidiaries
are subject to two statutory limitations. Under the first,
dividends cannot exceed the level of "undivided profits
then on hand" less the amount of bad debts, as defined,
in excess of the allowance for credit losses. In addition, a
national bank cannot declare a dividend, without regula-
tory approval, in an amount in excess of its net profits, as
defined, for the current year combined with the retained
net profits for the preceding two years.
Based on these statutory requirements, the Corporation's
bank subsidiaries could, in the aggregate, have declared
additional dividends of up to approximately $664 million
without regulatory approval at December 31, 1994. The
payment of dividends by any bank may also be affected by
other factors, such as the maintenance of adequate capi-
tal. As of December 31, 1994, all of the Corporation's
banking subsidiaries significantly exceeded the regulatory
guidelines for "well-capitalized" status.
Federal banking law also restricts each bank subsidiary
from extending credit to First Chicago Corporation as the
parent bank holding company (the Parent Company) in
excess of 10% of the subsidiary's capital stock and surplus,
as defined. Any such extensions of credit are subject to
strict collateral requirements.
First Chicago Corporation 57 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
In connection with issuances of commercial paper, the
Corporation has agreements providing future credit
availability (back-up lines of credit) with various banks.
The agreements with nonaffiliated banks aggregated
$100 million at December 31, 1994 and 1993. The Cor-
poration also had agreements for back-up lines of credit
with The First National Bank of Chicago aggregating
$100 million at December 31, 1994, and $150 million at
December 31, 1993. In 1994, the Corporation had agree-
ments to pay between 0.125% and 0.150% in annual com-
mitment fees on any unused lines. The back-up lines of
credit, together with overnight money market loans, short-
term investments and other sources of liquid assets,
exceeded the amount of commercial paper issued at
December 31, 1994.
The Parent Company paid interest of $267 million in 1994,
$262 million in 1993 and $272 million in 1992. The Parent
Company made income tax payments to its subsidiaries
that exceeded its total income tax payments by $19 mil-
lion in 1994 and $20 million in 1992. The Parent Company
received income tax payments from its subsidiaries that
exceeded its total income tax payments by $82 million
in 1993.
- ------------------------------------------------------------
N O T E 15--Financial Instruments With
Off-Balance-Sheet Risk
In the normal course of business, the Corporation is a
party to financial instruments containing credit and/or
market risks that are not required to be reflected in a bal-
ance sheet. These financial instruments include credit-
related as well as certain derivative and cash instruments.
The Corporation maintains risk management policies that
monitor and limit exposure to credit, liquidity and market
risks.
(a) Credit Risk
The following disclosures represent the Corporation's
credit exposure, assuming that every counterparty to finan-
cial instruments with off-balance-sheet credit risk fails to
perform completely according to the terms of the con-
tracts, and that the collateral and other security, if any,
proves to be of no value to the Corporation.
(b) Market Risk
This note does not address the amount of market losses
the Corporation would incur if future changes in market
prices make financial instruments with off-balance-sheet
market risk less valuable or more onerous. The measure-
ment of market risk associated with financial instruments
is meaningful only when all related and offsetting on- and
off-balance-sheet transactions are aggregated, and the
resulting net positions are identified.
(c) Collateral and Other Security Arrangements
The credit risk of both on- and off-balance-sheet financial
instruments varies based on many factors, including the
value of collateral held and other security arrangements.
To mitigate credit risk, the Corporation generally deter-
mines the need for specific covenant, guarantee and col-
lateral requirements on a case-by-case basis, depending
on the nature of the financial instrument and the custom-
er's creditworthiness. The Corporation may also receive
comfort letters and oral assurances. The amount and type
of collateral held to reduce credit risk varies but may
include real estate, machinery, equipment, inventory and
accounts receivable, as well as cash on deposit, stocks,
bonds and other marketable securities that are generally
held in the Corporation's possession or at another appro-
priate custodian or depository. This collateral is valued
and inspected on a regular basis to ensure both its exist-
ence and adequacy. The Corporation requests additional
collateral when appropriate.
(d) Credit-Related Financial Instruments
The table below summarizes the Corporation's credit-
related financial instruments, including both commitments
to extend credit and letters of credit.
- ------------------------------------------------------------
Commitments and Letters of Credit
December 31 (In billions) 1994 1993
- ------------------------------------------------------------
Unused loan commitments............... $31.3 $28.4
Unused credit card lines.............. 61.4 46.3
Unused home equity lines.............. 0.8 0.7
Commercial letters of credit.......... 0.8 0.7
Standby letters of credit and
foreign office guarantees........... 4.1 4.7
- ------------------------------------------------------------
Since many of the Corporation's unused commitments are expected
to expire unused or be only partially used, the total amount of unused
commitments in the preceding table does not necessarily represent
future cash requirements.
Loan commitments are agreements to make or acquire a
loan or lease as long as the agreed-upon terms (e.g., expiry,
covenants or notice) are met. The Corporation's commit-
ments to purchase or extend loans help its customers meet
their liquidity needs. Credit card lines allow customers to
use a credit card to buy goods or services and to obtain
cash advances. However, the Corporation has the right to
change or terminate any terms or conditions of the credit
card account. Extensions of credit under home equity
lines are secured by residential real estate.
Commercial letters of credit are issued or confirmed by the
Corporation to ensure payment of its customers' payables
or receivables in short-term international trade transac-
tions. Generally, drafts will be drawn when the underlying
transaction is consummated as intended. However, the
short-term nature of this instrument serves to mitigate the
Corporation's risk associated with these contracts.
First Chicago Corporation 58 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
Standby letters of credit and foreign office guarantees are
issued in connection with agreements made by the Cor-
poration's customers to counterparties. If the customer fails
to comply with the agreement, the counterparty may
enforce the standby letter of credit or foreign office guar-
antee as a remedy. Credit risk arises from the possibility
that the customer may not be able to repay the Corpora-
tion for standby letters of credit or foreign office guaran-
tees drawn upon. At December 31, 1994 and 1993, the
Corporation had issued standby letters of credit and for-
eign office guarantees for the following purposes.
- ------------------------------------------------------------
Standby Letters of Credit and
Foreign Office Guarantees
December 31 (In millions) 1994 1993
- ------------------------------------------------------------
Commercial paper.................... $ 360 $ 815
Tax-exempt securities............... 1,108 1,130
Bid or performance guarantees....... 663 534
Commodity/margin support............ 504 570
Insurance-related................... 796 765
Other............................... 681 857
------ ------
Total............................... 4,112 4,671
Less: Cash collateral deposits...... 108 109
Participations to other
financial institutions........ 400 359
------ ------
Total, net.......................... $3,604 $4,203
====== ======
- ------------------------------------------------------------
At December 31, 1994, standby letters of credit and guar-
antees issued to back commercial paper and tax-exempt
securities had a weighted-average original maturity of
approximately six years and a weighted-average remain-
ing maturity of approximately two years. All other standby
letters of credit generally expire within three years.
(e) Derivative Financial Instruments
The Corporation enters into a variety of derivative finan-
cial instruments in its trading, asset and liability manage-
ment, and venture capital activities. These instruments
offer customers protection from rising or falling interest
rates, exchange rates, commodity prices and equity prices.
They can either reduce or increase the Corporation's
exposure to such changing rates or prices.
The Corporation's objectives and strategies for using deriv-
ative financial instruments for structural interest rate risk
management, foreign exchange risk management, and
venture capital activities are discussed on pages 27 to 30,
along with various numerical analyses, which are not
included as part of these audited financial statements.
The Corporation's balance sheet exposure for derivative
financial instruments includes the amount of recognized
gains in the market valuation of those contracts. Those
amounts fluctuate as a function of maturity, interest rates,
foreign exchange rates, commodity prices and equity prices.
The credit risk associated with exchange-traded derivative
financial instruments is limited to the relevant clearing-
house. Options written do not expose the Corporation to
credit risk, except to the extent of the underlying risk in a
financial instrument that the Corporation may be obligated
to acquire under certain written put options. Caps and
floors written do not expose the Corporation to credit risk.
The table on page 36, which is not included as part of
these audited financial statements, presents a reconcilia-
tion between the Corporation's gross credit exposure and
its balance sheet exposure for derivative financial instru-
ments as of December 31, 1994. Gross balance sheet expo-
sure as of December 31, 1993, was $3.6 billion for interest
rate contracts and $2.6 billion for foreign exchange con-
tracts. These amounts are overstated because they do not
reflect the offsetting of losses with the same counterparties
based on legally enforceable termination and netting rights.
On some derivative financial instruments, the Corpora-
tion may have additional risk. This is due to the underly-
ing risk in the financial instruments that the Corporation
is or may be obligated to acquire, and/or is due to settle-
ment exposure, i.e. the risk that the Corporation will
deliver under a contract but the customer will fail to
deliver the countervailing amount. The Corporation
believes its credit and settlement procedures minimize
these risks.
Not all derivative financial instruments have off-balance-
sheet market risk. Market risk associated with options pur-
chased and caps and floors purchased is recorded in the
balance sheet.
The tables on page 35 report the Corporation's gross no-
tional principal or contractual amounts of derivative finan-
cial instruments as of December 31, 1994, and December 31,
1993. These instruments include swaps, forwards, futures,
options, caps, floors, forward rate agreements and other
conditional or exchange contracts. The amounts do not
represent the market or credit risk associated with these
contracts but rather give an indication of the volume of
the transactions. The amounts exceed the credit risk asso-
ciated with these contracts and do not reflect the netting
of offsetting transactions.
Interest rate forward and futures contracts represent com-
mitments to either purchase or sell a financial instrument
at a specified future date for a specified price, and may be
settled in cash or through delivery.
An interest rate swap is an agreement in which two parties
agree to exchange, at specified intervals, interest payment
streams calculated on an agreed-upon notional principal
amount with at least one stream based on a specified float-
ing rate index. Certain agreements are combined interest
rate and foreign currency swap transactions.
First Chicago Corporation 59 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
Interest rate options are contracts that grant the purchaser,
for a premium payment, the right to either purchase or
sell a financial instrument at a specified price within a
specified period of time or on a specified date from the
writer of the option.
Interest rate caps and floors are contracts with notional
principal amounts that require the seller, in exchange for
a fee, to make payments to the purchaser if a specified
market interest rate exceeds the fixed cap rate or falls
below the fixed floor rate on specified future dates.
Forward rate agreements are contracts with notional prin-
cipal amounts that settle in cash at a specified future date
based on the differential between a specified market inter-
est rate and a fixed interest rate.
Foreign exchange contracts represent spot, forward, futures
and option contracts to exchange currencies.
Commodity price contracts represent swap, futures, cap,
floor and option contracts that derive their value from
underlying commodity prices.
Equity price contracts represent futures, cap, floor and
option contracts that derive their value from underlying
equity prices.
(f) Cash Financial Instruments
Securities sold not yet purchased are obligations to deliver
securities sold but not yet purchased. The face amount of
such securities totaled $1.036 billion at December 31, 1994,
and $776 million at December 31, 1993. The fair value of
these obligations is reflected in the balance sheet in other
funds borrowed. The fair value of such securities totaled
$972 million at December 31, 1994, and $757 million at
December 31, 1993.
- -------------------------------------------------------------
N O T E 16--Concentrations of Credit Risk
The Corporation's credit policies and processes empha-
size diversification of risk among industries, geographic
areas and borrowers. The following table shows the credit
risk associated with products described elsewhere in the
financial statements and footnotes, broken out by concen-
trations across all financial instruments. The amounts do
not consider the value of collateral held. Concentrations
of credit risk in excess of the Corporation's stockholders'
equity for each year-end are presented below.
- ------------------------------------------------------------
December 31 (In billions) 1994 1993
- ------------------------------------------------------------
Consumer................................ $73.4 $56.8
U.S. government......................... 14.0 9.6
Japanese banks.......................... 6.0 5.8
- ------------------------------------------------------------
Consumer risk results principally from credit cards. Other
major components include home mortgage, home equity
and other installment credit. U.S. government risk consists
primarily of U.S. government securities and balances due
from the Federal Reserve. Credit exposure to Japanese
banks is primarily short-term deposit placements. Geo-
graphic concentrations of credit risk are presented below.
- ------------------------------------------------------------
December 31 (Dollars in billions) 1994 1993
- ------------------------------------------------------------
U.S. .......................... $138 87% $118 87%
Foreign........................ 21 13 17 13
- ------------------------------------------------------------
First Chicago Corporation 60 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
N O T E 17--Estimated Fair Value of
Financial Instruments
This disclosure focuses primarily on the estimated fair
values of the Corporation's financial instruments. It does
not attempt to estimate or represent an estimate of the
Corporation's fair value as a whole. The only fair value
disclosure provided in addition to those made for the Cor-
poration's financial instruments pertains to credit card
securitizations; this disclosure is provided because the
interest rate risk exposure related to such securitizations is
reduced by financial instruments. The Corporation does
not plan to dispose of, either through sale or settlement,
the majority of its financial instruments at these estimated
fair values. The fair values disclosed represent point-in-
time estimates that may change in subsequent reporting
periods due to market conditions or other factors.
In general, a financial instrument's fair value is the amount
at which it could be exchanged in a current transaction
between willing parties, other than in a forced or liquida-
tion sale. Specific fair value measurement methodologies
used for each financial instrument category are discussed
beginning on page 62.
The following table summarizes the carrying amounts and
estimated fair values of financial instruments as of Decem-
ber 31, 1994 and 1993.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1994 1993
------------------------- -------------------------
Carrying Estimated Carrying Estimated
(In millions) Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and short-term financial instruments......................... $25,633 $25,633 $18,736 $18,736
Trading account assets............................................ 4,967 4,967 4,536 4,536
Investment securities............................................. 2,592 2,589 2,256 2,264
Total loans, net.................................................. 25,224 25,275 22,420 22,673
Other financial instruments....................................... 1,024 1,024 960 960
Currency options purchased........................................ -- -- 536 536
Derivative product assets:
Trading purposes (1)............................................ 4,351 4,351 -- --
Other than trading purposes..................................... 38 29 -- --
Total derivative product assets............................... 4,389 4,380 -- --
Off-balance-sheet derivative financial instruments, net........... -- -- 380 586
Liabilities
Deposits:
No stated maturity and foreign time............................. 26,517 26,517 23,261 23,261
Stated maturity--domestic time only............................. 5,149 5,065 4,925 4,984
Total deposits................................................ 31,666 31,582 28,186 28,245
Securities sold not yet purchased................................. 972 972 757 757
Other short-term financial instruments............................ 13,699 13,699 8,936 8,936
Other funds borrowed.............................................. 6,546 6,532 5,086 5,129
Long-term debt.................................................... 2,271 2,232 2,065 2,296
Currency options written.......................................... -- -- 501 501
Derivative product liabilities:
Trading purposes (1)............................................ 4,073 4,073 -- --
Other than trading purposes..................................... 24 277 -- --
Total derivative product liabilities.......................... 4,097 4,350 -- --
Off-balance-sheet exposure--nonfinancial instruments:
Credit card securitizations, net................................ 265 (60) 242 191
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The estimated average fair values of derivative financial instruments used
in trading activities during 1994 were $5.2 billion classified as assets
and $4.8 billion classified as liabilities.
First Chicago Corporation 61 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
(a) Financial Instruments Where Carrying Value
Approximates Fair Value
A financial instrument's carrying value approximates its
fair value in cases where the financial instrument is either
short-term in nature, has no stated maturity, is payable on
demand, or is carried at fair value. Additionally, the carry-
ing value of financial instruments that reprice frequently,
such as floating rate loans or debt, represents fair value
provided there has been no significant change in credit
quality or there is no embedded financial instrument with
significant value. The following financial instruments use
their carrying value to approximate fair value:
. Cash and short-term investments--includes cash and
due from banks--noninterest-bearing, due from banks--
interest-bearing, and federal funds sold and securities
under resale agreements
. Trading account assets
. Other financial instruments--includes assets held for
accelerated disposition, accrued interest receivable, and
customers' acceptance liability
. Currency options purchased
. Derivative product assets and liabilities--held for trad-
ing purposes
. Demand, savings and foreign office deposits
. Securities sold not yet purchased
. Other short-term financial instruments--includes federal
funds purchased and securities under repurchase agree-
ments, commercial paper and acceptances outstanding
. Currency options written
. Commitments to extend credit and letters of credit
The estimated fair values of trading account securities and
securities sold not yet purchased were generally based on
quoted market prices or dealer quotes. The estimated fair
values of derivative product assets and liabilities were
based on quoted market prices or pricing and valuation
models on a present value basis using current market
information.
The carrying amount of commitments to extend credit and
letters of credit is equal to their related fee receivable
and/or fees collected but not yet earned. The carrying
value of commercial real estate loans held for accelerated
disposition is based on their estimated liquidation value.
(b) Investment Securities
The estimated fair values of debt investment securities
were generally based on quoted market prices or dealer
quotes. See Notes 1 and 5 for information on methods for
estimating the fair value of equity investment securities,
including those held by venture capital subsidiaries.
(c) Loans
The discounted cash flow method was used to estimate
the fair value of commercial and consumer loans, except
for consumer mortgage loans that had fixed rates, medium-
or long-term maturity, and good credit quality. Discount
rates were selected corresponding to the nature of the loan
from either the commercial or consumer interest rates
offered or estimated market interest rates that reflect the
credit rate and interest rate risk inherent in the loans. Con-
tractual cash flows were used as the estimate of cash flows.
Commercial loans that have significantly deteriorated in
credit quality were separately valued. Estimated fair values
were based on a combination of quoted market prices for
distressed debt and troubled-country debtor loans, a dis-
counted cash flow method based on anticipated cash flows
and risk-adjusted interest rates, and estimated fair values
of loans with similar credit quality characteristics.
The estimated fair value of credit card receivables is face
value since the receivables are sold at their face amount.
The estimated fair values of consumer mortgage loans were
based on committed sales prices and a valuation model
using current market information.
The estimated fair value of leases, which are classified as
loans, is their carrying amount since a fair value estimate
is not a required disclosure.
(d) Deposits with Stated Maturities
The discounted cash flow method was used to estimate
the fair value of domestic medium- and long-term fixed
rate time deposits. Cash flows were estimated based on
underlying terms. The Corporation's current applicable
retail or wholesale interest rates that would be offered for
similar deposits with the same remaining maturities were
used as discount rates. The carrying value of foreign
medium- and long-term fixed rate time deposits was used
to approximate fair value, and is included in deposits
with no stated maturity since amounts involved were not
material.
First Chicago Corporation 62 Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
(e) Other Funds Borrowed and Long-Term Debt
Commercial paper is included in other short-term finan-
cial instruments while securities sold not yet purchased
is separately reported since it is a trading activity (see
(a) above for fair value measurement methodology).
The discounted cash flow method was used to estimate
the fair value of fixed rate medium-term other funds bor-
rowed and long-term debt. Cash flows were based on the
contractual terms. The current applicable bank or corpo-
rate senior or subordinated interest rates that would be
offered for similar debt instruments with the same remain-
ing maturities were used as the discount rates.
The discounted cash flow method also was used to esti-
mate the fair value of floating rate long-term debt. Esti-
mated fair value was calculated by adjusting the carrying
value for the change in value attributable to the differ-
ence between the current market and contractual fixed
spreads to be added to the floating base rate upon each
rate setting and adding the value of an embedded interest
rate floor, if any. The current interest rates that would be
offered on the Corporation's subordinated fixed rate debt
were used as discount rates. An option pricing model,
using current market information, was used to calculate
the value of any embedded interest rate floors.
(f) Derivative Product Assets and Liabilities--
Other Than Trading Purposes
The estimated fair values of derivative product assets and
liabilities used for risk management purposes, primarily
interest rate swaps used by the Corporation to manage
its interest rate exposure, were based on quoted market
prices or pricing and valuation models on a present value
basis using current market information.
(g) Credit Card Securitizations
(Off-Balance-Sheet Exposure)
Floating and fixed rate credit card receivables sold as
securities to investors through a separate trust are not finan-
cial instruments of the Corporation. However, the Corpo-
ration uses financial instruments (see (f) above) to reduce
interest rate risk exposure attributable to these securitiza-
tions. Interest rate risk exposure exists with respect to the
amount of anticipated excess servicing fee income, which
fluctuates with interest rate movements. Accordingly, the
carrying value and the interest rate effect on estimated
servicing fee income are disclosed. The carrying value rep-
resents the reserve for credit losses related to securitized
credit card receivables and net deferred income. The inter-
est rate effect on excess servicing fee income represents
the difference between the par value and the quoted mar-
ket price of the securitized credit card receivables held by
investors.
Certain limitations are inherent to the above methodol-
ogies. As a result, disclosed fair values may not be the
amount realized in a current transaction between willing
parties. Specifically, quoted market prices may not be real-
ized because the financial instrument is traded in a mar-
ket that lacks liquidity; or a fair value derived using a
discounted cash flow approach may not be the amount
realized because of the subjectivity involved in selecting
underlying assumptions, such as projecting cash flows or
selecting a discount rate. The fair value amount also may
not be realized because it ignores transaction costs and
does not include potential tax effects. Additionally, esti-
mated fair values of certain financial instruments ignore
intangible value associated with the financial instrument;
for example, significant unrecognized value exists that is
attributable to the Corporation's credit card relationships
and core deposits.
- ------------------------------------------------------------
N O T E 18--Contingencies
The Corporation and certain of its subsidiaries are defend-
ants in various lawsuits, including certain class actions, aris-
ing out of normal corporate activities, and the Corporation
has received certain tax deficiency assessments. Since the
Corporation and certain of its subsidiaries, which are reg-
ulated by one or more federal and state regulatory author-
ities, also are the subject of numerous examinations and
reviews by such authorities, the Corporation is and will,
from time to time, normally be engaged in various dis-
agreements with regulators, related primarily to banking
matters. In the opinion of management and the Corpora-
tion's general counsel, the ultimate resolution of the mat-
ters referred to in this note will not have a material effect
on the Corporation's consolidated financial statements.
First Chicago Corporation 63 Annual Report 1994
<PAGE>
Report of Management on Responsibility
for Financial Reporting
First Chicago Corporation and Subsidiaries
- --------------------------------------------------------------------------------
To the Stockholders of First Chicago Corporation:
Financial Statements
The Management of First Chicago Corporation and its
subsidiaries is responsible for the preparation, integrity
and objectivity of the financial statements and footnotes
contained in this Annual Report. The financial statements
have been prepared in accordance with generally accepted
accounting principles and are free from material fraud or
error. The other financial information in the Annual
Report is consistent with the financial statements. Where
financial information must of necessity be based upon esti-
mates and judgments, they represent the best estimates
and judgments of Management.
The Corporation's financial statements have been audited
by Arthur Andersen LLP, independent public accountants,
whose appointment is ratified by the stockholders. The
independent public accountants' responsibility is to express
an opinion on the Corporation's financial statements.
As described further in the report that follows, their opin-
ion is based on their audit, which was conducted in accor-
dance with generally accepted auditing standards and is
believed by them to provide a reasonable basis for their
opinion. Management has made available to Arthur
Andersen LLP all of the Corporation's financial records
and related data. Furthermore, Management believes that
all representations made to Arthur Andersen LLP during
their audit were valid and appropriate.
Internal Control Structure Over Financial Reporting
Management is also responsible for establishing and main-
taining the Corporation's internal control structure that
provides reasonable, but not absolute, assurance as to the
integrity and reliability of the financial statements. Man-
agement continually monitors the internal control struc-
ture for compliance with established policies and proce-
dures. The Corporation maintains a strong internal audit-
ing program that independently assesses the effectiveness
of the internal control structure. The Audit Committee
of the Board of Directors, composed entirely of outside
Directors, oversees the Corporation's financial reporting
process on behalf of the Board of Directors and has
responsibility for recommending the independent public
accountants for the Corporation who are appointed by
the Board of Directors. The Audit Committee reviews with
the independent public accountants the scope of their
audit and audit reports and meets with them on a sched-
uled basis to review their findings and any action to be
taken thereon. In addition, the Committee meets with the
internal auditors and with Management to review the
scope and findings of the internal audit program and any
actions to be taken by Management. The independent
public accountants and the internal auditors meet peri-
odically with the Committee without Management being
present.
Management also recognizes its responsibility for fostering
a strong ethical climate so that its affairs are conducted
according to the highest standards of personal and cor-
porate conduct. This responsibility is characterized and
reflected in the Corporation's integrity policy, which is
publicized throughout the Corporation. The policy
addresses, among other things, the necessity of ensuring
open communication within the Corporation; potential
conflicts of interest; compliance with all domestic and
foreign laws, including those relating to financial disclo-
sure; and the confidentiality of proprietary information.
The Corporation maintains a systematic program to assess
compliance with these policies.
There are inherent limitations in the effectiveness of any
internal control structure, including the possibility of
human error or the circumvention or overriding of con-
trols. Accordingly, even an effective internal control struc-
ture can provide only reasonable assurance with respect to
reliability of financial statements, and safeguarding of
assets. Furthermore, because of changes in conditions,
internal control structure effectiveness may vary over time.
The Corporation assessed its internal control structure
over financial reporting as of December 31, 1994, in rela-
tion to the criteria described in the ``Internal Control--
Integrated Framework'' issued by the Committee of Spon-
soring Organizations of the Treadway Commission. Based
on this assessment, the Corporation believes that as of
December 31, 1994, in all material respects, the Corpora-
tion maintained an effective internal control structure
over financial reporting.
/s/ R. L. Thomas
Richard L. Thomas
Chairman and Chief Executive Officer
/s/ Robert A. Rosholt
Robert A. Rosholt
Executive Vice President and
Chief Financial Officer
First Chicago Corporation 64 Annual Report 1994
<PAGE>
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Stockholders and the Board of Directors
of First Chicago Corporation:
We have audited the accompanying consolidated balance
sheet of First Chicago Corporation (a Delaware corpora-
tion) and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the
Corporation's management. Our responsibility is to
express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assur-
ance about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclo-
sures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial posi-
tion of First Chicago Corporation and subsidiaries as of
December 31, 1994 and 1993, and the results of their oper-
ations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As explained in Note 1(c) and 1(q) to the consolidated
financial statements, effective January 1, 1992, the Corpo-
ration changed its methods of accounting for the valuation
of venture capital investment securities and recognition
of certain credit card solicitation costs.
Chicago, Illinois /s/ Arthur Andersen LLP
January 17, 1995
First Chicago Corporation 65 Annual Report 1994
<PAGE>
Selected Statistical Information
First Chicago Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Securitization of Credit Card Receivables
Since 1987, the Corporation has actively packaged and sold
credit card assets as securities to investors. The securitiza-
tion of credit card receivables is an effective balance sheet
management tool since capital is freed for other uses. In
addition, while such securitizations affect net interest
income, the provision for credit losses and noninterest
income, the Corporation's net income is essentially
unaffected.
The Corporation's First Card unit continues to service
credit card accounts even after receivables are securitized.
The Corporation no longer recognizes net interest income
and certain fee revenue on the securitized portfolio; how-
ever, this is offset by servicing fees as well as by lower
provisions for credit losses.
At year-end 1994, $6.1 billion in credit card receivables
was securitized, compared with $5.0 billion at year-end
1993.
For analytical purposes only, the following table shows in-
come statement line items for the Corporation adjusted for
the net impact of securitization of credit card receivables.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1994 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................. $ 1,355 $ 550 $ 1,905 $ 1,264 $ 471 $ 1,735
Provision for credit losses............ 224 253 477 270 234 504
Noninterest income..................... 1,875 (297) 1,578 2,202 (237) 1,965
Noninterest expense.................... 1,919 -- 1,919 1,858 -- 1,858
Net income............................. 690 -- 690 804 -- 804
Assets--year-end....................... $65,900 $6,117 $72,017 $52,560 $4,958 $57,518
--average........................ 64,138 5,538 69,676 56,854 4,839 61,693
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock and Stockholder Data 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market price
High for the year................................. $55-1/2 $50-5/8 $37-3/4 $28-3/4 $38-1/4
Low for the year.................................. 41-1/8 35-1/2 22-7/8 15-5/8 13-1/8
At year-end....................................... 47-3/4 43-1/4 36-3/4 24-5/8 16-1/2
Dividend payout ratio............................... 28% 15% 188% 174% 60%
Price/earnings multiple (year-end market)........... 6.8 4.9 57.4 21.4 4.9
Book value (at year-end)............................ $43.65 $40.55 $33.19 $34.90 $36.27
Market price/book value (at year-end)............... 109% 107% 111% 71% 45%
Number of common stockholders of record............. 14,773 15,034 15,995 13,089 12,445
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------------
Record Cents
Common Dividends Declared Date Payable Per Share
- ----------------------------------------------------------------------
2/10/95 3/3/95 4/1/95 55
11/11/94 12/2/94 1/1/95 55
7/8/94 9/2/94 10/1/94 50
5/13/94 6/3/94 7/1/94 50
2/11/94 3/4/94 4/1/94 40
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Record Cents
Common Dividends Declared Date Payable Per Share
- ----------------------------------------------------------------------
11/12/93 12/3/93 1/1/94 40
7/9/93 9/3/93 10/1/93 30
5/14/93 6/4/93 7/1/93 30
2/12/93 3/5/93 4/1/93 30
11/13/92 12/11/92 1/1/93 30
- ----------------------------------------------------------------------
First Chicago Corporation 66 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Quarterly Data
Quarterly Earnings and Market Price Summary
- ------------------------------------------------------------------------------------------------------------------------------------
Stock Market Price/Earnings
Net Income Price Range (1) Multiple Range (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Per
(In millions) Share Low High Low High
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994
First quarter............................... $ 193.8 $2.05 $41-1/8 $52-3/8 4.7 5.9
Second quarter.............................. 168.7 1.71 46-5/8 55-1/2 5.4 6.4
Third quarter............................... 153.8 1.54 45-1/2 52-1/4 6.4 7.3
Fourth quarter.............................. 173.4 1.76 42-5/8 50-1/4 6.1 7.1
Year................................ 689.7 7.04 41-1/8 55-1/2 5.8 7.9
- ------------------------------------------------------------------------------------------------------------------------------------
1993
First quarter............................... $179.1 $1.97 $36 $44-3/4 N/M N/M
Second quarter.............................. 168.5 1.81 35-1/2 45-3/8 62.3 79.6
Third quarter............................... 284.1 3.14 40-7/8 49-1/4 4.8 5.8
Fourth quarter.............................. 172.8 1.81 40-7/8 50-5/8 4.7 5.8
Year................................ 804.5 8.78 35-1/2 50-5/8 4.0 5.8
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The principal market for First Chicago Corporation common stock is the New
York Stock Exchange.
(2) Computation made by dividing market prices by primary per share earnings for
the latest 12-month period ending with the current quarter.
N/M--Not meaningful.
<TABLE>
<CAPTION>
Consolidated Summary of Quarterly Financial Information
- ------------------------------------------------------------------------------------------------------------------------------------
1994 (In millions, except per share data) December 31 September 30 June 30 March 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income............................................. $939.4 $844.2 $757.8 $678.6
Net interest income......................................... 333.2 334.4 332.8 330.6
Combined credit provisions.................................. 76.7 56.0 42.8 50.2
Noninterest income (1)...................................... 486.5 457.3 428.2 501.4
Investment securities gains (losses)........................ 2.3 (2.2) 0.6 0.5
Noninterest expense (2)..................................... 481.4 490.4 460.8 484.3
Net income.................................................. 173.4 153.8 168.7 193.8
Earnings per share
Primary..................................................... $1.76 $1.54 $1.71 $2.05
Fully diluted............................................... 1.72 1.51 1.67 2.00
- ------------------------------------------------------------------------------------------------------------------------------------
1993 (In millions, except per share data) December 31 September 30 June 30 March 31
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income............................................. $647.7 $668.7 $648.5 $659.2
Net interest income......................................... 300.7 323.1 303.2 298.8
Combined credit provisions.................................. 71.2 66.5 71.0 65.5
Noninterest income (1)...................................... 522.1 686.2 503.3 490.5
Investment securities gains (losses)........................ 0.9 (0.8) 0.2 --
Noninterest expense (2)..................................... 480.7 474.0 465.6 433.6
Net income.................................................. 172.8 284.1 168.5 179.1
Earnings per share
Primary..................................................... $1.81 $3.14 $1.81 $1.97
Fully diluted............................................... 1.77 2.97 1.72 1.91
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes investment securities gains (losses).
(2) Excludes provision for other real estate.
First Chicago Corporation 67 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Due from banks--interest-bearing (1).............. $ 7,845 $ 361.7 4.61% $ 7,441 $ 298.0 4.00%
Federal funds sold and securities under
resale agreements............................... 14,148 615.2 4.35 11,589 344.8 2.98
Trading account assets............................ 4,785 279.5 5.84 4,729 223.7 4.73
Investment securities
U.S. government and federal agency.............. 727 32.7 4.50 725 29.7 4.10
States and political subdivisions............... 167 14.9 8.92 216 19.7 9.12
Other........................................... 1,643 29.7 1.81 1,537 33.8 2.20
------- -------- ----- ------- -------- ----
Total investment securities............... 2,537 77.3 3.05 2,478 83.2 3.36
Loans (2)(3)
Domestic offices................................ 21,545 1,785.0 8.57 19,935 1,539.5 7.95
Foreign offices................................. 1,748 123.0 7.04 2,062 145.3 7.05
------- -------- ----- ------- -------- ----
Total loans............................... 23,293 1,908.0 8.45 21,997 1,684.8 7.86
Assets held for accelerated disposition (4)....... 19 2.5 13.16 283 27.8 9.82
------- -------- ----- ------- -------- ----
Total earning assets (5).......................... 52,627 3,244.2 6.17 48,517 2,662.3 5.49
Cash and due from banks--noninterest-bearing...... 4,181 3,812
Allowance for credit losses....................... (698) (628)
Other assets...................................... 8,028 5,153
------- -------
Total assets.............................. $64,138 $56,854
======= =======
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings......................................... $ 8,022 $ 188.6 2.35% $ 8,093 $ 162.8 2.01%
Time............................................ 4,688 167.8 3.58 5,401 143.9 2.66
Foreign offices (6)............................. 9,648 423.1 4.39 9,203 337.4 3.67
------- -------- ----- ------- -------- ----
Total deposits--interest-bearing.......... 22,358 779.5 3.49 22,697 644.1 2.84
Federal funds purchased and securities
under repurchase agreements..................... 12,290 526.2 4.28 10,112 308.1 3.05
Commercial paper.................................. 175 7.7 4.40 194 6.1 3.14
Other funds borrowed.............................. 8,321 405.5 4.87 6,849 289.7 4.23
Long-term debt.................................... 2,255 170.1 7.54 2,057 150.3 7.31
------- -------- ----- ------- -------- ----
Total interest-bearing liabilities........ 45,399 1,889.0 4.16 41,909 1,398.3 3.34
Demand deposits................................... 7,072 6,980
Other liabilities................................. 7,224 4,079
Preferred stock................................... 686 794
Common stockholders' equity....................... 3,757 3,092
------- -------
Total liabilities and
stockholders' equity.................... $64,138 $56,854
======= =======
Interest income/earning assets (5)................ $3,244.2 6.17 $2,662.3 5.49
Interest expense/earning assets................... 1,889.0 3.59 1,398.3 2.88
-------- ----- -------- ----
Net interest margin............................... $1,355.2 2.58% $1,264.0 2.61%
======== ===== ======== ====
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Principally balances in overseas offices.
(2) Rates are calculated on average lease-financing receivable balances reduced
by deferred liability for taxes.
(3) Nonperforming loans are included in average balances used to determine
rates.
First Chicago Corporation 68 Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 7,376 $ 358.0 4.85% $ 6,543 $ 476.2 7.28% $ 5,988 $ 524.4 8.76%
8,202 284.8 3.47 5,683 329.3 5.79 4,531 368.6 8.14
4,339 260.2 6.00 3,159 230.9 7.31 2,261 188.3 8.33
521 30.4 5.83 447 34.1 7.63 552 44.3 8.03
270 25.0 9.26 324 30.2 9.32 529 50.0 9.45
1,452 31.1 2.14 1,075 44.3 4.12 1,032 37.5 3.63
------- -------- ---- ------- -------- ---- ------- -------- -----
2,243 86.5 3.86 1,846 108.6 5.88 2,113 131.8 6.24
21,735 1,689.4 7.95 24,027 2,202.1 9.38 26,522 2,868.2 11.04
2,612 207.2 7.93 3,254 295.4 9.08 4,087 435.9 10.67
------- -------- ---- ------- -------- ---- ------- -------- -----
24,347 1,896.6 7.95 27,281 2,497.5 9.35 30,609 3,304.1 10.99
199 17.5 8.79 -- -- -- -- -- --
------- -------- ---- ------- -------- ---- ------- -------- -----
46,706 2,903.6 6.22 44,512 3,642.5 8.18 45,502 4,517.2 9.93
3,338 2,961 2,787
(709) (836) (962)
5,433 6,018 5,770
------- ------- -------
$54,768 $52,655 $53,097
======= ======= =======
$ 7,634 $ 202.2 2.65% $ 6,005 $ 265.3 4.42% $ 4,902 $ 277.1 5.65%
7,567 307.0 4.06 10,164 678.6 6.68 9,563 763.5 7.98
10,357 464.5 4.48 11,415 770.0 6.75 14,567 1,251.4 8.59
------- -------- ---- ------- -------- ---- ------- -------- -----
25,558 973.7 3.81 27,584 1,713.9 6.21 29,032 2,292.0 7.89
9,905 345.3 3.49 7,438 428.2 5.76 7,240 593.2 8.19
231 8.8 3.81 210 13.8 6.57 719 59.7 8.30
4,041 231.9 5.74 3,310 240.4 7.26 2,565 207.3 8.08
1,735 126.9 7.31 1,589 128.3 8.07 1,380 123.2 8.93
------- -------- ---- ------- -------- ---- ------- -------- -----
41,470 1,686.6 4.07 40,131 2,524.6 6.29 40,936 3,275.4 8.00
6,136 5,235 5,181
3,848 4,351 4,218
581 507 419
2,733 2,431 2,343
------- ------- -------
$54,768 $52,655 $53,097
======= ======= =======
$2,903.6 6.22 $3,642.5 8.18 $4,517.2 9.93
1,686.6 3.61 2,524.6 5.67 3,275.4 7.20
-------- ---- -------- ---- -------- -----
$1,217.0 2.61% $1,117.9 2.51% $1,241.8 2.73%
======== ==== ======== ==== ======== ====
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Excludes other real estate held for accelerated disposition.
(5) Includes tax-equivalent adjustments based on 35% federal income tax rate of
$24.2 million for 1994, $38.2 million for 1993, and tax-equivalent
adjustments based on 34% federal income tax rate of $34.0 million for 1992,
$37.9 million for 1991, and $44.2 million for 1990.
(6) Includes International Banking Facilities' deposit balances in domestic
offices and balances of Edge Act and overseas offices.
First Chicago Corporation 69 Annual Report 1994
<PAGE>
Executive Officers of the Corporation
Richard L. Thomas
Chairman of the Board and Chief Executive Officer
Leo F. Mullin
President and Chief Operating Officer
David J. Vitale
Vice Chairman of the Board and
Senior Risk Management Officer
Marvin James Alef, Jr.
Executive Vice President
Human Resources and Administration
John W. Ballantine
Executive Vice President
Corporate and Institutional Banking
Sherman I. Goldberg
Executive Vice President, General Counsel and
Secretary
Thomas H. Hodges
Executive Vice President
Corporate and Institutional Banking
Donald R. Hollis
Executive Vice President
Corporate and Institutional Banking
W.G. Jurgensen
Executive Vice President
Community Banking
Scott P. Marks, Jr.
Executive Vice President
First Card
Robert A. Rosholt
Executive Vice President and
Chief Financial Officer
First Chicago Corporation 70 Annual Report 1994
<PAGE>
U.S. Offices and International Facilities
Community Banking Group
The First National Bank of Chicago
Locations
Antioch Glen Ellyn Oak Park
Arlington Heights Glendale Heights Orland Park
Aurora Glenview Palatine
Batavia Highland Park Park Ridge
Berwyn Hinsdale River Forest
Bloomingdale Hoffman Estates River Grove
Bolingbrook Joliet Romeoville
Carol Stream Lake Forest Schiller Park
Chicago Lake Zurich St. Charles
Deerfield Lansing Warrenville
Downers Grove Mount Prospect Wheaton
Elgin Naperville Willowbrook
Elk Grove Village Niles Wilmette
Elmhurst Northbrook Winnetka
Elmwood Park Oak Brook Woodridge
Evanston Oak Lawn Worth
Mortgage Servicing
Oakbrook Terrace, Ill.
American National Corporation
Banking Subsidiaries
American National Bank and Trust Company of
Chicago
American National Bank and Trust Company of
Wisconsin
Locations
Arlington Heights Libertyville Genoa City, Wis.
Bensenville Lisle Milwaukee, Wis.
Chicago Matteson Pell Lake, Wis.
Deerfield Melrose Park Grand Cayman
Des Plaines Skokie
Elgin Willowbrook
First Card
FCC National Bank
Operations Centers
Elgin, Ill. Uniondale, N.Y. Wilmington, Del.
- ----------------------------------------------------------------
Corporate Trust and Security Services Offices
Chicago London New York
Edison, N.J. Newport, N.J.
Debt Trading Offices
Buenos Aires London New York
Edge Act Offices
Chicago Los Angeles New York
International Banking Offices
Beijing London Sydney
Cayman Islands New York Taipei
Chicago Seoul Tokyo
Hong Kong Singapore
Leasing Office
Chicago
National Processing Centers
Charlotte, N.C. Dallas Secaucus, N.J.
Chicago Pasadena Valley Forge, Pa.
Regional Offices
Atlanta Houston Washington, D.C.
Boston Los Angeles
Cleveland New York
First Chicago Corporation 71 Annual Report 1994
<PAGE>
Corporate Information
First Chicago Corporation, a multibank holding
company, provides a broad range of banking, fidu-
ciary, financial and other services domestically and
overseas. Its principal subsidiary, The First National
Bank of Chicago, was founded in 1863 and is the
oldest, largest national bank still operating under its
original name and charter. With pride in this historic
base, First Chicago is committed to understanding
and satisfying the financial needs of its various
customers, thereby extending its position as:
. The leading bank for consumers and for small and
medium-sized businesses in the Chicago metro-
politan area.
. A leading competitor in serving consumers nation-
ally through credit cards and other direct delivery
systems.
. A leading provider of sophisticated financial
services to large corporate and institutional cus-
tomers in the United States and in selected inter-
national markets.
Headquarters
One First National Plaza, Chicago, IL 60670.
(312) 732-4000.
Annual Meeting
The Annual Meeting of Stockholders of First Chicago
Corporation will be held on Friday, April 21, 1995,
at 9:30 a.m. (Chicago time) in the First Chicago
Center, One First National Plaza.
Stock Listing
First Chicago Corporation common stock is listed
on the Chicago, New York, Pacific and London stock
exchanges. Symbol: FNB.
Stock Transfer Agent and Registrar
First Chicago Trust Company of New York, P.O. Box
2500, Jersey City, NJ 07303-2500. 1-800-446-2617.
Internet: FCTC @ Delphi.com
Stockholder Inquiries
Stockholders who have questions about stock trans-
fers, changes of address, dividend payments or lost
certificates should contact First Chicago Trust
Company of New York.
Dividend Direct Deposit
First Chicago offers common stockholders the
convenience of having dividends electronically
deposited without charge into their checking, savings
or money market account at most U.S. financial
institutions. To obtain an enrollment card, contact
First Chicago Trust Company of New York.
Dividend Reinvestment and Stock Purchase Plan
Stockholders can increase their ownership in the
Corporation without brokerage commissions or
service fees through the Dividend Reinvestment
and Stock Purchase Plan. For a prospectus and an
enrollment card, contact First Chicago Trust
Company of New York.
Form 10-K and Other Financial Reports
Single copies of this Annual Report, the Corpo-
ration's Annual Report on Form 10-K as filed with
the Securities and Exchange Commission, and
Quarterly Earnings Releases may be obtained from
Corporate Communications, First Chicago Corpora-
tion, Mail Suite 0358, Chicago, IL 60670-0358.
(312) 732-6204.
Investor Relations
Analysts and investors seeking additional financial
information should contact Investor Relations, First
Chicago Corporation, Mail Suite 0460, Chicago, IL
60670-0460. (312) 732-8013 or (312) 732-4812.
Independent Accountants
Arthur Andersen LLP, 33 W. Monroe St., Chicago,
IL 60603-5385.
(C) 1995 First Chicago Corporation
Printed in the U.S.A. on recycled paper (recycle symbol here)
First Chicago Corporation 72 Annual Report 1994
<PAGE>
[LOGO OF FIRST CHICAGO CORPORATION]
FIRST CHICAGO
CORPORATION
One First National Plaza
Chicago, Illinois 60670
<PAGE>
Appendix to First Chicago Corporation 1994 Annual Report to Stockholders
(Electronic Format)
Descriptions of Photographs
Page 5--Photograph of the Corporation's Inside Directors (left to right):
President Leo F. Mullin, Chairman Richard L. Thomas, Vice Chairman David J.
Vitale.
Page 6, lower left--Photograph of doctor checking pregnant woman's blood
pressure.
Page 6, upper right--Photograph of man standing behind computer monitor at which
woman is seated, back to camera.
Page 7--Photograph of woman working at desk.
Page 8--Photograph of three people in balloon and party goods store.
Page 9--Photograph of man and woman with three children in playroom of social
services agency.
Page 10--Photograph of man handing creditcard to store owner.
Page 13--Photograph of woman and man in book-lined office.
Page 14, lower left--Photograph of three foreign exchange traders on trading
floor.
Page 14, upper right--Photograph of man and woman looking at catalog.
Page 15--Photograph of two men on loading dock.
