<PAGE>
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) July 21, 1995
--------------------------------
First Chicago Corporation
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 1-6052 36-2669970
- ----------------------- ------------------- ----------------------
(NAME OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
One First National Plaza, Chicago, IL 60670
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 312-732-4000
------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- ------
c) Exhibits
--------
Attached hereto or incorporated herein are the following Exhibits relating to
the previously announced merger of First Chicago Corporation, a Delaware
corporation (the "Corporation"), and NBD Bancorp, Inc., a Delaware corporation
("NBD"):
<TABLE>
<CAPTION>
Exhibit Description of
Number Exhibit
- ------ --------------
<S> <C>
2 Agreement and Plan of Merger dated as of July 11, 1995, by and
between the Corporation and NBD (Incorporated by reference to
Exhibit 1 to the Corporatation's Current Report on Form 8-K dated
July 19, 1995).
23 Consent of Deloitte & Touche LLP
27 The Corporation's Financial Data Schedule. (Incorporated by
reference to Exhibit (27) to the Corporatation's Form 10-Q for the
quarter ended March 31, 1995).
99(a) Pro forma financial information.
99(b) Certain NBD historical financial information for the three years
ended December 31, 1994, and for the first quarters of 1995 and
1994.
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
First Chicago Corporation
-------------------------
(REGISTRANT)
Date: July 21, 1995 By: /s/ WILLIAM J. ROBERTS
---------------------- ---------------------------------------
Title: Senior Vice President and Controller
<PAGE>
FIRST CHICAGO NBD CORPORATION
PRO FORMA FINANCIAL INFORMATION
First Chicago Corporation (the "Corporation" or "First Chicago") and NBD
Bancorp, Inc. ("NBD") have entered into an Agreement and Plan of Merger dated as
of July 11, 1995 (the "Merger Agreement") pursuant to which the Corporation will
merge with and into NBD. The name of the combined companies will be First
Chicago NBD Corporation ("FCNBD").
It is anticipated that the Merger will be accounted for as a pooling-of-
interests and will be expected to be consummated by early 1996, pending
approvals of the stockholders of the Corporation and NBD, regulatory approvals,
and other customary conditions of closing.
Pursuant to the Merger Agreement, at the effective time of the Merger, common
stockholders of First Chicago will receive 1.81 shares of common stock of FCNBD
in exchange for each outstanding share of First Chicago common stock. Each
share of common stock of NBD will remain outstanding after the Merger and
represent one share of FCNBD.
At the effective time of the Merger, each share of First Chicago's outstanding
series of preferred stock will be exchanged for one share of FCNBD preferred
stock with terms
- 1 -
<PAGE>
identical to those of the existing First Chicago preferred stock.
In connection with the execution of the Merger Agreement, First Chicago granted
NBD an option to purchase, under certain circumstances, up to 19.9 percent of
First Chicago's outstanding shares of common stock. NBD also granted First
Chicago an option to purchase, under certain circumstances, up to 19.9 percent
of NBD's outstanding shares of common stock.
The following pro forma financial information giving effect to the Merger,
accounted for as a pooling-of-interests, includes: (i) the unaudited pro forma
condensed combined balance sheet as of March 31, 1995, and (ii) the unaudited
pro forma condensed combined statements of income for each of the three years in
the period ended December 31, 1994, and for the three-month periods ended March
31, 1995 and 1994. The proforma condensed combined financial statements should
be read in conjunction with the historical consolidated financial statements and
notes thereto of the Corporation and NBD.
Effective January 7, 1995, NBD consummated its acquisition of the $910 million
asset AmeriFed Financial Corp. ("AmeriFed") of Joliet, Illinois, which was
accounted for as a purchase. Accordingly, the historical financial information
for NBD as
- 2 -
<PAGE>
of and for the three months ended March 31, 1995, include the operations of
AmeriFed. On July 1, 1995, NBD acquired the $760 million asset Deerbank
Corporation ("Deerbank") of Deerfield, Illinois, which was accounted for as a
purchase. With respect to the following pro forma condensed combined financial
statements, the historical financial information for NBD was not restated to
otherwise include amounts for AmeriFed and Deerbank as such acquisitions are not
considered material.
- 3 -
<PAGE>
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1995
(UNAUDITED)
The following pro forma condensed combined balance sheet as of March 31, 1995,
is presented to show the impact on the Corporation's historical financial
condition of the merger with NBD. The Merger has been reflected under the
pooling-of-interests method of accounting.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1995
(in millions)
Corporation NBD Pro forma Pro forma
(as reported) (as reported) adjustments FCNBD
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks-noninterest
bearing.............................. $ 3,328 $ 2,789 $ 6,117
Due from banks-interest bearing......... 9,120 654 9,774
Federal funds sold and securites
under resale agreements.............. 13,532 122 13,654
Trading account assets.................. 6,098 125 6,223
Derivative product assets............... 8,590 65 8,655
Investment securities................... 2,499 11,592 14,091
Loans................................... 27,018 30,726 57,744
Allowance for credit losses............. (754) (458) (1,212)
Other assets............................ 2,947 2,141 5,088
- ---------------------------------------------------------------------------------------------------
Total assets..................... $72,378 $47,756 $ - $120,134
- ---------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Demand................................. $ 6,791 $ 6,637 $ 13,428
Savings................................ 7,564 12,445 20,009
Time................................... 5,794 9,566 15,360
Foreign offices........................ 12,042 2,913 14,955
- ---------------------------------------------------------------------------------------------------
Total deposits................... 32,191 31,561 - 63,752
Short term borrowings................... 22,730 8,929 31,659
Long term debt.......................... 2,272 2,703 4,975
Derivative product liabilities.......... 8,198 76 8,274
Other liabilities....................... 2,319 982 146 3,447
- ---------------------------------------------------------------------------------------------------
Total liabilities................ 67,710 44,251 146 112,107
STOCKHOLDERS' EQUITY
Preferred stock......................... 611 - 611
Common stock............................ 466 161 (466) 324
163
Surplus................................. 1,715 534 (1,715) 2,389
1,855
Retained earnings....................... 2,041 2,990 (142) 4,885
(4)
Other................................... (2) (91) (93)
- ---------------------------------------------------------------------------------------------------
Total............................ 4,831 3,594 (309) 8,116
Less: Treasury stock.................... 163 89 (163) 89
Stockholders' equity............. 4,668 3,505 (146) 8,027
- ---------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity........ $72,378 $47,756 $ - $120,134
===================================================================================================
</TABLE>
See accompanying notes to pro forma financial information.
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<PAGE>
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
The following unaudited pro forma condensed combined statements of income are
presented to show the impact on the Corporation's historical results of
operations of the proposed merger with NBD. Such statements assume that the
companies had been combined for each period presented.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FIRST CHICAGO NBD CORPORATION
Pro Forma Condensed Combined Statements of Income
(in millions, except per share data)
For Three Months
For Year Ended December 31, Ended March 31,
----------------------------- ------------------
INTEREST INCOME 1994 1993 1992 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest and fees on loans.............. $4,000.1 $3,611.5 $3,934.0 $1,252.1 $ 899.7
Interest on federal funds sold and
securities under resale agreements.... 623.9 349.6 290.7 244.9 91.9
Interest on trading account assets...... 284.4 227.3 268.1 90.5 60.0
Interest on investment securities....... 832.5 724.2 811.3 228.7 180.2
Other interest income................... 394.4 334.3 409.3 142.9 82.0
--------------------------------- ----------------------
Total............................. 6,135.3 5,246.9 5,713.4 1,959.1 1,313.8
INTEREST EXPENSE
Interest on deposits.................... 1,652.7 1,472.0 2,082.4 586.6 337.4
Interest on short-term borrowings....... 1,230.0 760.1 752.8 489.2 198.6
Interest on long-term debt.............. 296.9 230.9 185.4 89.0 65.9
--------------------------------- ----------------------
Total............................. 3,179.6 2,463.0 3,020.6 1,164.8 601.9
NET INTEREST INCOME..................... 2,955.7 2,783.9 2,692.8 794.3 711.9
Provision for credit losses............. 276.0 389.7 653.5 85.1 65.5
Provision for loans held for
accelerated disposition............... - - 491.0 - -
--------------------------------- ----------------------
Net Interest Income After Combined
Credit Provisions..................... 2,679.7 2,394.2 1,548.3 709.2 646.4
NONINTEREST INCOME
Equity securities gains................. 228.6 480.2 204.6 54.9 134.2
Investment securities gains (losses).... (1.3) 9.6 10.2 1.4 0.9
Credit card fee revenue................. 870.7 730.3 553.4 200.7 190.6
Other noninterest income................ 1,322.2 1,567.7 1,249.2 348.8 314.9
--------------------------------- ----------------------
Total............................. 2,420.2 2,787.8 2,017.4 605.8 640.6
NONINTEREST EXPENSE
Salaries and employee benefits.......... 1,589.6 1,557.7 1,424.2 409.1 384.2
Occupancy and equipment expense......... 501.6 460.3 489.2 121.4 140.1
Other expense........................... 1,131.7 1,162.0 1,380.0 271.1 282.5
--------------------------------- ----------------------
Total............................. 3,222.9 3,180.0 3,293.4 801.6 806.8
INCOME BEFORE INCOME TAXES.............. 1,877.0 2,002.0 272.3 513.4 480.2
Applicable income taxes................. 640.0 715.7 48.8 177.4 163.5
--------------------------------- ----------------------
INCOME FROM CONTINUING OPERATIONS....... $1,237.0 $1,286.3 $ 223.5 $ 336.0 $ 316.7
--------------------------------- ----------------------
COMMON SHARE DATA
Income from continuing operations
Primary................................. $3.67 $3.90 $0.60 $1.01 $0.95
Fully diluted........................... $3.62 $3.78 $0.60 $0.99 $0.93
Weighed average shares
Primary................................. 322.7 315.4 299.2 324.1 319.9
Fully diluted........................... 330.8 331.3 N/M 331.2 332.2
======================================================================================================================
</TABLE>
N/M = Not Meaningful
See accompanying notes to pro forma financial information.
- 5 -
<PAGE>
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
Corporation NBD Pro Forma
(as reported) (as reported) FCNBD
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.............. $1,897.2 $2,102.9 $4,000.1
Interest on federal funds sold and
securities under resale agreements.... 615.2 8.7 623.9
Interest on trading account assets...... 277.7 6.7 284.4
Interest on investment securities....... 68.2 764.3 832.5
Other interest income................... 361.7 32.7 394.4
- -------------------------------------------------------------------------------------
Total............................ 3,220.0 2,915.3 6,135.3
INTEREST EXPENSE
Interest on deposits.................... 779.5 873.2 1,652.7
Interest on short-term borrowings....... 939.4 290.6 1,230.0
Interest on long-term debt.............. 170.1 126.8 296.9
- -------------------------------------------------------------------------------------
Total............................ 1,889.0 1,290.6 3,179.6
NET INTEREST INCOME..................... 1,331.0 1,624.7 2,955.7
Provision for credit losses............. 224.0 52.0 276.0
- -------------------------------------------------------------------------------------
Net Interest Income After
Provision for Credit Losses........... 1,107.0 1,572.7 2,679.7
NONINTEREST INCOME
Equity securities gains................. 228.6 - 228.6
Investment securities gains (losses).... 1.2 (2.5) (1.3)
Credit card fee revenue................. 832.1 38.6 870.7
Other noninterest income................ 812.7 509.5 1,322.2
- -------------------------------------------------------------------------------------
Total............................ 1,874.6 545.6 2,420.2
NONINTEREST EXPENSE
Salaries and employee benefits.......... 868.9 720.7 1,589.6
Occupancy and equipment expense......... 294.7 206.9 501.6
Other expense........................... 755.0 376.7 1,131.7
- -------------------------------------------------------------------------------------
Total............................ 1,918.6 1,304.3 3,222.9
INCOME BEFORE INCOME TAXES.............. 1,063.0 814.0 1,877.0
Applicable income taxes................. 373.3 266.7 640.0
- -------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS....... $ 689.7 $ 547.3 $1,237.0
- -------------------------------------------------------------------------------------
COMMON SHARE DATA
Income from continuing operations
Primary................................. $7.04 $3.45 $3.67
Fully diluted........................... $6.88 $3.43 $3.62
Weighed average shares
Primary................................. 90.5 158.8 322.7
Fully diluted........................... 94.2 160.1 330.8
</TABLE>
See accompanying notes to pro forma financial information.
- 5a -
<PAGE>
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
Corporation NBD Pro Forma
(as reported) (as reported) FCNBD
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.............. $1,687.4 $1,924.1 $3,611.5
Interest on federal funds sold and
securities under resale agreements.... 344.8 4.8 349.6
Interest on trading account assets...... 221.9 5.4 227.3
Interest on investment securities....... 72.0 652.2 724.2
Other interest income................... 298.0 36.3 334.3
- -------------------------------------------------------------------------------------
Total............................ 2,624.1 2,622.8 5,246.9
INTEREST EXPENSE
Interest on deposits.................... 644.1 827.9 1,472.0
Interest on short-term borrowings....... 603.9 156.2 760.1
Interest on long-term debt.............. 150.3 80.6 230.9
- -------------------------------------------------------------------------------------
Total............................ 1,398.3 1,064.7 2,463.0
NET INTEREST INCOME..................... 1,225.8 1,558.1 2,783.9
Provision for credit losses............. 270.0 119.7 389.7
- -------------------------------------------------------------------------------------
Net Interest Income After
Provision for Credit Losses........... 955.8 1,438.4 2,394.2
NONINTEREST INCOME
Equity securities gains................. 480.2 - 480.2
Investment securities gains............. 0.3 9.3 9.6
Credit card fee revenue................. 694.2 36.1 730.3
Other noninterest income................ 1,027.7 540.0 1,567.7
- -------------------------------------------------------------------------------------
Total............................ 2,202.4 585.4 2,787.8
NONINTEREST EXPENSE
Salaries and employee benefits.......... 853.9 703.8 1,557.7
Occupancy and equipment expense......... 258.0 202.3 460.3
Other expense........................... 746.2 415.8 1,162.0
- -------------------------------------------------------------------------------------
Total............................ 1,858.1 1,321.9 3,180.0
INCOME BEFORE INCOME TAXES.............. 1,300.1 701.9 2,002.0
Applicable income taxes................. 495.6 220.1 715.7
- -------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS....... $ 804.5 $ 481.8 $1,286.3
- -------------------------------------------------------------------------------------
COMMON SHARE DATA
Income from continuing operations
Primary................................. $8.78 $2.98 $3.90
Fully diluted........................... $8.43 $2.93 $3.78
Weighed average shares
Primary................................. 85.2 161.3 315.4
Fully diluted........................... 90.3 167.9 331.3
</TABLE>
See accompanying notes to pro forma financial information.
- 5b -
<PAGE>
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
Corporation NBD Pro Forma
(as reported) (as reported) FCNBD
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.............. $1,894.4 $2,039.6 $3,934.0
Interest on federal funds sold and
securities under resale agreements.... 284.8 5.9 290.7
Interest on trading account assets...... 259.0 9.1 268.1
Interest on investment securities....... 73.4 737.9 811.3
Other interest income................... 358.0 51.3 409.3
- -------------------------------------------------------------------------------------
Total............................ 2,869.6 2,843.8 5,713.4
INTEREST EXPENSE
Interest on deposits.................... 973.7 1,108.7 2,082.4
Interest on short-term borrowings....... 586.0 166.8 752.8
Interest on long-term debt.............. 126.9 58.5 185.4
- -------------------------------------------------------------------------------------
Total............................ 1,686.6 1,334.0 3,020.6
NET INTEREST INCOME..................... 1,183.0 1,509.8 2,692.8
Provision for credit losses............. 425.0 228.5 653.5
Provision for loans held for
accelerated disposition............... 491.0 - 491.0
- -------------------------------------------------------------------------------------
Net Interest Income After Combined
Credit Provisions..................... 267.0 1,281.3 1,548.3
NONINTEREST INCOME
Equity securities gains................. 204.6 - 204.6
Investment securities gains............. 8.6 1.6 10.2
Credit card fee revenue................. 516.1 37.3 553.4
Other noninterest income................ 758.9 490.3 1,249.2
- -------------------------------------------------------------------------------------
Total............................ 1,488.2 529.2 2,017.4
NONINTEREST EXPENSE
Salaries and employee benefits.......... 748.0 676.2 1,424.2
Occupancy and equipment expense......... 297.2 192.0 489.2
Other expense........................... 910.1 469.9 1,380.0
- -------------------------------------------------------------------------------------
Total............................ 1,955.3 1,338.1 3,293.4
INCOME (LOSS) BEFORE INCOME TAXES....... (200.1) 472.4 272.3
Applicable income taxes (benefits)...... (85.6) 134.4 48.8
- -------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS....... $ (114.5) $ 338.0 $ 223.5
- -------------------------------------------------------------------------------------
COMMON SHARE DATA
Income from continuing operations
Primary................................. $(2.08) $2.11 $0.60
Fully diluted........................... $(2.08) $2.06 $0.60
Weighed average shares
Primary................................. 76.5 160.7 299.2
Fully diluted........................... N/M 168.9 N/M
</TABLE>
N/M = Not Meaningful.
See accompanying notes to pro forma financial information.
- 5c -
<PAGE>
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
Corporation NBD Pro Forma
(as reported) (as reported) FCNBD
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.............. $ 604.9 $ 647.2 $1,252.1
Interest on federal funds sold and
securities under resale agreements.... 240.8 4.1 244.9
Interest on trading account assets...... 88.7 1.8 90.5
Interest on investment securities....... 21.0 207.7 228.7
Other interest income................... 131.6 11.3 142.9
- -------------------------------------------------------------------------------------
Total............................ 1,087.0 872.1 1,959.1
INTEREST EXPENSE
Interest on deposits..................... 294.0 292.6 586.6
Interest on short-term borrowings........ 373.5 115.7 489.2
Interest on long-term debt............... 45.9 43.1 89.0
- -------------------------------------------------------------------------------------
Total............................ 713.4 451.4 1,164.8
NET INTEREST INCOME...................... 373.6 420.7 794.3
Provision for credit losses.............. 65.0 20.1 85.1
- -------------------------------------------------------------------------------------
Net Interest Income After
Provision for Credit Losses............ 308.6 400.6 709.2
NONINTEREST INCOME
Equity securities gains.................. 54.9 - 54.9
Investment securities gains.............. - 1.4 1.4
Credit card fee revenue.................. 191.2 9.5 200.7
Other noninterest income................. 224.0 124.8 348.8
- -------------------------------------------------------------------------------------
Total............................ 470.1 135.7 605.8
NONINTEREST EXPENSE
Salaries and employee benefits........... 231.8 177.3 409.1
Occupancy and equipment expense.......... 67.8 53.6 121.4
Other expense............................ 178.5 92.6 271.1
- -------------------------------------------------------------------------------------
Total............................ 478.1 323.5 801.6
INCOME BEFORE INCOME TAXES............... 300.6 212.8 513.4
Applicable income taxes.................. 105.5 71.9 177.4
- -------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS........ $ 195.1 $ 140.9 $ 336.0
- -------------------------------------------------------------------------------------
COMMON SHARE DATA
Income from continuing operations
Primary.................................. $2.03 $0.88 $1.01
Fully diluted............................ $1.98 $0.88 $0.99
Weighed average shares
Primary.................................. 91.0 159.5 324.1
Fully diluted............................ 94.8 159.6 331.2
</TABLE>
See accompanying notes to pro forma financial information.
- 5d -
<PAGE>
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
Corporation NBD Pro Forma
(as reported) (as reported) FCNBD
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.............. $ 437.6 $ 462.1 $ 899.7
Interest on federal funds sold and
securities under resale agreements.... 91.0 0.9 91.9
Interest on trading account assets...... 59.1 0.9 60.0
Interest on investment securities....... 15.9 164.3 180.2
Other interest income................... 75.0 7.0 82.0
- -------------------------------------------------------------------------------------
Total............................ 678.6 635.2 1,313.8
INTEREST EXPENSE
Interest on deposits.................... 153.9 183.5 337.4
Interest on short-term borrowings....... 153.2 45.4 198.6
Interest on long-term debt.............. 40.9 25.0 65.9
- -------------------------------------------------------------------------------------
Total............................ 348.0 253.9 601.9
NET INTEREST INCOME..................... 330.6 381.3 711.9
Provision for credit losses............. 50.0 15.5 65.5
- -------------------------------------------------------------------------------------
Net Interest Income After
Provision for Credit Losses........... 280.6 365.8 646.4
NONINTEREST INCOME
Equity securities gains................. 134.2 - 134.2
Investment securities gains............. 0.5 0.4 0.9
Credit card fee revenue................. 182.3 8.3 190.6
Other noninterest income................ 184.9 130.0 314.9
- -------------------------------------------------------------------------------------
Total............................ 501.9 138.7 640.6
- -------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits.......... 207.4 176.8 384.2
Occupancy and equipment expense......... 88.1 52.0 140.1
Other expense........................... 189.0 93.5 282.5
- -------------------------------------------------------------------------------------
Total............................ 484.5 322.3 806.8
INCOME BEFORE INCOME TAXES.............. 298.0 182.2 480.2
Applicable income taxes................. 104.2 59.3 163.5
- -------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS....... $ 193.8 $ 122.9 $ 316.7
- -------------------------------------------------------------------------------------
COMMON SHARE DATA
Income from continuing operations
Primary................................. $2.05 $0.77 $0.95
Fully diluted........................... $2.00 $0.75 $0.93
Weighed average shares
Primary................................. 87.7 161.1 319.9
Fully diluted........................... 91.6 166.4 332.2
</TABLE>
See accompanying notes to pro forma financial information.
- 5e -
<PAGE>
FIRST CHICAGO NBD CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
a) The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the Merger been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of the results of operations in
future periods or the future financial position of the combined entities.
It is anticipated that the Merger will be consummated in the first quarter
of 1996.
b) The Corporation is still in the process of reviewing its accounting
policies in light of those employed by NBD. As a result of this review, it
might be necessary to restate either the Corporation's or NBD's financial
statements to conform to those accounting policies that are most
appropriate. No restatements of prior periods have been included in the pro
forma condensed combined financial statements. Any restatements, if
appropriate, will be made upon the completion of this review process.
c) Certain reclassifications have been included in the unaudited pro forma
condensed combined balance sheet and statements of income to conform
statement presentations. Transactions conducted in
- 6 -
<PAGE>
the ordinary course of business between the two companies are immaterial,
and accordingly, have not been eliminated.
d) Pro forma adjustments to common shares and surplus at March 31, 1995,
reflect the Merger accounted for as a pooling-of-interests, through the
exchange of 162.6 million shares of FCNBD common stock (using the common
exchange ratio of 1.81) for the 89.8 million outstanding shares of the
Corporation. Retained earnings and dividends payable have been adjusted by
approximately $4 million, reflecting the pro forma number of shares at
NBD's current dividend rate.
The pro forma entries are displayed below (in millions):
<TABLE>
<S> <C> <C>
Dr. Common stock (First Chicago)............. $ 466
Dr. Common surplus (First Chicago)........... 1,715
Cr. Treasury stock (First Chicago)...... $ 163
Cr. Common stock (FCNBD)................ 163
Cr. Common surplus (FCNBD).............. 1,855
Dr. Retained earnings........................ $ 4
Cr. Other liabilities................... $ 4
</TABLE>
e) The pro forma financial information presented does not give effect to the
Corporation's and NBD's plan to repurchase in the aggregate approximately
$300 million worth of the Corporation and NBD's common stock prior to the
consummation of the Merger.
- 7 -
<PAGE>
f) Income per share data has been computed based on the combined historical
income from continuing operations applicable to common stockholders of the
Corporation and NBD using the historical weighted average number of
outstanding shares of NBD's common stock and the historical weighted
average number of outstanding shares of the Corporation's common stock
adjusted to equivalent shares of FCNBD's common stock, as of the earliest
period presented.
g) The pro forma condensed combined financial statements do not include the
anticipated cost savings in connection with the Merger. It is estimated,
however, that approximately $200 million in pre-tax annualized cost savings
($126 million after- tax) will be realized by the combined company in 1997.
Reductions resulting from elimination of the overlap in Chicago-area
retail branch expense constitute the largest component. Product synergies
in the large corporate and middle markets, and staff and functional areas,
also provide additional expense reduction opportunities.
h) The Corporation and NBD are still in the process of reviewing their
combined investment securities portfolio to determine the classification of
such securities as either available for sale or held to maturity in
connection with the combined companies' existing interest rate risk
position. As a result of this review, certain reclassifications of FCNBD's
investment securities might take place. No adjustments have been made to
- 8 -
<PAGE>
existing securities classifications in the pro forma condensed combined
balance sheet. Any such reclassifications will be accounted for in
accordance with Financial Accounting Standards Board's Statement No. 115.
i) A liability of $225 million has been recorded in the unaudited pro forma
condensed combined balance sheet to reflect management's current estimate
of merger and restructuring related charges in connection with the Merger.
This resulted in a $142 million after-tax charge to retained earnings in
the unaudited pro forma condensed combined balance sheet.
The pro forma entries are displayed below (in millions):
<TABLE>
<S> <C> <C>
Dr. Retained earnings................. $142
Dr. Other liabilities-taxes payable... 83
Cr. Other liabilities-reserve.... $225
</TABLE>
It is anticipated that substantially all of these charges will be paid
within 12 months subsequent to the Merger. This charge has been excluded
from the pro forma condensed combined income statement due to its
nonrecurring nature. The following table provides details of the estimated
pre-tax charges (in millions).
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Personnel $150
Facilities and equipment 45
Other Merger expenses 30
----
$225
====
</TABLE>
- 9 -
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report on the consolidated
financial statements of NBD Bancorp, Inc., dated January 17, 1995, appearing in
this Current Report on Form 8-K of First Chicago Corporation, in the following
Registration Statements:
Registration
Form Statement No.
Form S-8 2-83105
Form S-8 2-68153
Form S-3 2-77079
Form S-8 33-15779
Form S-8 33-26788
Form S-8 33-22583
Form S-8 33-34292
Form S-3 33-37717
Form S-8 33-41272
Form S-8 33-50574
Form S-3 33-51408
Form S-3 33-65904
Form S-8 33-51713
Form S-8 33-52259
DELOITTE & TOUCHE LLP
Detroit, Michigan
July 21, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 3,328
<INT-BEARING-DEPOSITS> 9,120
<FED-FUNDS-SOLD> 13,532
<TRADING-ASSETS> 6,098
<INVESTMENTS-HELD-FOR-SALE> 720<F1>
<INVESTMENTS-CARRYING> 449<F1>
<INVESTMENTS-MARKET> 451<F1>
<LOANS> 27,018
<ALLOWANCE> (754)
<TOTAL-ASSETS> 72,378
<DEPOSITS> 32,191
<SHORT-TERM> 22,730
<LIABILITIES-OTHER> 1,815
<LONG-TERM> 2,272
<COMMON> 466
0
611
<OTHER-SE> 3,591<F2>
<TOTAL-LIABILITIES-AND-EQUITY> 72,378
<INTEREST-LOAN> 605
<INTEREST-INVEST> 21
<INTEREST-OTHER> 372
<INTEREST-TOTAL> 1,087
<INTEREST-DEPOSIT> 294
<INTEREST-EXPENSE> 713
<INTEREST-INCOME-NET> 374
<LOAN-LOSSES> 65
<SECURITIES-GAINS> 0<F3>
<EXPENSE-OTHER> 478<F4>
<INCOME-PRETAX> 301
<INCOME-PRE-EXTRAORDINARY> 195
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 1.98
<YIELD-ACTUAL> 2.60
<LOANS-NON> 118
<LOANS-PAST> 92
<LOANS-TROUBLED> 4
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 723
<CHARGE-OFFS> 66
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 754
<ALLOWANCE-DOMESTIC> 0<F5>
<ALLOWANCE-FOREIGN> 0<F5>
<ALLOWANCE-UNALLOCATED> 0<F5>
<FN>
<F1> In addition to the investment securities disclosed in this Financial Data
Schedule, the Corporation has investment securities in its venture capital
business. These securities had a carrying value of $1.3 billion as of March
31, 1995.
<F2> Treasury stock of $163 million is included as a reduction of other
stockholders' equity.
<F3> Investment securities gains/losses do not include the Corporation's equity
securities gains which totalled $55 million.
<F4> Other expenses includes: Salaries and Employee benefit expense of $232
million, Occupancy expense of $36 million, Equipment rentals, depreciation
and maintenance expense of $31 million, and other expenses which totalled
$179 million.
<F5> Allowance-Domestic, Allowance-Foreign, and Allowance-Unallocated are only
disclosed on an annual basis in the Corporation's 10-K and are therefore
not included in this Financial Data Schedule.
</FN>
</TABLE>
<PAGE>
NBD BANCORP, INC.
- -----------------
CONSOLIDATED BALANCE SHEET
(in thousands except share data)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31
-----------
1994 1993
---- ----
<S> <C> <C>
Cash and Due From Banks $ 2,587,007 $ 2,405,694
Interest-Bearing Deposits 630,688 722,109
Federal Funds Sold and Resale Agreements 399,725 282,481
Trading Account Securities 122,135 109,637
Investment Securities (Note 4):
Available-for-Sale (At Fair Value) 4,814,252 3,784,384
Held-to-Maturity (Fair Value of $7,381,476 and
$7,017,903, respectively) 7,608,713 6,607,409
------------ -----------
12,422,965 10,391,793
------------ -----------
Loans and Leases (Net of Unearned Income of $171,207
and $140,412, respectively):
Commercial 15,525,645 13,794,714
Real Estate Construction 817,452 789,248
Residential Mortgage 3,351,840 2,560,539
Mortgages Held For Sale 30,171 255,902
Consumer 7,667,907 6,758,171
Lease Financing 363,200 284,805
Foreign 1,473,449 1,107,413
------------ -----------
29,229,664 25,550,792
Allowance For Possible Credit Losses (Note 5) (435,051) (423,030)
---------- ----------
28,794,613 25,127,762
------------ -----------
Net Premises and Equipment (Note 6) 630,357 634,541
Customers' Liability on Acceptances 193,866 172,171
Other Assets 1,329,777 929,717
------------ -----------
TOTAL ASSETS $47,111,133 $40,775,905
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
---- ----
<S> <C> <C>
Deposits:
Demand (Non-Interest Bearing) $6,731,050 $6,667,958
Savings 7,679,922 8,051,337
Money Market Accounts 4,959,816 5,561,573
Time 8,055,429 7,474,234
Foreign Office 5,803,224 2,066,005
----------- -----------
33,229,441 29,821,107
----------- -----------
Short-Term Borrowings (Note 7) 7,119,972 5,354,839
Liability on Acceptances 193,866 172,171
Accrued Expenses and Sundry Liabilities 771,963 744,242
Long-Term Debt (Note 8) 2,504,348 1,434,947
Total Liabilities 43,819,590 37,527,306
Shareholders' Equity (Notes 8 & 9):
Series A Preferred Stock -- Par Value $1,
Stated Value $50 -- --
NO. OF SHARES 1994 1993
- ------------- ---- ----
Authorized 460,000 460,000
Issued -- --
Preferred Stock -- No Par Value -- --
NO. OF SHARES 1994 1993
- ------------- ---- ----
Authorized 10,000,000 10,000,000
Issued -- --
Common Stock -- Par Value $1 160,877 160,715
NO. OF SHARES 1994 1993
- ------------- ---- ----
Authorized 500,000,000 500,000,000
Issued 160,876,819 160,715,173
Capital Surplus 545,717 541,232
Retained Earnings 2,903,394 2,565,627
Fair Value Adjustment on Investment Securities
Available-for-Sale (Note 4) (154,305) (7,012)
Accumulated Translation Adjustment 6,942 4,384
Deferred Compensation (17,438) (16,347)
Less Treasury Stock (4,968,147 shares) (153,644) --
------------ -------------
Total Shareholders' Equity 3,291,543 3,248,599
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 47,111,133 $ 40,775,905
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NBD BANCORP, INC.
- -----------------
CONSOLIDATED STATEMENT OF INCOME
(in thousands except share data)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Loans and Leases (including fees) $ 2,102,936 $ 1,924,075 $ 2,039,575
Investment Securities:
Taxable 665,068 544,933 614,341
Non-Taxable 99,206 107,291 123,550
Trading Account Securities 6,760 5,379 9,145
Federal Funds Sold and Resale Agreements 8,688 4,820 5,921
Other Money Market Investments -- 2,138 3,709
Interest-Bearing Deposits 32,736 34,184 47,556
------------ ------------ ------------
Total Interest Income 2,915,394 2,622,820 2,843,797
------------ ------------ ------------
INTEREST EXPENSE:
Deposits 873,190 827,875 1,108,714
Short-Term Borrowings 290,624 156,227 166,756
Long-Term Debt 126,812 80,611 58,556
------------ ------------ ------------
Total Interest Expense 1,290,626 1,064,713 1,334,026
------------ ------------ ------------
NET INTEREST INCOME 1,624,768 1,558,107 1,509,771
Provision For Possible Credit Losses
(Note 5) 52,032 119,674 228,480
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES 1,572,736 1,438,433 1,281,291
------------ ------------ ------------
NON-INTEREST INCOME:
Trust Fees 157,355 149,552 139,856
Service Charges on Deposit Accounts 159,996 165,416 158,380
Credit Card Fees 38,566 36,050 37,308
Securities Gains(Losses) (Note 4) (2,469) 9,328 1,614
Other 192,118 225,037 192,050
------------ ------------ ------------
Total Non-Interest Income 545,566 585,383 529,208
------------ ------------ ------------
NON-INTEREST EXPENSES:
Compensation:
Salaries 542,565 535,472 517,763
Benefits (Note 9) 178,168 168,272 158,477
------------ ------------ ------------
Total Compensation 720,733 703,744 676,240
Net Occupancy (Note 6) 117,253 118,063 111,947
Equipment Rentals, Depreciation and
Maintenance (Note 6) 89,590 84,280 80,063
FDIC and Other Regulatory Assessments 66,663 68,766 70,145
Amortization of Intangibles 25,806 35,742 31,568
Merger-Related Expenses -- -- 76,071
Other 284,225 311,245 292,085
------------ ------------ ------------
Total Non-Interest Expenses 1,304,270 1,321,840 1,338,119
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 814,032 701,976 472,380
Income Tax Expense (Including tax
expense (benefit) of $(924), $3,536,
and $761, respectively, on securities
sales) (Note 10) 266,753 220,135 134,361
------------ ------------ ------------
Income before Extraordinary Item and
Cumulative Effect of Accounting Change 547,279 481,841 338,019
Extraordinary Item (net of income
tax effect) (Note 8) (7,730) -- --
Cumulative Effect of Accounting Change
(net of income tax effect) (Note 9) (7,885) 3,950 (37,885)
------------ ------------ ------------
NET INCOME $ 531,664 $ 485,791 $ 300,134
============ ============ ============
NET INCOME PER SHARE (ON AVERAGE SHARES
OUTSTANDING):
Income before Extraordinary Item and
Cumulative Effect of Accounting
Change $ 3.45 $ 2.98 $ 2.11
Extraordinary Item (net of income
tax effect) (0.05) -- --
Cumulative Effect of Accounting Change
(net of income tax effect) (0.05) 0.03 (0.24)
----------- ----------- -----------
NET INCOME PER SHARE $ 3.35 $ 3.01 $ 1.87
=========== =========== ===========
Average Shares Outstanding 158,807,677 161,253,486 160,716,309
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NBD BANCORP, INC.
- -----------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands except share data)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
PREFERRED STOCK:
Balance, Beginning and End of Period $ -- $ -- $ --
----------- ----------- ----------
COMMON STOCK:
Balance, Beginning of Period 160,715 160,386 159,775
Conversion of Subordinated Debentures
and Other (161,646 shares in 1994) 162 329 611
Acquisition of Subsidiary Bank -- -- 3,037
Cancellation of Shares Held in Treasury -- -- (3,037)
----------- ----------- ----------
Balance, End of Period 160,877 160,715 160,386
----------- ----------- ----------
CAPITAL SURPLUS:
Balance, Beginning of Period 541,232 536,900 540,906
Conversion of Subordinated Debentures
and Other 4,485 4,332 (8,197)
Acquisition of Subsidiary Bank -- -- 90,918
Cancellation of Shares Held
in Treasury -- -- (86,727)
----------- ----------- ----------
Balance, End of Period 545,717 541,232 536,900
----------- ----------- ----------
RETAINED EARNINGS:
Balance, Beginning of Period 2,565,627 2,253,332 2,119,512
Net Income 531,664 485,791 300,134
Cash Dividends Declared on Common Stock:
Corporation ($1.23, $1.08 and $1.04
per share, respectively) (193,897) (173,496) (148,329)
Pooled Affiliates -- -- (18,353)
Other -- -- 368
----------- ----------- ----------
Balance, End of Period 2,903,394 2,565,627 2,253,332
----------- ----------- ----------
FAIR VALUE ADJUSTMENT ON INVESTMENT
SECURITIES AVAILABLE-FOR-SALE:
Balance, Beginning of Period (7,012) -- --
Change in Fair Value (net of tax
benefit of $84,291 and $3,470,
respectively) (147,293) (7,012) --
---------- ---------- ----------
Balance, End of Period (154,305) (7,012) --
---------- ---------- ----------
ACCUMULATED TRANSLATION ADJUSTMENT:
Balance, Beginning of Period 4,384 5,610 9,576
Translation Gain(Loss) (net of tax
benefit of $302, $660 and $2,043,
respectively) 2,558 (1,226) (3,966)
----------- ---------- ----------
Balance, End of Period 6,942 4,384 5,610
----------- ----------- ----------
DEFERRED COMPENSATION:
Balance, Beginning of Period (16,347) (15,335) (47,207)
Awards Granted (14,445) (11,639) (10,640)
Amortization of Deferred Compensation 11,155 9,281 15,369
Termination -- ESOP -- -- 27,809
Other 2,199 1,346 (666)
----------- ----------- ----------
Balance, End of Period (17,438) (16,347) (15,335)
---------- ---------- ----------
TREASURY STOCK:
Balance, Beginning of Period -- -- (66,425)
Purchase of Common Stock (5,410,345
shares in 1994) (166,606) (13,369) (134,222)
Conversion of Subordinated Debentures
and Other (442,198 shares in 1994) 12,962 13,369 36,652
Acquisition of Subsidiary Bank -- -- 74,231
Cancellation of Shares Held in Treasury -- -- 89,764
----------- ----------- ----------
Balance, End of Period (153,644) -- --
----------- ----------- ----------
TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD $3,291,543 $3,248,599 $2,940,893
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NBD BANCORP, INC.
- -----------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 531,664 $ 485,791 $ 300,134
Adjustments to Reconcile Net Income to
Net Cash Provided by Operations:
Depreciation and Amortization 102,558 106,999 109,531
Provision for Possible Credit Losses 52,032 119,674 228,480
Securities Losses(Gains) 2,469 (9,328) (1,614)
Extraordinary Item -- Redemption of Debt 7,730 -- --
(Increase)Decrease in Interest Receivable (65,697) 13,607 15,385
Increase(Decrease) in Current Income
Taxes Payable 42,189 12,249 (46,592)
Increase(Decrease) in Accrued Expenses 41,876 (57,701) (410)
(Increase)Decrease in Trading Account
Investments (11,094) 59,677 11,539
Decrease(Increase) in Mortgages
Held for Sale 225,731 33,784 (18,511)
Other, net (49,061) (35,960) 531
----------- ----------- -----------
Net Cash Provided by Operating Activities 880,397 728,792 598,473
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease(Increase) in Interest-Bearing
Deposits 98,524 (43,159) 397,445
(Increase) Decrease in Federal Funds
Sold and Resale
Agreements (117,244) (159,025) 265,124
Decrease in Money Market Investments -- 14,910 22,534
Purchase of Investment Securities
Available-for-Sale (5,104,309) -- --
Proceeds from Maturity or Call of
Investment Securities Available-for-Sale 1,829,094 -- --
Proceeds from Sale of Investment
Securities Available-for-Sale 1,918,714 -- --
Purchase of Investment Securities
Held-to-Maturity (2,792,428) (4,654,663) (5,484,298)
Proceeds from Maturity or Call of
Investment Securities Held-to-Maturity 1,752,504 5,219,133 4,131,454
Proceeds from Sale of Investment
Securities Held-to-Maturity -- 66,037 703,193
Increase in Loans and Leases (3,926,926) (579,340) (603,206)
Purchase of Loan Portfolios -- (19,617) (101,874)
Proceeds from Sale of Loan Portfolios 123,341 70,107 --
Purchase of Premises and Equipment
and Other Assets (400,167) (155,702) (85,626)
Proceeds from Sale of Premises and
Equipment and Other Assets 68,938 65,585 38,406
Net Cash (Paid) Acquired in Purchase
or Sale of Subsidiaries (5,720) -- 100,527
----------- ----------- -----------
Net Cash Used by Investing Activities (6,555,679) (175,734) (616,321)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase(Decrease) in Deposits 3,381,134 (1,207,518) 346,784
Increase(Decrease) in Short-Term
Borrowings 1,762,360 233,709 (133,944)
Proceeds from the Issuance of
Long-Term Debt 1,525,000 500,000 551,671
Principal Payments on Long-Term Debt (252,511) (38,556) (100,439)
Redemption of Long-Term Debt (208,734) -- --
Proceeds from Stock Option Exercises 1,401 2,527 1,415
Payments to Acquire Treasury Stock (166,606) (13,369) (134,222)
Dividends Paid (185,840) (173,413) (152,353)
----------- ----------- -----------
Net Cash Provided(Used) by Financing
Activities 5,856,204 (696,620) 378,912
----------- ----------- -----------
Effect of Exchange Rate Changes on
Cash and Due From Banks 391 (15) (2,138)
----------- ----------- -----------
Net Increase(Decrease) in Cash and
Due From Banks 181,313 (143,577) 358,926
Cash and Due From Banks --
Beginning of Period 2,405,694 2,549,271 2,190,345
----------- ----------- -----------
CASH AND DUE FROM BANKS -- END OF PERIOD $ 2,587,007 $ 2,405,694 $ 2,549,271
=========== =========== ===========
Other Cash Flow Disclosures:
Interest Paid $ 1,349,668 $ 1,088,656 $ 1,181,123
State and Federal Taxes Paid 220,126 203,937 136,913
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NBD BANCORP, INC.
- -----------------
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of NBD Bancorp, Inc. and its
subsidiaries (the Corporation) conform to generally accepted accounting
principles.
(A) CONSOLIDATION:
The consolidated financial statements of the Corporation include the
accounts of NBD Bancorp, Inc. (the Parent) and its majority-owned subsidiary
companies. All material intercompany accounts and transactions have been
eliminated.
(B) STATEMENT OF CASH FLOWS:
Cash and Due From Banks is considered Cash and Cash Equivalents in the
Consolidated Statement of Cash Flows.
(C) SECURITIES:
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective December 31, 1993.
In accordance with SFAS No. 115, Investment Securities are accounted for
as follows: (a) Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as Held-to-Maturity and reported at
amortized cost; (b) Debt and equity securities that are bought and held
principally for the purpose of selling in the near term are classified as
Trading Account Securities and reported at fair value, with realized and
unrealized gains and losses included in Other Non-Interest Income; and (c) Debt
and equity securities not classified as Held-to-Maturity or Trading Account
Securities are classified as Available-for-Sale and reported at fair value. Fair
value adjustments are excluded from earnings and reported in a separate
component of shareholders' equity, net of tax.
Prior to December 31, 1993, the Corporation classified securities
purchased with the intent and the ability to hold to maturity as Investment
Securities and reported them at amortized cost. If it was subsequently
determined that certain investment securities were to be sold, their reported
value was adjusted as necessary to the lower of cost or fair value with the
adjustments included in Securities Gains(Losses). Securities purchased that the
Corporation intended to sell prior to maturity were classified as Other Money
Market Investments and recorded at the lower of amortized cost or fair value.
Fair value adjustments were included in Securities Gains(Losses). The
Corporation's accounting for Trading Account Securities was not changed by the
adoption of SFAS No. 115; these securities are carried at fair value with
unrealized gains and losses included in Other Non-Interest Income.
Gains and losses realized on the sale of Investment Securities are
determined by the specific identification method and included in Securities
Gains(Losses).
(D) LOANS:
Loans are generally reported at the principal amount outstanding, net of
unearned income. Non-refundable loan origination and commitment fees and certain
costs of origination are deferred and either included in interest income over
the term of the related loan or commitment or, if the loan is held for sale,
included in Other Non-Interest Income when the loan is sold.
Mortgages Held For Sale are valued at the lower of aggregate cost or fair
value. Unrealized losses, as well as realized gains or losses, are included in
Other Non-Interest Income.
Interest income on loans is accrued as earned. Except for consumer loans,
loans are placed on non-accrual status and previously accrued but unpaid
interest is reversed against current period interest income when collectibility
of principal or interest is considered doubtful, payment of principal or
interest is 90 days or more past due, or the loan is completely or partially
charged off. Interest income on loans considered doubtful or 90 days or more
past due is recorded as collected. Collections of principal and interest on
charged-off loans are applied in the following sequence: (1) as a reduction of
remaining principal balance; (2) as recovery of principal charged off; and (3)
as interest income.
Consumer loans are not placed on a non-accrual status because they are
generally charged off when 120 days to 150 days past due. Accrued but unpaid
interest is reversed against current period interest income when the loan is
charged off.
(E) ALLOWANCE FOR POSSIBLE CREDIT LOSSES:
6
<PAGE>
The Allowance is maintained at a level considered by management to be
adequate to provide for probable loan and lease losses inherent in the
portfolio. Management's evaluation is based on a continuing review of the loan
and lease portfolio and includes consideration of the actual loan and lease loss
experience, the present and prospective financial condition of borrowers, the
balance of the loan and lease portfolio, industry and country concentrations
within the portfolio and general economic conditions.
(F) BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is charged to operations over the
estimated useful lives of the assets and is computed on either a straight-line
or an accelerated depreciation method. The estimated useful lives are generally
10 to 35 years for buildings and building improvements, and three to 10 years
for furniture and equipment.
Leasehold improvements are amortized over the terms of the respective
leases or the estimated useful lives of the improvements, whichever is shorter.
Maintenance, repairs and minor alterations are expensed as incurred.
(G) INTANGIBLE ASSETS:
The unamortized amount of intangible assets is included in Other Assets.
Goodwill, representing the excess of the cost of investments in consolidated
subsidiaries over the fair value of net assets acquired, is amortized on a
straight-line basis over periods ranging from 15 to 25 years.
Other intangible assets such as purchased mortgage servicing rights, core
deposits, and credit card relationships are amortized using various methods over
the periods benefited.
(H) INCOME TAXES:
The Corporation adopted SFAS No. 109, "Accounting For Income Taxes,"
effective January 1, 1993. SFAS No. 109 requires an asset and liability approach
to accounting and reporting for income taxes. Under this approach, current and
deferred income taxes payable and refundable are remeasured annually using
provisions of then enacted tax laws and rates. SFAS No. 109 also changed the
criteria for recognition and measurement of deferred income tax benefits.
Prior to January 1, 1993, the Corporation accounted and reported for
income taxes in accordance with Accounting Principles Board Opinion (APB) No.
11, "Accounting For Income Taxes." Under APB No. 11, income tax expense was
based on income as reported in the financial statements. Deferred income tax
liabilities and benefits were measured using tax rates in effect when the
deferred item was first created, and were not adjusted for subsequent changes in
the statutory tax rate.
(I) PENSION AND OTHER EMPLOYEE BENEFITS:
The Corporation adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective January 1, 1992. This
statement requires that the expected cost of providing postretirement benefits
be recognized in the financial statements during an employee's active service
period.
The Corporation adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994. This statement requires the
accrual of benefits provided to former or inactive employees after employment
but before retirement. The Corporation's prior practice was to expense these
benefits when paid.
7
<PAGE>
(J) INTEREST RATE CONTRACTS:
The Corporation enters into interest rate contracts as part of its
asset/liability management activities (risk management contracts), as a source
of fee income (customer contracts) and, on a limited scale, to generate profits
(trading contracts).
Income or expense on a risk management contract is accrued over its life
and is included in Net Interest Income. Any gain or loss from early termination
of a risk management contract is deferred and amortized to the earlier of the
maturity date of the specified asset or liability, or the original expiration
date of the contract. If the specified asset or liability is disposed of, any
unrealized or deferred gain or loss on the related risk management contract is
included in determining the gain or loss on the disposition.
Any fee, including the initial bid/offer spread, on a customer contract is
recognized as Other Non-Interest Income over the life of the contract.
Customer contracts and trading contracts are recorded at fair value, with
changes in their value recorded as Other Non-Interest Income.
(K) FOREIGN CURRENCY EXCHANGE AND TRANSLATION:
The Corporation distinguishes between (1) adjustments arising principally
from translation of foreign entity financial statements into U.S. dollar
equivalents, which are recorded in a separate component of shareholders' equity,
and (2) translation gains or losses arising from transactions conducted in
foreign currencies, which are recorded in Other Non-Interest Income.
Foreign exchange positions on forward contracts are valued monthly at
market rates and the unrealized gain or loss is included in Other Non-Interest
Income.
(L) LETTERS OF CREDIT AND GUARANTEES:
In the normal course of business, the Corporation issues and participates
in letters of credit and financial guarantees. Fees are accrued over the life of
the agreements and included in Other Non-Interest Income.
(M) INCOME PER SHARE:
Per share amounts are based on the weighted average number of shares
outstanding throughout the year adjusted for the assumed exercise of stock
options.
(N) RECLASSIFICATION:
Prior years' financial statements have been reclassified to conform with
the current financial statement presentations.
2. ACQUISITIONS
On January 23, 1992, the Corporation acquired all of the common stock of
Gainer Corporation, a bank holding company located in Merrillville, Indiana. The
acquisition was accounted for as a purchase and, accordingly, operations of
Gainer Corporation are included in the consolidated statements since the date of
acquisition. Essentially all of the purchase price of $168,379,000 was provided
by issuing 5,729,000 shares of the Corporation's common stock. The fair value of
assets acquired amounted to $1,519,368,000 and liabilities assumed totaled
$1,350,989,000. The transaction generated $41,260,000 of goodwill, which is
being amortized over 15 years using the straight-line method.
On July 1, 1992, the Corporation issued approximately 11,911,000 shares of
its common stock in exchange for all the common stock of Summcorp, a bank
holding company located in Fort Wayne, Indiana. The combination was accounted
for as a pooling of interests.
In June 1992, Summcorp recorded $6.0 million ($4.4 million after tax) of
merger-related expenses. These expenses were composed of charges taken for the
elimination of duplicate facilities and equipment, and intangibles revaluation.
Summcorp also recorded a $9.8 million ($5.9 million after tax) provision for
possible credit losses to conform its credit evaluation policies to those of the
Corporation.
8
<PAGE>
On October 15, 1992, the Corporation issued approximately 29,892,000
shares of its common stock for all of the common stock of INB Financial
Corporation, Inc. (INB), of Indianapolis, Indiana. This merger was also
accounted for as a pooling of interests.
In the third quarter of 1992, the Corporation recorded $70.1 million
($48.0 million after tax) of merger-related expenses for severance and early
retirement, elimination of duplicate facilities and equipment, and intangibles
revaluation. In addition, INB recorded a $41.6 million ($25.1 million after tax)
provision for credit losses to conform its credit evaluation policies to those
of the Corporation.
During 1994, the Corporation entered into a merger agreement with AmeriFed
Financial Corp., a thrift holding company located in Joliet, Illinois, with
total assets of $910 million. The merger was consummated on January 9, 1995, and
accounted for as a purchase. Essentially all of the purchase price was provided
by the issuance of 5,234,000 shares of the Corporation's common stock valued at
approximately $148 million. The Corporation had repurchased 4,964,000 of the
shares issued before the closing of the merger, and repurchased an amount
equivalent to the remaining shares issued soon after the closing.
In January 1995, the Corporation entered into a definitive agreement under
which Deerbank Corporation, a $766 million thrift holding company located in
Deerfield, Illinois, would become affiliated with the Corporation. Under the
terms of the agreement, valued at approximately $120 million, each share of
Deerbank Corporation common stock will be exchanged for $45.00 of the
Corporation's common stock, based on the average market price of the
Corporation's common stock for a certain period preceding the closing of the
merger. The Corporation will have repurchased an equivalent number of its common
shares at or soon after the closing of the merger. The merger, which will be
accounted for as a purchase, is subject to the approval of Deerbank Corporation
shareholders and regulatory authorities.
3. CASH AND DUE FROM BANKS
The subsidiary banks of the Corporation are required to maintain non-
interest bearing reserve balances with the Federal Reserve Bank based on a
percentage of the subsidiary banks' deposits. During 1994 and 1993, the average
reserve balances were approximately $330,387,000 and $308,100,000, respectively.
4. INVESTMENT SECURITIES
Following are the amortized cost and fair value of Investment Securities
Available-for-Sale and Held-to-Maturity at December 31, 1994:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
----------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury $ 505,540 $ 96 $ 592 $ 505,044
U.S. Government Agencies:
Mortgage-backed Securities 2,655,673 4 160,195 2,495,482
Collateralized Mortgage Obligations 1,461,321 4,940 45,974 1,420,287
Other 22,916 1,267 3 24,180
States and Political Subdivisions 76,586 33 363 76,256
Collateralized Mortgage Obligations(a) 111,351 76 936 110,491
Other 222,931 459 40,878 182,512
----------- ------- --------- ----------
Total $5,056,318 $6,875 $248,941 $4,814,252
=========== ======= ========= ==========
<CAPTION>
INVESTMENT SECURITIES HELD-TO-MATURITY
--------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury $ 519,656 $ 225 $ 13,145 $ 506,736
U.S. Government Agencies:
Mortgage-backed Securities 5,664,739 45,612 282,356 5,427,995
Other 8,420 6 145 8,281
States and Political Subdivisions 1,415,398 46,182 23,626 1,437,954
Other 500 10 -- 510
----------- -------- --------- ----------
Total $7,608,713 $92,035 $319,272 $7,381,476
=========== ======== ========= ==========
</TABLE>
(a) All Collateralized Mortgage Obligations of private issuers have underlying
collateral consisting of obligations of U.S. Government Agencies.
<PAGE>
Following are the amortized cost and fair value of Investment Securities
Available-for-Sale and Held-to-Maturity at December 31, 1993:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
----------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury $ 965,190 $ 9,405 $ 1 $ 974,594
U.S. Government Agencies:
Mortgage-backed Securities 729,612 2,639 2,509 729,742
Collateralized Mortgage Obligations 1,663,910 3,055 9,026 1,657,939
Other 3,405 88 -- 3,493
States and Political Subdivisions 1,261 112 -- 1,373
Collateralized Mortgage Obligations(a) 240,213 803 650 240,366
Other 191,275 279 14,677 176,877
----------- --------- -------- ----------
Total $3,794,866 $ 16,381 $26,863 $3,784,384
=========== ========= ======== ==========
<CAPTION>
INVESTMENT SECURITIES HELD-TO-MATURITY
--------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury $ 525,698 $ 22,020 $ 36 $ 547,682
U.S. Government Agencies:
Mortgage-backed Securities 4,563,883 252,693 2,354 4,814,222
Other 9,978 153 2 10,129
States and Political Subdivisions 1,505,270 139,527 1,585 1,643,212
Other 2,580 78 -- 2,658
----------- --------- -------- ----------
Total $6,607,409 $414,471 $ 3,977 $7,017,903
=========== ========= ======== ==========
</TABLE>
(a) All Collateralized Mortgage Obligations of private issuers have underlying
collateral consisting of obligations of U.S. Government Agencies.
The maturity distribution of investment securities at December 31, 1994,
is shown below. The distribution of mortgage-backed securities and
collateralized mortgage obligations is based on average expected maturities.
Actual maturities may differ because issuers may have the right to call or
prepay obligations.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------ ----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---- ----- ---- -----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 888,418 $ 882,290 $ 162,849 $ 164,791
Due after one year through five years 867,625 843,603 2,558,425 2,507,006
Due after five years through
ten years 696,840 669,745 4,545,950 4,382,584
Due after ten years 2,535,049 2,349,786 341,489 327,095
Equity securities 68,386 68,828 -- --
----------- ----------- ----------- ----------
$5,056,318 $4,814,252 $7,608,713 $7,381,476
=========== =========== =========== ==========
</TABLE>
Proceeds from the sale of Investment Securities Available-for-Sale during
1994 were $1,918,714,000 resulting in gross realized gains of $7,723,000 and
gross realized losses of $10,192,000. Proceeds from the sale of Investment
Securities during 1993 were $66,037,000 resulting in gross realized gains of
$9,047,000 and gross realized losses of $129,000. Securities Gains in 1993 also
included $410,000 of gains realized on the sale of Other Money Market
Investments. Proceeds from the sale of Investment Securities during 1992 were
$703,193,000 resulting in gross realized gains of $9,516,000 and gross realized
losses of $7,902,000.
Assets, principally Investment Securities, carried at approximately
$6,996,973,000 were pledged at December 31, 1994, to secure public deposits
(including deposits of $8,845,000 of the Treasurer, State of Michigan),
repurchase agreements and for other purposes required by law.
<PAGE>
Excluded from the Consolidated Statement of Cash Flows in 1993 is the
reclassification to Investment Securities Available-for-Sale of $88.9 million of
United Mexican States obligations previously classified as Loans, and $30.9
million of obligations previously classified as Other Money Market Investments.
These reclassifications were made concurrent with the implementation of SFAS No.
115 as of December 31, 1993.
5. ALLOWANCE FOR POSSIBLE CREDIT LOSSES
The changes in the Allowance for Possible Credit Losses are summarized
below:
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year $ 423,030 $ 417,764 $ 377,585
Provision 52,032 119,674 228,480
Charge-offs (121,026) (206,101) (256,860)
Recoveries 80,560 91,576 57,112
--------- --------- ---------
Net Charge-offs (40,466) (114,525) (199,748)
Translation Adjustments 455 117 (808)
Acquisitions -- -- 12,255
--------- --------- ---------
Balance, end of year $ 435,051 $ 423,030 $ 417,764
========= ========= =========
</TABLE>
In 1993, the Financial Accounting Standards Board (FASB) issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," requiring that an
impaired loan be measured based on the present value of the expected future cash
flows discounted at the loan's effective interest rate, the observable market
price of the loan or the fair value of the collateral if the loan is collateral
dependent. In 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures," which amends SFAS
No. 114 to allow a creditor to use existing methods for recognizing interest
income on an impaired loan. The standards are effective for fiscal years
beginning after December 15, 1994. The Corporation does not expect adoption of
the standards to have a material impact on the financial statements.
6. PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land $ 93,820 $ 93,842
Premises 511,642 507,272
Leasehold Improvements 97,225 98,954
Furniture and Equipment 529,537 501,580
---------- ----------
Total 1,232,224 1,201,648
Less Accumulated Depreciation and Amortization (601,867) (567,107)
---------- ----------
Net Premises and Equipment $ 630,357 $ 634,541
========== ==========
</TABLE>
Depreciation and amortization expense was $73,479,000 in 1994, $65,914,000
in 1993 and $59,976,000 in 1992.
Rental expense for leased properties and equipment totaled $43,490,000 in
1994, $42,453,000 in 1993 and $41,814,000 in 1992. Aggregate future minimum
rental payments on operating leases having non-cancelable lease terms in excess
of one year amounted to $209,670,000 as of December 31, 1994; minimum annual
rental payments for such leases are $30,326,000 in 1995 and do not exceed
$28,897,000 for any year thereafter.
<PAGE>
7. SHORT-TERM BORROWINGS
The Corporation classifies borrowings with original maturities of less than
one year as short-term borrowings. The following is a summary of short-term
borrowings for each of the three years ended December 31, 1994:
<TABLE>
<CAPTION>
END OF PERIOD DAILY AVERAGE MAXIMUM
------------- -------------
WEIGHTED OUTSTANDING
AVERAGE AT ANY
BALANCE RATE BALANCE RATE MONTH END
------- ---- ------- ---- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1994:
Securities Sold Under
Agreements to Repurchase $2,861,513 5.81% $2,486,717 4.35% $3,365,134
Bank Notes 2,484,000 5.75 1,784,190 4.58 2,484,000
Federal Funds Purchased 1,031,055 5.99 1,588,259 4.40 1,953,810
Treasury Tax and Loan Notes 634,190 4.69 547,419 3.76 1,327,645
Commercial Paper 59,236 5.42 126,499 3.92 195,859
Other 49,978 4.01 114,321 4.76 192,129
----------- ---- ----------- ----
Total $7,119,972 5.70% $6,647,405 4.37%
=========== ==== =========== ====
1993:
Securities Sold Under
Agreements to Repurchase $1,586,105 3.19% $1,403,960 3.08% $1,586,105
Bank Notes 1,103,400 3.36 922,780 3.30 1,245,000
Federal Funds Purchased 1,196,355 2.81 1,729,008 3.04 2,308,711
Treasury Tax and Loan Notes 1,225,016 2.64 683,927 2.81 1,347,352
Commercial Paper 158,886 3.25 143,126 3.18 196,367
Other 85,077 5.93 111,362 5.60 147,269
----------- ---- ----------- ----
Total $5,354,839 3.06% $4,994,163 3.13%
=========== ==== =========== ====
1992:
Securities Sold Under
Agreements to Repurchase $1,215,513 3.33% $991,644 3.50% $1,228,401
Bank Notes 450,000 3.40 231,585 3.41 550,000
Federal Funds Purchased 2,413,420 3.04 2,522,819 3.54 2,922,960
Treasury Tax and Loan Notes 730,440 2.45 551,081 3.39 1,298,441
Commercial Paper 184,437 3.42 191,761 3.69 386,639
Other 125,683 6.91 135,370 6.71 176,686
----------- ---- ----------- ----
Total $5,119,493 3.17% $4,624,260 3.61%
=========== ==== =========== ====
</TABLE>
In 1994, the Corporation entered into a series of interest rate swap
contracts with varying maturities that have the effect of fixing the interest
rate on up to $875,000,000 of Federal Funds Purchased. At December 31, 1994, the
weighted average life of the swap contracts was 2.0 years and the weighted
average pay rate was 6.55%. The effect of the accruals on these contracts are
included in the daily average rates shown above, and excluded from the end of
period weighted average rates.
At December 31, 1994, the Parent had an unused revolving credit of $200
million, convertible to a term loan at the option of the Corporation, to support
general corporate financing needs. An annual commitment fee of 17 1/2 basis
points is paid on the credit facility.
<PAGE>
8. Long-Term Debt
The following is a summary of long-term debt:
<TABLE>
<CAPTION>
December 31
-----------
1994 1993
---- ----
<S> <C> <C>
Parent:
7 1/4% Fixed Rate Subordinated Debentures Due 2004 $ 200,000 $ 200,000
8.10% Fixed Rate Subordinated Notes Due 2002 200,000 200,000
7 1/2% Preferred Purchase Units, Due 2023 150,000 150,000
Floating Rate Subordinated Notes Due 2005 (6.50% and 5.25%
at December 31, 1994 and 1993, respectively) 96,000 96,000
7 1/4% Convertible Subordinated Debentures Due 2006 -- 199,985
---------- ----------
646,000 845,985
---------- ----------
Subsidiaries:
Bank Notes, various rates and maturities 1,375,000 350,000
8 1/4% Fixed Rate Subordinated Note Due 2024 250,000 --
6 1/4% Fixed Rate Subordinated Notes Due 2003 200,000 200,000
8.75% Fixed Rate Senior Notes Due 1997 -- 1999 10,000 10,000
Capital Lease Obligations, various rate and maturities 17,185 19,866
Other 6,163 9,096
---------- ----------
1,858,348 588,962
---------- ----------
$2,504,348 $1,434,947
========== ==========
</TABLE>
The 7 1/4% Fixed Rate Subordinated Debentures Due 2004 will mature on
August 15, 2004. The Debentures are unsecured, subordinated to all present and
future Senior Indebtedness of the Parent, and are not redeemable prior to
maturity. Interest is payable semiannually on February 15 and August 15.
The 8.10% Fixed Rate Subordinated Notes Due 2002 will mature on March 1,
2002. The Notes are unsecured, subordinated to all present and future Senior
Indebtedness of the Parent, and are not redeemable prior to maturity. Interest
is payable semiannually on March 1 and September 1. Subsequent to the issuance
of these Notes, the Corporation entered into $120,000,000 notional amount of
interest rate swap contracts that converted the fixed rate on $120,000,000 of
these Notes to the six-month LIBOR plus 0.25 percent.
Each 7 1/2% Preferred Purchase Unit consists of a 7.40% subordinated
debenture due May 10, 2023, in a principal amount of $25 and a related purchase
contract paying fees of 0.10% of the principal amount of the debenture per year.
The contract requires the purchase on May 10, 2023, of one depositary share
representing a one-fourth interest in a share of 7 1/2% cumulative preferred
stock of NBD Bancorp at a purchase price of $25 per depositary share. During
1994, the Corporation entered into $150,000,000 notional value of interest rate
swap contracts that converted the effective cost of the Units to the three-month
LIBOR through August 10, 2004.
The Floating Rate Subordinated Notes Due 2005 will mature on the interest
payment date in December 2005 at par. The Notes are unsecured, subordinated to
all present and future Senior Indebtedness of the Corporation, and may be
redeemed by the Corporation, in whole or in part, on any interest payment date
at par. Interest on the Notes is payable quarterly in arrears at a rate of 1/4
of 1 percent per annum above the arithmetic mean of London interbank bid
quotations for three-month Eurodollar deposits. In no event will the rate be
less than 5.25 percent per annum.
The 7 1/4% Convertible Subordinated Debentures Due 2006 were called by the
Parent for redemption on March 15, 1994, at a redemption price of $1,050.75 per
$1,000 of the principal amount. The Corporation incurred an extraordinary item
charge of $11,892,000 ($7,730,000 net of income taxes) on the redemption. Prior
to redemption, holders elected to convert $1,333,000 of the Debentures into
shares of common stock of the Parent at a conversion price of $30.40 per share.
During 1993, $15,000 of the Debentures were converted.
The Bank Notes are unsecured and unsubordinated debt obligations, issued
in denominations of $250,000 or any amount in excess thereof that is a multiple
of $1,000. Each Note bears interest at a fixed rate that is established by the
issuing bank at the time of issuance. The interest payment dates on the Bank
Notes are January 15 and July 15 of each year. At December 31, 1994, the
weighted average rate of the outstanding Notes was 5.84% and the remaining
weighted average maturity was 23 months.
13
<PAGE>
The 8 1/4% Fixed Rate Subordinated Notes Due 2024 will mature on November
1, 2024. The Notes are unsecured, subordinated to the claims of depositors and
other creditors of NBD Bank, N.A. (Michigan), and are not redeemable by the
bank prior to maturity. Registered holders have a one-time right to redeem the
Notes at par, in whole or in part, on November 1, 2004. Interest is payable
semiannually on May 1 and November 1. Concurrent with the issuance of these
Notes, the bank entered into a $50,000,000 notional amount interest rate swap
contract that converts the effective cost for $50,000,000 of the Notes to 7.62%
through November 2, 1997, and to the six-month LIBOR from November 3, 1997,
through November 1, 2004.
The 6 1/4% Fixed Rate Subordinated Notes Due 2003 will mature on August
15, 2003. The Notes are unsecured, subordinated to the claims of depositors and
other creditors of NBD Bank, N.A. (Michigan), and are not redeemable prior to
maturity. Interest is payable semiannually on February 15 and August 15.
Aggregate long term debt of $118,941,000, $553,364,000, $566,411,000,
$106,674,000 and $56,771,000 will mature in 1995, 1996, 1997, 1998 and 1999,
respectively.
9. Pension And Other Employee Benefits
The Corporation maintains pension plans (the Pension Plans) covering
substantially all full time salaried employees. The Pension Plans are non-
contributory, defined benefit plans that provide benefits based on years of
service and compensation level. The Corporation's policy is to fund the Pension
Plans according to the requirements of the Employee Retirement Income Security
Act of 1974 (ERISA).
Plan assets are stated at market value and are composed primarily of
equity securities and debt securities issued by the U.S. Government and its
agencies and corporations.
In addition, the Corporation maintains separate unfunded nonqualified
pension restoration plans (the Restoration Plans) for certain officers when the
defined benefits provided under the terms of the pension plans exceed limits
imposed by Federal tax law on benefits payable from qualified plans.
The pension expense is comprised of:
<TABLE>
<CAPTION>
The Pension Plans
-----------------
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service cost (benefits earned during year) $ 23,211 $ 18,672 $ 21,284
Interest cost on projected benefit obligation 40,837 38,596 35,035
Actual loss(return) on assets 13,213 (73,666) (50,129)
Net amortization and deferral (70,367) 23,003 2,307
-------- -------- --------
Net pension expense $ 6,894 $ 6,605 $ 8,497
======== ======== ========
<CAPTION>
The Restoration Plans
---------------------
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service cost (benefits earned during year) $1,010 $ 573 $ 810
Interest cost on projected benefit obligation 2,950 1,918 1,719
Net amortization and deferral 1,827 591 554
------ ------ ------
Net pension expense $5,787 $3,082 $3,083
====== ====== ======
</TABLE>
The expected long-term rate of return on plan assets was 9.5% for each
year presented above. Service cost in 1992 includes $4,014,000 and $245,000 for
the Pension Plans and the Restoration Plans, respectively, of additional expense
for individuals who elected to accept an early retirement option offered to
employees of INB.
14
<PAGE>
The following table sets forth the Plans' funded status and amounts
recognized in the consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
The Pension Plans The Restoration Plans
----------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Actuarial present value of the
projected benefit obligation,
based on employment services to
date, and current salary levels:
Vested employees $371,772 $404,672 $ 25,094 $ 23,514
Non-vested employees 24,351 25,169 1,407 2,476
-------- -------- -------- --------
Accumulated benefit obligation 396,123 429,841 26,501 25,990
Additional amounts related to
projected salary increases 129,347 154,755 9,941 16,831
-------- -------- -------- --------
Total projected benefit obligation 525,470 584,596 36,442 42,821
Plan assets (at market value) 568,393 583,076 -- --
-------- -------- -------- --------
Funded assets in excess of (less
than) projected benefit obligation 42,923 (1,520) (36,442) (42,821)
Unrecognized net (gain) loss (24,953) 6,153 1,909 11,183
Unrecognized transition (asset)
liability being amortized over
15 years beginning January 1, 1986 (33,331) (38,262) 1,169 1,455
Unrecognized prior service cost 9,781 11,198 10,571 11,542
Adjustment to recognize minimum
liability -- -- (3,708) (7,349)
-------- -------- -------- --------
Accrued pension liability included
in the consolidated balance sheet $ (5,580) $(22,431) $(26,501) $(25,990)
======== ======== ======== ========
</TABLE>
The funded status of the Pension Plans as of December 31, 1993, included
plan assets of $75,800,000, accumulated benefit obligation of $85,607,000, and
projected benefit obligation of $112,809,000 relating to a pension plan
maintained by NBD Indiana, Inc. (formerly INB), a wholly-owned subsidiary of NBD
Bancorp, Inc. The INB plan was merged with the NBD Bancorp, Inc. plan on January
1, 1994.
The assumptions used in determining the actuarial present value of the
projected benefit obligations are set forth below:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount Rate 8.0% 7.0%
Rate of increase in compensation levels 5.5 5.5
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective January 1, 1992. The
Statement requires that the expected cost of providing postretirement benefits
be recognized in the financial statements during employees' active service
periods.
The Corporation provides medical and life insurance for employees who
retire after age 55 with a minimum of 15 years of service. The postretirement
health care benefit, which can also cover eligible dependents, is contributory
with retiree contributions adjusted annually to reflect increases in the
Corporation's health care costs. The postretirement life insurance benefit is
noncontributory.
The Corporation elected to immediately recognize the January 1, 1992,
accumulated benefit obligation which resulted in a charge of $58,924,000
($37,885,000 after tax) to 1992 earnings.
Net periodic postretirement benefit cost included the following components
for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service cost $ 940 $1,539 $1,362
Interest cost 3,600 5,003 4,769
Amortization of unrecognized net gains (440) -- --
------ ------ ------
Net periodic postretirement benefit cost $4,100 $6,542 $6,131
====== ====== ======
</TABLE>
15
<PAGE>
The Corporation funds postretirement benefit cost as claims are incurred.
The following table sets forth the plan's funded status and amounts recognized
in the consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 36,600 $ 44,014
Fully eligible active plan participants 3,800 7,413
Other active plan participants 8,500 21,083
-------- --------
Total accumulated postretirement benefit obligation 48,900 72,510
Plan assets (at market value) -- --
-------- --------
Accumulated postretirement benefit obligation in excess of
plan assets (48,900) (72,510)
Unrecognized net (gain) loss (17,494) 6,766
-------- --------
Accrued postretirement benefit liability recognized in the
consolidated balance sheet $(66,394) $(65,744)
======== ========
</TABLE>
For measurement purposes, a 10 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1995; the rate was
assumed to trend downward to 5.5 percent by the year 2000 and remain at that
level thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. Increasing the assumed health care cost trend
rates by one percentage point in each year would have increased the accumulated
postretirement benefit obligation as of December 31, 1994, by $3,800,000 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1994 by approximately $390,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0 percent at December 31, 1994, and 7.0
percent at year-end 1993.
The Corporation adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994. The cumulative effect of
adoption was a charge of $12,323,000 ($7,885,000 net of income taxes). The
impact of the new accounting method in 1994 on income before accounting changes
was insignificant.
Employee Savings Plans
The Corporation contributes to various 401(k) savings plans and profit
sharing plans for the benefit of employees meeting certain eligibility
requirements. The Corporation's participation in the 401(k) savings plans is in
the form of "matching funds" wherein it contributes an amount equal to the
participants' contributions up to 2 percent of the participants' compensation,
plus an amount equal to one-half of the participant's contribution between 2
percent and 6 percent of the participant's compensation subject to certain
limitations imposed by the IRS.
In addition, INB sponsored a leveraged Employee Stock Ownership Plan
(ESOP), wherein the ESOP used the proceeds of a $33.0 million loan from INB to
acquire 1,236,500 shares of its common stock. Subsequently, shares of common
stock held by the ESOP were allocated to participating employees. The ESOP was
terminated in the fourth quarter of 1992.
Total expense for all employee savings plans was $14,651,000 in 1994,
$15,467,000 in 1993, and $12,659,000 in 1992.
Stock Award And Stock Option Plans
The executive officers of the Corporation and certain other employees are
eligible for awards pursuant to the Performance Incentive Plan (the PIP Plan)
administered by the Compensation Committee of the Board of Directors. The
Committee is empowered to make two types of awards and to establish two groups
of awardees.
The first group is selected from among the more senior officers. The
Committee is authorized to award to this group Performance Shares. A
Performance Share is one share of the Corporation's common stock. Distribution
of the awards is tied to the achievement of certain financial performance goals
for the Corporation as set by the Committee, over performance periods of at
least one year and up to five years in duration. The second group of employees
(which excludes the more senior officers, except by special Committee action)
may be awarded shares of the Corporation's common stock, the ultimate
distribution of which is not tied to corporate performance goals. The award
periods for this group has ranged from one to five years in duration.
16
<PAGE>
The cost of stock awards to the more senior officers is the market value
of the stock on the date the award is finally distributed. For the second group
of employees, the cost of stock awards is the market value of the stock on the
date of grant. The cost, either estimated or actual, of stock awards for both
groups is amortized on a straight-line basis over the award duration periods.
The unamortized cost of these awards is included in Shareholders' Equity.
The PIP Plan also permits the granting of stock options. The term of each
option is determined by the Committee, except that the term of an incentive
option may not exceed ten years from the date of grant. No option can be
exercised prior to the expiration of the first year of its term. The option
price may not be less than the fair market value of the common stock on the date
the option is granted.
The Committee may grant stock options that include the right to receive
"restoration options." A restoration option allows a participant who exercises
the original option prior to retirement, and who pays all or part of the
purchase price of the option with shares of the Corporation's common stock, the
right to receive an option to purchase the number of shares of the common stock
of the Corporation equal to the number of shares used by the participant in
payment of the original option price. The exercise price of the restoration
option is equal to the fair market value of the common stock on the date the
restoration option is granted.
The following table summarizes activity under the option and award plans
for 1992, 1993 and 1994:
<TABLE>
<CAPTION>
OPTIONS
---------------------------
STOCK PRICE
AWARDS OUTSTANDING PER SHARE
------ ----------- ---------
(NO. OF SHARES IN THOUSANDS)
<S> <C> <C> <C>
January 1, 1992 1,538 2,636 $ 4.72 - $29.21
Granted 362 1,015 27.44 - 31.94
Exercised (466) (1,048) 6.62 - 29.21
Forfeited (177) (7) 11.17 - 18.36
-------- --------
December 31, 1992 1,257 2,596 4.72 - 31.94
Granted 369 316 29.81 - 36.06
Exercised (303) (769) 4.72 - 30.88
Forfeited (28) (97) 14.91 - 33.94
-------- --------
December 31, 1993 1,295 2,046 6.62 - 36.06
Granted 470 970 28.44 - 31.56
Exercised (309) (230) 6.62 - 29.94
Forfeited (34) (14) 21.13 - 35.69
-------- --------
December 31, 1994 1,422 2,772 $9.38 - $36.06
======== ========
</TABLE>
As of December 31, 1994, 1,192,000 options were exercisable.
10. Income Taxes
The consolidated income tax expense (benefit) is comprised of the
following elements:
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Income Tax Expense(Benefit):
Domestic:
Currently Payable:
Federal $203,358 $194,733 $156,819
State 18,237 20,109 19,287
-------- -------- --------
221,595 214,842 176,106
-------- -------- --------
Deferred:
Federal 33,551 1,652 (37,974)
State 5,495 1,295 (5,649)
-------- -------- --------
39,046 2,947 (43,623)
-------- -------- --------
Total Domestic 260,641 217,789 132,483
Foreign -- Currently Payable 6,112 2,346 1,878
-------- -------- --------
Total Income Tax Expense $266,753 $220,135 $134,361
======== ======== ========
</TABLE>
17
<PAGE>
The tax effects of fair value adjustments on investment securities
available-for-sale, foreign currency translation adjustments and certain tax
benefits related to stock options are recorded directly in Shareholders' Equity.
Net tax credits recorded directly in Shareholders' Equity amounted to
$85,490,000, $9,450,000 and $5,330,000 for 1994, 1993 and 1992, respectively.
Also in 1994, a tax benefit of $4,162,000 was recorded as part of an
extraordinary item relating to the early retirement of debt and a deferred tax
benefit of $4,438,000 was recorded as part of the cumulative effect of adopting
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Deferred tax
benefits of $3,950,000 and $21,039,000, respectively, were recorded as part of
the cumulative effects of adopting SFAS No. 109, "Accounting for Income Taxes,"
in 1993 and SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," in 1992.
The Corporation has substantial investments in tax-exempt debt securities
and loans on which borrowers pay a lower rate of interest than would be required
if the income were subject to federal income taxes. Because of these and other
differences, Income Tax Expense is less than that computed by applying the
federal statutory income tax rate of 35 percent in 1994 and 1993 and 34 percent
in 1992. A summary reconciliation of reported income tax expense to income tax
based on the statutory rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Reported Income Tax Expense $266,753 $220,135 $134,361
Effect of:
Tax-exempt securities and loan income 39,765 44,965 50,411
Goodwill amortization (7,572) (8,029) (9,692)
State income taxes (net of federal tax benefit) (15,426) (13,913) (9,001)
Federal tax rate increase on deferred tax
assets and liabilities -- 4,805 --
Other 1,391 (2,271) (5,470)
-------- -------- --------
Income Tax based on statutory rate $284,911 $245,692 $160,609
======== ======== ========
</TABLE>
The significant components of the Corporation's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Deferred Tax Assets:
Provision for Loan Losses $164,109 $158,247
Fair Value Adjustment on Investment Securities
Available-for-Sale 87,761 3,470
Pension, Retirement and Postemployment Benefits 37,255 38,574
Employee Compensation 17,078 12,318
Deferred Loan Fees 11,876 14,697
Other 28,746 48,943
--------- ---------
Total Deferred Tax Assets 346,825 276,249
--------- ---------
Deferred Tax Liabilities:
Lease Accounting 21,770 12,070
Depreciation 19,146 18,891
Purchase Accounting Adjustments 17,759 16,040
Accrued Discount 12,198 11,615
Prepaid Expenses 11,965 874
Other 30,905 34,559
--------- ---------
Total Deferred Tax Liabilities 113,743 94,049
--------- ---------
Net Deferred Tax Assets $233,082 $182,200
========= =========
</TABLE>
18
<PAGE>
During 1992, as required by APB No. 11, deferred income taxes were
recorded to reflect any differences between the years that revenue and expenses
were recorded in the financial statements and when they were recognized for
payment of income taxes. The sources of the differences and their income tax
effect are as follows:
<TABLE>
<CAPTION>
1992
----
(IN THOUSANDS)
<S> <C>
Lease Income $ 1,400
Loan Loss Deduction 12,900
Merger -- Related Expenses 21,560
Other, net 7,763
-------
$43,623
=======
</TABLE>
The cumulative deferred tax benefit amounted to $188,534,000 (which
included $21,039,000 attributable to the cumulative effect of adopting SFAS No.
106) at December 31, 1992.
11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS
The Corporation, in the normal course of business, utilizes various types
of contracts for managing the market risk in its balance sheet instruments, for
accommodating customer needs and for other purposes, including mitigating the
risk in customer accommodation contracts and, on a limited scale, generating
trading profits. These contracts include interest rate swaps, futures, options
and foreign exchange contracts.
These contracts may contain elements of both market and credit risk.
Market risk is the possibility of changes in interest or currency rates that
would cause a financial instrument to decrease in value or to be more costly to
settle. Credit risk is the possibility of loss arising from failure by a party
to the transaction to perform according to terms of the contract. Credit risk is
controlled through credit policies, approval processes, collateral requirements,
counterparty exposure limits and monitoring procedures similar to the
Corporation's practices employed to monitor and control the credit risk of loans
and loan commitments.
Interest rate swaps are contracts where the parties agree to exchange
fixed rate for floating rate interest payments, or to exchange floating rate
interest payments based on two different rate indexes (basis swap), for a
specified time period on a specified (notional) amount. The notional amount is
used only to calculate the amount of the interest payments to be exchanged, and
does not represent the amount at risk.
Futures contracts require the seller of a contract to deliver a specified
instrument to the purchaser at a specified price or yield, on a specified date.
Commitments to purchase securities are contracts made for the future delivery of
investment securities at a specified price or yield. Typically, no fees are
charged for these types of contracts.
Options are contracts that allow the holder to purchase or sell a
financial instrument, at a specified price, prior to the expiration date of the
contract. Caps and floors are contracts which limit the holder's exposure to
interest rate changes by providing for receipt of the interest rate differential
when a specified benchmark rate exceeds the cap rate, or falls below the floor
rate. The writer of these types of contracts charges a fee at the outset in
exchange for assuming the risk of an unfavorable change in the price of the
financial instrument or interest rate underlying the contract.
Foreign exchange contracts are agreements to exchange at a specified date
different currencies at a specified exchange rate. Foreign exchange options
allow the holder to purchase or sell a foreign currency at a specified date and
price. The Corporation manages its exposure to changes in exchange rates by
establishing limits for the amount of individual currencies and exchange
contracts held.
19
<PAGE>
The following tables show the contract or notional amount of risk
management contracts and of various commitments, and the related unrealized
gains and losses, as of the periods indicated.
RISK MANAGEMENT CONTRACTS AND COMMITMENTS:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
NET
CONTRACT OR UNREALIZED UNREALIZED UNREALIZED
NOTIONAL AMOUNT GAIN LOSSES GAINS(LOSSES)
--------------- ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Rate Swaps:
Modifying the Interest Rate
Characteristics of:
Commercial Loans $ 235,995 $ 1,072 $ (1,907) $ (835)
Investment Securities:
Mortgage-backed 225,000 -- (745) (745)
States and Political Subdivisions 225,100 -- (5,579) (5,579)
Interest-Bearing Deposits 14,028 73 (74) (1)
Short-Term Borrowings 875,000 20,015 -- 20,015
Long-Term Debt 320,000 109 (8,294) (8,185)
----------- ------- -------- --------
$ 1,895,123 21,269 (16,599) 4,670
===========
Futures and Options Contracts
Purchased:
Modifying the Interest Rate
Characteristics of:
Commercial loans $ 11,103 299 -- 299
=========== ------- -------- --------
$21,568 $(16,599) $ 4,969
======= ======== ========
Commitments:
To Purchase Securities $ 4,050 $ 3 $ -- $ 3
To Extend Credit (Note 12) 21,240,034 94 (391) (297)
To Sell Loans (Note 12) 64,954 89 (196) (107)
----------- ------- -------- --------
$21,309,038 $ 186 $ (587) $ (401)
=========== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
NET
CONTRACT OR UNREALIZED UNREALIZED UNREALIZED
NOTIONAL AMOUNT GAIN LOSSES GAINS(LOSSES)
--------------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Rate Swaps:
Modifying the Interest Rate
Characteristics of:
Loans:
Commercial $ 260,258 $ 12 $(13,187) $(13,175)
Consumer 200,000 -- (201) (201)
Investment Securities:
Mortgage-backed 375,000 -- (11,858) (11,858)
States and Political
Subdivisions 415,230 -- (32,390) (32,390)
Interest-Bearing Deposits 10,716 365 -- 365
Long-Term Debt 120,000 15,310 -- 15,310
----------- ------- -------- --------
$ 1,381,204 15,687 (57,636) (41,949)
===========
Futures and Options Contracts
Purchased:
Modifying the Interest Rate
Characteristics of:
Commercial loans $ 15,788 25 -- 25
=========== ------- -------- --------
$15,712 $(57,636) $(41,924)
======= ======== ========
Commitments:
To Purchase Securities $ 662,372 $ 147 $ -- $ 147
To Extend Credit (Note 12) 16,834,688 1,736 (28) 1,708
To Sell Loans (Note 12) 463,000 654 (1,648) (994)
----------- ------- -------- --------
$17,960,060 $ 2,537 $ (1,676) $ 861
=========== ======= ======== ========
</TABLE>
Unrealized gains and losses in the preceding tables are calculated based
on differences between current market interest rates, as of the date indicated,
and the interest rates specified in the contracts.
20
<PAGE>
Unrealized gains are also a measure of the credit risk applicable to the
contracts. Credit risk occurs when one party to a contract fails to perform in
accordance with contract terms. Thus, in the case of counterparty failure on a
contract with an unrealized gain, the Corporation, given current market interest
rates, would be required to pay a premium, or in effect incur a loss, to replace
the contract with one having identical terms. The amount of unrealized credit
risk was $21,754,000 at December 31, 1994, and $18,249,000 at December 31, 1993.
Credit risk is recorded in the financial statements only when counterparty
failure has occurred or is probable.
Gains and losses can also occur if the Corporation should elect to
terminate a contract prior to maturity. Such realized gains or losses are
deferred to future periods. As of year-end 1993 and 1994, there were no such
deferred gains or losses.
<PAGE>
The average notional amount and weighted average fixed rates of risk
management swap contracts outstanding at December 31, 1994, are shown below in
accordance with their contractual dates. The predominant variable repricing
index associated with these contracts is three-month LIBOR, which was 6.50% at
December 31, 1994.
<TABLE>
<CAPTION>
AVERAGE OUTSTANDING EXPIRING
-------------------
1995 1996 1997 1998 1999 THEREAFTER
---- ---- ---- ---- ---- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed Swaps:
Notional Amount $ 277,014 $ 273,012 $281,094 $323,012 $321,506 $320,000
Weighted Average
Receive Rate 7.59% 7.62% 7.63% 7.71% 7.73% 7.73%
Pay Fixed Swaps:
Notional Amount $ 1,288,972 $ 759,565 $315,513 $130,111 $ 94,383 $ 31,250
Weighted Average Pay
Rate 6.93% 6.84% 7.29% 7.77% 7.89% 9.05%
Net Receive(Pay) Fixed
Position:
Notional Amount $(1,011,958) $(486,553) $(34,419) $192,901 $227,123
Fixed Rate 6.75% 6.40% 4.51% 7.67% 7.66%
</TABLE>
22
<PAGE>
Substantially all of the $15,153,000 of futures contracts, option
contracts and commitments to purchase securities have remaining terms of less
than one year.
The following tables show the contract or notional amount and the fair
value of customer accommodation and other contracts at December 31, 1994 and
1993, and the related average fair value for the year ended December 31, 1994.
Fair values are the amounts that would be received (asset amount) and the
amounts that would be paid (liability amount) to replace existing contracts with
new contracts given current market interest rates.
Customer Accommodation and Other Contracts:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1994 December 31, 1994
----------------- -----------------
Contract or Fair Value Average Fair Value
------------------
Notional Amount Asset Liability Asset Liability
--------------- ----- --------- ----- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Received Fixed $ 666,419 $ 6,008 $17,262 $ 9,169 $ 7,818
Pay Fixed 584,388 15,963 5,683 7,576 8,957
Basis 430,000 75 64 44 11
---------- ---------- ------- ------- -------
$1,680,807 22,046 23,009 16,789 16,786
==========
Futures Contracts:
Purchased $ 69,100 -- -- -- --
Sold 614,100 -- -- -- --
Interest Rate Options:
Purchased 224,904 4,415 -- 2,270 --
Written 224,892 -- 4,435 -- 2,298
Foreign Exchange Contracts:
Commitments to Buy 1,778,752 11,539 21,929 7,570 17,938
Commitments to Sell 1,638,299 21,836 10,300 17,144 6,594
----------- -------- -------- -------
$ 59,836 $59,673 $43,773 $43,616
=========== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
-----------------
Contract or Fair Value
----------
Notional Amount Asset Liability
--------------- ----- ---------
(in thousands)
<S> <C> <C> <C>
Interest Rate Swaps:
Received Fixed $ 706,790 $19,987 $ 1,811
Pay Fixed 663,760 2,234 19,075
----------- -------- -------
$1,370,550 22,221 20,886
==========
Futures Contracts:
Purchased $ 51,000 -- --
Sold 284,292 -- --
Interest Rate Options:
Purchased 208,536 1,749 --
Written 207,533 -- 1,759
Foreign Exchange Contracts:
Commitments to Buy 1,219,819 3,600 13,947
Commitments to Sell 1,183,146 12,451 2,888
-------- -------
$40,021 $39,480
======== =======
</TABLE>
In contrast to risk management contracts, where only realized gains and
losses in value are recorded, unrealized valuation changes for customer
accommodation and other contracts are recognized and recorded currently as gains
or losses in the financial statements. The net amount of such gains and losses
recognized and included in Other Non-Interest Income in each of the following
years was:
<TABLE>
<CAPTION>
Net Gains
---------
1994 1993 1992
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Interest Rate Swaps $ 812 $ 3,483 $ 3,782
Futures Contracts 1,626 66 27
Interest Rate Options 166 -- --
Foreign Exchange Contracts 13,485 12,567 11,619
------- ------- -------
$16,089 $16,116 $15,428
======= ======= =======
</TABLE>
23
<PAGE>
The average notional amount of customer accommodation and other interest
rate swaps and futures contracts outstanding at December 31, 1994, are indicated
in the following table in accordance with their contractual dates. The
difference between the fixed rates, either paid or received, and the variable
rates received or paid, provide an indication of future cash flows. The variable
rates are in most instances based on three-month LIBOR, which was 6.50% at
December 31, 1994. Since the valuation adjustment of these contracts as of year-
end 1994 was based on current interest rates, future gains or losses will occur
only to the extent of interest rate changes.
<TABLE>
<CAPTION>
AVERAGE OUTSTANDING EXPIRING
--------------------
1995 1996 1997 1998 1999 THEREAFTER
---- ---- ---- ---- ---- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed Swaps:
Notional Amount $565,621 $370,894 $259,620 $154,054 $96,092 $63,367
Weighted Average Receive
Rate 6.71% 6.79% 6.89% 7.00% 7.16% 7.97%
Weighted Average Variable
Pay Rate 6.50 6.50 6.50 6.50 6.50 6.50
Pay Fixed Swaps:
Notional Amount $508,683 $316,188 $213,387 $123,065 $75,379 $48,804
Weighted Average
Variable Receive Rate 6.50% 6.50% 6.50% 6.50% 6.50% 6.50%
Weighted Average Pay Rate 6.42 6.42 6.52 6.70 7.03 7.39
Basis Swaps:
Notional Amount $370,301 $ 33,880 $ -- $ -- $ -- $ --
Weighted Average
Variable Receive Rate 6.50% 6.50% --% --% --% --%
Weighted Average
Variable Pay Rate 6.50 6.50 -- -- -- --
Net Futures Position
(Pay Fixed):
Contract Amount $ 10,055 $ 38,055 $ 35,589 $ 25,027 $17,877 $40,000
</TABLE>
The remaining customer accommodation and other contracts (interest rate
options and foreign exchange contracts) are essentially offsetting in amount, by
maturity.
24
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
A commitment to extend credit obligates the Corporation to advance funds
in accordance with commitment provisions. Commitments generally have fixed
expiration dates or other termination clauses, permit the customer to borrow at
an agreed upon rate of interest and require payment of a fee. There are
typically three broad types of commitments: loan commitments; standby letters of
credit; and commercial letters of credit.
Unused commitments totaled $18,930,114,000 and $14,917,545,000 at December
31, 1994 and 1993, respectively. Since many commitments typically expire without
being utilized, the total does not necessarily represent future cash
requirements. At December 31, 1994, $15,692,249,000 of the unused commitments
had variable rate terms, and $3,237,865,000 had fixed rate terms.
A standby letter of credit is a conditional commitment issued to guarantee
contractual performance by a customer to a third party. Typical uses are to back
commercial paper, bond financing or similar transactions of public and private
borrowers. Total standby letters of credit outstanding at December 31, 1994 and
1993, were $2,099,697,000 and $1,720,489,000, respectively. The Corporation does
not expect to be required to fund these commitments in the normal course of
business.
A commercial letter of credit is a commitment issued to facilitate the
shipment of goods from seller to buyer by guaranteeing payment to the seller.
Absent inability of the buyer to perform, fund disbursement to the seller occurs
simultaneously with receipt of funds from the buyer. Commercial letters of
credit outstanding were $210,223,000 and $196,654,000 at December 31, 1994 and
1993, respectively.
Collateral requirements for the above commitments are based on credit
evaluation of the customer.
Commitments to sell loans are entered into to protect against a decline in
the value of mortgage loans held for sale and of commitments to make mortgage
loans at specified fixed rates. Commitments to sell loans totaled $64,954,000 at
December 31, 1994, and $463,000,000 at December 31, 1993. The lower level of
commitments at year-end 1994 reflects both a lower level of mortgage origination
activity and a decision by the Corporation to hold a greater portion of
originations in its own portfolio.
The Corporation is a defendant in various legal proceedings arising in the
normal course of business. In the opinion of management, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Corporation's financial statements.
13. CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Corporation enters into transactions
exposing it to credit risk. At December 31, 1994, the maximum credit exposure
for funded transactions was $45.7 billion and for unfunded commitments was $21.2
billion. Such exposure was well diversified geographically and by industry, as
shown in the following tables.
<TABLE>
<CAPTION>
Geographic Distribution Industry Distribution
- ----------------------- ---------------------
<S> <C> <C> <C>
Metropolitan Detroit 18% Automotive Related Manufacturing 6%
Indiana 16 Other Manufacturing 11
Outstate Michigan 12 Financial Institutions 9
Illinois 10 Commercial Construction and Real Estate 6
Ohio 4 Wholesale Trade 4
Foreign 5 Transportation Services 3
All Other 35* Professional Services 3
---
100% Other Commercial 10
===
Residential Mortgages 5
Other Consumer 23
U.S. Government 18
Other Government 2
---
100%
===
</TABLE>
* Includes securities of U.S. Government Agencies aggregating 18 percent.
25
<PAGE>
Over 90 percent of the Corporation's assets, revenue, and net income are
in the banking industry; no individual customer provides 10 percent or more of
the Corporation's revenue, and total foreign assets, revenue, income before
income taxes and net income comprise less than 10 percent of the Corporation's
consolidated amounts.
14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," the Corporation is required to estimate the fair value
of its financial instruments, as defined in the standard.
For purposes of this disclosure, the estimated fair value of financial
instruments with immediate and shorter-term maturities (generally 90 days or
less) is assumed to be the same as the recorded book value. These instruments
include the balance sheet lines captioned Cash and Due From Banks, Interest-
Bearing Deposits, Federal Funds Sold and Resale Agreements, Customers' Liability
on Acceptances, Short-Term Borrowings and Liability on Acceptances.
Trading Account Securities are recorded on the balance sheet at fair
value, which is based on quoted market prices.
The recorded book and estimated fair values of other financial instruments
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- ------------------
RECORDED ESTIMATED RECORDED ESTIMATED
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Investment Securities $ 12,422,965 $ 12,195,728 $ 10,391,793 $ 10,802,287
Loans and Leases, net of
allowance 28,794,613 28,596,466 25,127,762 25,471,167
Interest Rate and Foreign
Exchange Contracts:
Risk Management 1,636 23,204 2,731 18,443
Customer Accommodation
and Other 59,836 59,836 40,021 40,021
Commitments -- 186 -- 2,537
Financial liabilities:
Deposits $(33,229,441) $(33,166,682) $(29,821,107) $(29,925,028)
Long-Term Debt (2,504,348) (2,394,904) (1,434,947) (1,487,526)
Interest Rate and Foreign
Exchange Contracts:
Risk Management (17,833) (34,432) (27,793) (85,429)
Customer Accommodation
and Other (59,673) (59,673) (39,480) (39,480)
Commitments (13,968) (14,555) (16,582) (18,258)
</TABLE>
Based on the valuation techniques discussed below, the excess of recorded
book values over estimated fair values was $249 million at December 31, 1994.
Estimated fair values do not recognize the potential earning power of the
corporate franchise, including customer relationships, which are inseparable
from related financial instruments. Franchise and relationship values are
reflected, at least in part, in the market value of the Corporation's common
stock, which at December 31, 1994, was $4.3 billion, or $976 million in excess
of book value.
Estimated fair values were determined as follows:
INVESTMENT SECURITIES
Fair values are based on quoted market prices or dealer quotes.
LOANS AND LEASES
The estimated fair value is determined by discounting contractual cash
flows from the loans and leases using current lending rates for new loans with
similar remaining maturities. The resulting value is reduced by an estimate of
losses inherent in the portfolio.
26
<PAGE>
Interest Rate And Foreign Exchange Contracts
Risk management contracts are not recorded on the balance sheet. All other
contracts are recorded on the balance sheet at their fair value. Estimated fair
values are based on quoted market prices and rates, when available, or the
amount the Corporation would receive or pay at current rates to terminate the
contracts.
Deposit Liabilities
The fair value of Demand, Savings, and Money Market Deposits with no
defined maturity is, by definition, the amount payable on demand at the
reporting date. The fair value of time deposits is estimated by discounting the
future cash flows to be paid, using the current rates at which similar deposits
with similar remaining maturities would be issued.
Long-Term Debt
The fair value of the Corporation's long-term debt is based on quoted
market prices, where available. If quoted market prices are not available, the
fair value is estimated by discounting the future cash flows using the current
rates at which similar debt could be issued.
Commitments
The majority of commitments to extend credit and letters of credit would
result in loans with a market rate of interest if funded. The fair value of
these commitments are the fees that would be charged customers to enter into
similar agreements with comparable pricing and maturity. The recorded book value
of deferred fee income approximates the fair value. For fixed rate commitments
and commitments to sell loans, the estimated fair value also considers the
difference between current levels of interest rates and the committed rates.
15. Restrictions on Cash Flows to The Parent Company
National and state banking laws and regulations place certain restrictions
on loans or advances made by the banking subsidiaries to members of an
affiliated group, including the Parent, and also place restrictions on dividends
paid by the subsidiary banks. In addition, the subsidiary banks may be
restricted by the risk-based capital standards of the banking regulatory
agencies. At December 31, 1994, net assets of the subsidiary banks totaled
$3,543,958,000, of which approximately $2,574,558,000 was not available for
dividends or loans.
In 1995, bank subsidiaries may distribute to the Parent (in addition to
their 1995 net income) approximately $601,967,000 in dividends without prior
approval from bank regulatory agencies.
16. Related Party Transactions
Certain directors and officers of the Corporation, their families, and
certain entities in which they have an ownership interest were customers of the
Corporation in 1994 and 1993. Management believes all transactions with such
parties, including loans and commitments, were in the ordinary course of
business and at normal terms prevailing at the time, including interest rates
and collateralization and did not represent more than normal risks. The amount
of such loans attributable to persons who were related parties at December 31,
1994, was $77,556,000 at the beginning and $117,137,000 at the end of 1994.
During 1994, new loans to related parties totaled $701,348,000 and repayments
aggregated $661,767,000.
<PAGE>
17. SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following quarterly financial information, in the opinion of
management, fairly presents the results of operations for such periods.
<TABLE>
<CAPTION>
1994 QUARTER 1993 QUARTER
------------ ------------
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
--- --- --- --- --- --- --- ---
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $422.3 $414.8 $406.4 $381.3 $382.7 $395.2 $391.8 $388.5
Provision for Possible Credit Losses 20.1 7.9 8.6 15.5 19.8 24.9 35.1 39.9
Non-Interest Income 136.3 136.6 133.9 138.7 156.1 141.1 143.2 145.0
Non-Interest Expenses 327.1 322.5 332.3 322.3 345.0 329.6 321.6 325.6
------ ------ ------ ------ ------ ------ ------ ------
Income Before Income Taxes 211.4 221.0 199.4 182.2 174.0 181.8 178.3 168.0
Income Tax Expense 69.9 73.3 64.2 59.3 55.0 56.6 55.7 52.9
------ ------ ------ ------ ------ ------ ------ ------
Income Before Extraordinary Item and
Accounting Change $141.5 $147.7 $135.2 $122.9 $119.0 $125.2 $122.6 $115.1
====== ====== ====== ====== ====== ====== ====== ======
Net Income $141.5 $147.7 $135.2 $107.3 $119.0 $125.2 $122.6 $119.0
====== ====== ====== ====== ====== ====== ====== ======
Net Income Per Share (on Average
Shares Outstanding) $ 0.91 $ 0.93 $ 0.84 $0.67* $ 0.74 $ 0.77 $ 0.76 $0.74*
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
* Net income per share before an extraordinary item and a change in
accounting principle was $0.77 per share in the first quarter of 1994, and
$0.71 per share in the first quarter of 1993.
28
<PAGE>
18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
Following are condensed financial statements for NBD Bancorp, Inc. (Parent
Only).
NBD BANCORP, Inc. (PARENT ONLY) CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1993
---- ----
<S> <C> <C>
ASSETS:
Cash and Due From Banks $ 555 $ 750
Interest Bearing Deposits Placed With Subsidiary -- 13,930
Resale Agreement with Subsidiary 41,685 221,115
Investment Securities Available-for-Sale 17,875 13,731
Notes Receivable from Subsidiaries 356,090 515,888
Investments in Subsidiaries (principally banks) 3,543,598 3,443,516
Dividends Receivable from Subsidiary 35,794 31,320
Net Premises and Equipment 52,458 55,629
Other Assets 43,389 48,454
---------- ----------
Total Assets $4,091,444 $4,344,333
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-Term Borrowings $ 59,236 $ 158,886
Other Liabilities 94,665 90,863
Long-Term Debt 646,000 845,985
---------- ----------
Total Liabilities 799,901 1,095,734
---------- ----------
Shareholders' Equity:
Preferred Stock -- --
Common Stock 160,877 160,715
Capital Surplus 638,652 634,167
Retained Earnings 2,810,459 2,472,692
Fair Value Adjustment on Investment Securities
Available-for-Sale (154,305) (7,012)
Accumulated Translation Adjustment 6,942 4,384
Deferred Compensation (17,438) (16,347)
Less Treasury Stock (153,644) --
---------- ----------
Total Shareholders' Equity 3,291,543 3,248,599
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,091,444 $4,344,333
========== ==========
</TABLE>
29
<PAGE>
NBD BANCORP, Inc. (PARENT ONLY) CONDENSED STATEMENT OF INCOME
(in thousands)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
OPERATING INCOME:
Income from Subsidiaries:
Dividends from Subsidiaries (principally
banks) $319,598 $250,935 $195,342
Interest and Other 39,006 42,845 29,947
Securities Gains -- 3,034 --
Other Interest and Other Income 1,226 1,054 1,333
-------- -------- --------
Total Operating Income 359,830 297,868 226,622
-------- -------- --------
OPERATING EXPENSES:
Interest on Short-Term Borrowings 5,284 4,864 6,198
Interest on Long-Term Debt 45,655 54,504 40,224
Other 22,625 24,042 23,922
-------- -------- --------
Total Operating Expenses 73,564 83,410 70,344
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 286,266 214,458 156,278
Income Tax Benefit 10,097 11,009 11,519
-------- -------- --------
INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES 296,363 225,467 167,797
Equity in Undistributed Earnings of
Subsidiaries Before Extraordinary Item and
Cumulative Effect of Accounting Change 250,916 256,374 170,222
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 547,279 481,841 338,019
Extraordinary Item (net of $4,162 income tax
effect) (7,730) -- --
Cumulative Effect of Accounting Change (net
of $4,438 and $21,039 income tax effect for
1994 and 1992, respectively) (7,885) 3,950 (37,885)
-------- -------- --------
NET INCOME $531,664 $485,791 $300,134
======== ======== ========
</TABLE>
30
<PAGE>
NBD BANCORP, Inc. (PARENT ONLY) CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 531,664 $ 485,791 $ 300,134
Adjustments to Reconcile Net Income to Net Cash
Provided by Operations:
Depreciation and Amortization 8,922 8,632 8,118
Securities Gains -- (3,034) --
Extraordinary Item -- Redemption of Debt 7,730 -- --
Equity in Earnings of Subsidiaries (563,607) (509,571) (327,679)
Cash Dividends Received from Subsidiaries 311,071 226,896 190,573
Decrease(Increase) in Interest Receivable 575 (1,739) (6,992)
(Decrease)Increase in Accrued Operating
Expenses (3,387) (2,329) 11,979
Other, net 13,744 2,402 3,388
--------- --------- ---------
Net Cash Provided by Operating Activities 306,712 207,048 179,521
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease(Increase) in Resale Agreements with
Subsidiaries 179,430 (134,149) 38,446
Purchase of Investment Securities
Available-for-Sale (10,247) -- --
Proceeds from Maturity of Investment Securities
Available-for-Sale 10,084 -- --
Purchase of Investment Securities Held-to-Maturity -- (3,506) (10,728)
Proceeds from Sale of Investment Securities
Held-to-Maturity -- 3,879 --
Decrease(Increase) in Notes Receivable and Time
Deposits Placed with Subsidiaries 173,728 (10,272) (370,943)
Decrease in Loans and Leases -- 1,425 1,017
Purchase of Premises and Equipment and Other
Assets (683) (4,154) (4,370)
Proceeds from Sale of Premises and Equipment
and Other Assets 210 3,936 403
Purchases and Net Capital Contributions in
Subsidiaries -- 26,006 (42,051)
--------- --------- ---------
Net Cash Provided(Used) by Investing
Activities 352,522 (116,835) (388,226)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease)Increase in Short-Term Borrowings (99,650) (25,552) 93,891
Proceeds from the Issuance of Debt -- 150,000 400,000
Principal Payments on Long-Term Debt -- (30,000) (15)
Redemption of Long-Term Debt (208,734) -- --
Proceeds from Stock Option Exercises 1,401 2,527 1,415
Payments to Acquire Treasury Stock (166,606) (13,369) (134,222)
Dividends Paid (185,840) (173,413) (152,353)
--------- --------- ---------
Net Cash (Used)Provided by Financing
Activities (659,429) (89,807) 208,716
--------- --------- ---------
Net (Decrease)Increase in Cash and Due From Banks (195) 406 11
Cash and Due From Banks -- Beginning of Period 750 344 333
--------- --------- ---------
CASH AND DUE FROM BANKS -- END OF PERIOD $ 555 $ 750 $ 344
========= ========= =========
Other Cash Flow Disclosures:
Interest Paid $ 55,163 $ 59,555 $ 35,966
Income Tax Credit Realized 13,176 13,880 14,986
</TABLE>
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
Shareholders and Board of Directors
NBD Bancorp, Inc.
Detroit, Michigan
We have audited the accompanying consolidated balance sheet of NBD
Bancorp, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' 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 assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of NBD Bancorp, Inc. and subsidiaries at December 31, 1994 and 1993,
and the results of their operations 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 discussed in Note 1 to the consolidated financial statements, the
Corporation adopted recently issued Statements of Financial Accounting Standards
and, accordingly, changed its method of accounting for postemployment benefits
in 1994, its method of accounting for investment securities and income taxes in
1993, and its method of accounting for postretirement benefits other than
pensions in 1992.
[Sig]
DELOITTE & TOUCHE LLP
January 17, 1995
Detroit, Michigan
32
<PAGE>
NBD BANCORP, INC.
SUPPLEMENTARY DATA
EARNINGS PER SHARE COMPUTATION
(in thousands except per share amounts)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
PRIMARY:
Net Income $531,664 $485,791 $300,134
======== ======== ========
Average Shares Outstanding 158,480 160,568 160,304
Adjustment:
Shares Applicable to Common Stock Options 328 685 412
-------- -------- --------
Shares Applicable to Primary Earnings 158,808 161,253 160,716
======== ======== ========
FULLY DILUTED:
Net Income $531,664 $485,791 $300,134
Adjustment:
Interest on 7.25% Convertible Debentures 3,052 14,651 14,651
Interest on 8.25% Convertible Debentures -- -- 1,105
Tax Effect on Above (1,068) (5,128) (5,356)
-------- -------- --------
Net Adjustment 1,984 9,523 10,400
-------- -------- --------
Adjusted Net Income $533,648 $495,314 $310,534
======== ======== ========
Average Shares Outstanding 158,480 160,568 160,304
Adjustment:
Shares Applicable to Convertible Notes 1,315 6,579 7,478
Shares Applicable to Common Stock Options 349 704 1,090
-------- -------- --------
Shares Applicable to Fully Diluted Earnings 160,144 167,851 168,872
======== ======== ========
NET INCOME PER SHARE:
Primary -- Net Income Per Share $3.35 $3.01 $1.87
======== ======== ========
Fully Diluted -- Net Income Per Share $3.33 $2.95 $1.84
======== ======== ========
</TABLE>
<PAGE>
Page 1
NBD Bancorp, Inc. Consolidated Balance Sheet
(in thousands except share data)
<TABLE>
<CAPTION>
Assets
March 31 December 31 March 31
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash and Due From Banks................................ $ 2,788,541 $ 2,587,007 $ 2,421,942
Interest-Bearing Deposits.............................. 653,945 630,688 612,284
Federal Funds Sold and Resale Agreements............... 121,625 399,725 316,544
Trading Account Securities............................. 125,362 122,135 93,555
Investment Securities (Note B):
Available-for-Sale (At Fair Value).................... 4,250,057 4,814,252 4,285,088
Held-to-Maturity (Fair Value of $7,343,626,
$7,381,476 and $7,848,646, respectively)............. 7,342,256 7,608,713 7,667,607
------------ ----------- -----------
11,592,313 12,422,965 11,952,695
------------ ----------- -----------
Loans and Leases (Net of Unearned Income of $181,620,
$171,207 and $136,526, respectively):
Commercial............................................ 16,232,268 15,525,645 14,088,500
Real Estate Construction.............................. 856,762 817,452 765,715
Residential Mortgage.................................. 3,961,567 3,351,840 2,773,533
Mortgages Held For Sale............................... 21,383 30,171 62,663
Consumer.............................................. 7,750,807 7,667,907 6,823,794
Lease Financing....................................... 379,201 363,200 283,451
Foreign............................................... 1,523,879 1,473,449 1,080,032
----------- ----------- -----------
30,725,867 29,229,664 25,877,688
Allowance For Possible Credit Losses (Note C)......... (458,157) (435,051) (423,410)
----------- ----------- ----------
30,267,710 28,794,613 25,454,278
Net Premises and Equipment............................. 647,192 630,357 635,993
Customers' Liability on Acceptances.................... 197,339 193,866 187,516
Other Assets........................................... 1,361,817 1,329,777 1,257,862
----------- ----------- -----------
Total Assets........................................ $47,755,844 $47,111,133 $42,932,669
=========== =========== ===========
</TABLE>
<PAGE>
Page 2
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
March 31 December 31 March 31
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Deposits:
Demand (Non-Interest Bearing)........................................ $ 6,636,995 $ 6,731,050 $ 6,602,773
Savings.............................................................. 7,504,825 7,679,922 8,029,415
Money Market Accounts................................................ 4,940,018 4,959,816 5,431,509
Time................................................................. 9,566,186 8,055,429 7,332,600
Foreign Office....................................................... 2,912,675 5,803,224 2,779,319
------------- ------------- -------------
31,560,699 33,229,441 30,175,616
Short-Term Borrowings................................................. 8,928,829 7,119,972 6,917,420
Liability on Acceptances.............................................. 197,339 193,866 187,516
Accrued Expenses and Sundry Liabilities............................... 860,646 771,963 803,810
Long-Term Debt........................................................ 2,703,335 2,504,348 1,583,608
------------- ------------- -------------
Total Liabilities............................................... 44,250,848 43,819,590 39,667,970
------------- ------------- -------------
Shareholders' Equity:
Series A Preferred Stock - Par Value $1, Stated Value $50........... - - -
March 31 December 31 March 31
No. of Shares 1995 1994 1994
--------------- ----------- ------------ -----------
Authorized..... 460,000 460,000 460,000
Issued......... - - -
Preferred Stock - No Par Value....................................... - - -
March 31 December 31 March 31
No. of Shares 1995 1994 1994
--------------- ----------- ------------ ------------
Authorized..... 10,000,000 10,000,000 10,000,000
Issued......... - - -
Common Stock - Par Value $1.......................................... 160,883 160,877 160,872
March 31 December 31 March 31
No. of Shares 1995 1994 1994
--------------- ------------ ------------ ------------
Authorized..... 500,000,000 500,000,000 500,000,000
Issued......... 160,883,008 160,876,819 160,872,446
Capital Surplus...................................................... 533,576 545,717 546,969
Retained Earnings.................................................... 2,990,430 2,903,394 2,624,608
Fair Value Adjustment on Investment Securities
Available-for-Sale (Note B)....................................... (78,559) (154,305) (53,753)
Accumulated Translation Adjustment................................... 9,618 6,942 5,122
Deferred Compensation................................................ (22,131) (17,438) (19,119)
Treasury Stock (2,854,769 and 4,968,147 shares, respectively)........ (88,821) (153,644) -
------------- ------------- ------------
Total Shareholders' Equity........................................ 3,504,996 3,291,543 3,264,699
------------- ------------- ------------
Total Liabilities and Shareholders' Equity.................. $ 47,755,844 $ 47,111,133 $ 42,932,669
============= ============= ============
</TABLE>
<PAGE>
Page 3
NBD Bancorp, Inc. Consolidated Statement of Income
(in thousands except per share data)
<TABLE>
<CAPTION>
Quarter Ended
March 31
---------------------
1995 1994
--------- ---------
<S>
Interest Income: <C> <C>
Loans and Leases (including fees)........................... $647,220 $462,061
Investment Securities:
Taxable.................................................... 183,726 138,946
Non-Taxable................................................ 23,969 25,339
Trading Account Securities.................................. 1,788 884
Federal Funds Sold and Resale Agreements.................... 4,111 949
Interest-Bearing Deposits................................... 11,274 7,000
--------- ---------
Total Interest Income...................................... 872,088 635,179
--------- ---------
Interest Expense:
Deposits.................................................... 292,575 183,539
Short-Term Borrowings....................................... 115,721 45,373
Long-Term Debt.............................................. 43,100 25,007
--------- ---------
Total Interest Expense..................................... 451,396 253,919
--------- ---------
Net Interest Income.......................................... 420,692 381,260
Provision For Possible Credit Losses........................ 20,096 15,460
--------- ---------
Net Interest Income After Provision
For Possible Credit Losses.................................. 400,596 365,800
--------- ---------
Non-Interest Income:
Trust Fees.................................................. 38,511 38,110
Service Charges on Deposit Accounts......................... 40,107 40,979
Credit Card Fees............................................ 9,516 8,377
Securities Gains............................................ 1,376 390
Other....................................................... 46,220 50,894
--------- ---------
Total Non-Interest Income.................................. 135,730 138,750
--------- ---------
Non-Interest Expenses:
Compensation:
Salaries................................................... 135,090 133,459
Benefits................................................... 42,207 43,289
--------- ---------
Total Compensation....................................... 177,297 176,748
Net Occupancy............................................... 30,407 30,081
Equipment Rentals, Depreciation and Maintenance............. 23,214 21,954
FDIC and Other Regulatory Assessments....................... 16,607 16,675
Amortization of Intangibles................................. 7,504 6,524
Other....................................................... 68,442 70,337
--------- ---------
Total Non-Interest Expenses.............................. 323,471 322,319
--------- ---------
Income before Income Taxes................................... 212,855 182,231
Income Tax Expense (Including tax effect of $472 and $149,
respectively, on securities sales)......................... 71,964 59,355
--------- ---------
Income before Extraordinary Item and Cumulative
Effect of Accounting Change................................. 140,891 122,876
Extraordinary Item (net of income tax effect) (Note E)...... - (7,730)
Cumulative Effect of Accounting Change (net of
income tax effect) (Note A)................................ - (7,885)
--------- ---------
Net Income................................................... $140,891 $107,261
========= =========
Net Income Per Share (on average shares outstanding):
Income before Extraordinary Item and Cumulative
Effect of Accounting Change................................ $0.88 $0.77
Extraordinary Item (net of income tax effect)............... - (0.05)
Cumulative Effect of Accounting Change (net of
income tax effect)......................................... - (0.05)
--------- ---------
Net Income Per Share......................................... $0.88 $0.67
========= =========
</TABLE>
<PAGE>
Page 4
NBD Bancorp, Inc. Consolidated Statement of Shareholders' Equity
(in thousands except share data)
<TABLE>
<CAPTION>
Quarter Ended
March 31
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Preferred Stock:
Balance, Beginning and End of Period.......................... $ - $ -
------------ ------------
Common Stock:
Balance, Beginning of Period.................................. 160,877 160,715
Acquisition of Subsidiary Bank............................... 270 -
Cancellation of Shares Held in Treasury...................... (270) -
Other........................................................ 6 157
------------ ------------
Balance, End of Period........................................ 160,883 160,872
------------ ------------
Capital Surplus:
Balance, Beginning of Period.................................. 545,717 541,232
Acquisition of Subsidiary Bank............................... (6,323) -
Cancellation of Shares Held in Treasury...................... (8,130) -
Other........................................................ 2,312 5,737
------------ ------------
Balance, End of Period........................................ 533,576 546,969
------------ ------------
Retained Earnings:
Balance, Beginning of Period.................................. 2,903,394 2,565,627
Net Income................................................... 140,891 107,261
Cash Dividends Declared on Common Stock
($.33 and $.30 per share, respectively)..................... (53,855) (48,280)
------------ ------------
Balance, End of Period ....................................... 2,990,430 2,624,608
------------ ------------
Fair Value Adjustment on Investment Securities
Available-for-Sale:
Balance, Beginning of Period.................................. (154,305) (7,012)
Change in Fair Value (net of tax)............................ 75,746 (46,741)
------------ ------------
Balance, End of Period........................................ (78,559) (53,753)
------------ ------------
Accumulated Translation Adjustment:
Balance, Beginning of Period.................................. 6,942 4,384
Translation Gain (net of tax)................................ 2,676 738
------------ ------------
Balance, End of Period........................................ 9,618 5,122
------------ ------------
Deferred Compensation:
Balance, Beginning of Period.................................. (17,438) (16,347)
Awards Granted............................................... (4,813) (6,378)
Amortization of Deferred Compensation........................ 2,337 3,301
Other........................................................ (2,217) 305
------------ ------------
Balance, End of Period........................................ (22,131) (19,119)
------------ ------------
Treasury Stock:
Balance, Beginning of Period.................................. (153,644) -
Purchase of Common Stock (3,294,502 shares in 1995).......... (102,493) (3,822)
Acquisition ofSubsidiary Bank (4,963,433 shares)............. 153,501 -
Cancellation of Shares Held in Treasury...................... 8,400 -
Other........................................................ 5,415 3,822
------------ ------------
Balance, End of Period........................................ (88,821) -
------------ ------------
Total Shareholders' Equity, End of Period...................... $3,504,996 $3,264,699
============ ============
</TABLE>
<PAGE>
Page 5
NBD Bancorp, Inc. Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income..................................................................... $ 140,891 $ 107,261
Adjustments to Reconcile Net Income to Net Cash Provided by Operations:
Depreciation and Amortization................................................. 27,084 25,512
Provision for Possible Credit Losses.......................................... 20,096 15,460
Securities Gains.............................................................. (1,376) (390)
Extraordinary Item - Redemption of Debt....................................... - 7,730
Increase in Interest Receivable............................................... (43,696) (21,869)
Increase in Current Income Taxes Payable...................................... 64,552 31,868
(Increase)Decrease in Accrued Expenses........................................ 11,088 (64,651)
(Increase)Decrease in Trading Account Investments............................. (3,032) 16,172
Decrease in Mortgages Held for Sale........................................... 8,788 193,239
Other, net.................................................................... (11,129) 5,236
------------ ------------
Net Cash Provided by Operating Activities................................... 213,266 315,568
------------ ------------
Cash Flows from Investing Activities:
(Increase)Decrease in Interest-Bearing Deposits................................ (7,467) 112,098
Decrease(Increase) in Federal Funds Sold and Resale Agreements................. 278,100 (34,063)
Purchase of Investment Securities Available-for-Sale........................... (590,089) (1,201,731)
Proceeds from Maturity or Call of Investment Securities Available-for-Sale..... 377,216 579,866
Proceeds from Sale of Investment Securities Available-for-Sale................. 1,251,206 44,889
Purchase of Investment Securities Held-to-Maturity............................. (11,936) (1,664,381)
Proceeds from Maturity or Call of Investment Securities Held-to-Maturity....... 274,944 601,114
Increase in Loans and Leases................................................... (935,112) (523,066)
Proceeds from Sale of Loan Portfolios.......................................... 6,003 -
Purchase of Premises and Equipment and Other Assets............................ (22,501) (222,627)
Proceeds from Sale of Premises and Equipment and Other Assets.................. 10,644 19,294
Net Cash Acquired in Purchase of Subsidiaries.................................. 17,290 -
------------ ------------
Net Cash Provided(Used) by Investing Activities.............................. 648,298 (2,288,607)
------------ ------------
Cash Flows from Financing Activities:
(Decrease)Increase in Deposits................................................. (2,500,350) 334,733
Increase in Short-Term Borrowings.............................................. 1,796,666 1,560,986
Proceeds from the Issuance of Long-Term Debt................................... 250,000 350,000
Principal Payments on Long-Term Debt........................................... (50,340) (573)
Redemption of Long-Term Debt................................................... - (208,734)
Proceeds from Stock Option Exercises........................................... 460 132
Payments to Acquire Treasury Stock............................................. (102,493) (3,822)
Dividends Paid................................................................. (53,147) (43,411)
------------ ------------
Net Cash (Used)Provided by Financing Activities.............................. (659,204) 1,989,311
------------ ------------
Effect of Exchange Rate Changes on Cash and Due From Banks...................... (826) (24)
------------ ------------
Net Increase in Cash and Due From Banks......................................... 201,534 16,248
Cash and Due From Banks - Beginning of Period................................... 2,587,007 2,405,694
------------ ------------
Cash and Due From Banks - End of Period......................................... $ 2,788,541 $ 2,421,942
============ ============
Other Cash Flow Disclosures:
Interest Paid.................................................................. $ 452,466 $ 328,523
State and Federal Taxes Paid................................................... 7,412 23,048
</TABLE>
<PAGE>
Page 6
Notes to Consolidated Financial Statements
------------------------------------------
Note A - Accounting Policies
- ----------------------------
Accounting policies of NBD Bancorp, Inc. and its subsidiaries (the Corporation)
are described below.
Basis of Presentation:
The unaudited consolidated financial statements as of and for the three
months ended March 31, 1995 and 1994, are prepared in conformity with
generally accepted accounting principles for interim financial information
and the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation have been included.
These financial statements should be read in conjunction with the
consolidated financial statements included in the Corporation's Form 10-K
Annual Report for the year ended December 31, 1994.
The Corporation has adopted Statement of Financial Accounting Standard
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures," effective January 1, 1995. These
statements require that an impaired loan be measured based on the present
value of the expected future cash flows discounted at the loan's effective
interest rate, the observable market price of the loan or the fair value
of the collateral if the loan is collateral dependent. The adoption of
these statements did not have an impact on the Corporation's financial
statements.
The Corporation has adopted SFAS No. 112, "Employers' Accounting For
Postemployment Benefits," effective January 1, 1994. This statement
requires the accrual of benefits provided to former or inactive employees
after employment but before retirement. The cumulative effect of adopting
SFAS No. 112 was a charge of $12,323,000 ($7,885,000 net of income taxes).
Consolidation:
The consolidated financial statements of the Corporation include the
accounts of its subsidiaries, principally NBD Bank (Michigan). All
material inter-company accounts and transactions have been eliminated.
Investments in unconsolidated affiliates in which ownership is at least 20
percent are accounted for by the equity method and are reported in "Other
Assets."
Securities:
In accordance with SFAS No. 115, Investment Securities are accounted for
as follows: (a) Debt securities that the Corporation has the positive
intent and ability to hold to maturity are classified as Held-to- Maturity
and reported at amortized cost; (b) Debt and equity securities that are
bought and held principally for the purpose of selling in the near term
are classified as Trading and reported at fair value, with realized and
unrealized gains and losses included in Other Non-Interest Income; and (c)
Debt and equity securities not classified as Held-to- Maturity or Trading
are classified as Available-for-Sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders' equity, net of tax.
<PAGE>
Page 7
Notes to Consolidated Financial Statements (cont'd.)
Gains and losses realized on the sale of Investment Securities are
determined on the specific identification method and included in
Securities Gains(Losses).
Loans:
Loans are generally reported at the principal amount outstanding, net of
unearned income. Non-refundable loan origination and commitment fees, and
certain costs of origination, are deferred and either included in interest
income over the term of the related loan or commitment or, if the loan is
held for sale, included in Other Non-Interest Income when the loan is
sold.
Mortgages Held For Sale are valued at the lower of aggregate cost or fair
value. Unrealized losses, as well as realized gains or losses, are
included in Other Non-Interest Income.
Interest income on loans is accrued as earned. Except for consumer loans,
loans are placed on non-accrual status and previously accrued but unpaid
interest is reversed against current period interest income when
collectibility of principal or interest is considered doubtful, payment of
principal or interest is 90 days or more past due, or the loan is
completely or partially charged off. Interest income on loans considered
doubtful or 90 days or more past due is recorded as collected. Collections
of principal and interest on charged-off loans are applied in the
following sequence: (1) as a reduction of remaining principal balance; (2)
as recovery of principal charged off; and (3) as interest income.
Consumer loans are not placed on a non-accrual status because they are
generally charged off when 120 days to 150 days past due. Accrued but
unpaid interest is reversed against current period interest income when
the loan is charged off.
Allowance for Possible Credit Losses:
The Allowance is maintained at a level considered by management to be
adequate to provide for probable loan and lease losses inherent in the
portfolio. Management's evaluation is based on a continuing review of the
loan and lease portfolio and includes consideration of the actual loan and
lease loss experience, the present and prospective financial condition of
borrowers, the balance of the loan and lease portfolio, industry and
country concentrations within the portfolio and general economic
conditions.
Income Taxes:
The Corporation accounts for income taxes in accordance with SFAS No. 109,
which requires an asset and liability approach to accounting and reporting
for income taxes. Under this approach, current and deferred income taxes
payable and refundable are remeasured annually using provisions of then
enacted tax laws and rates. SFAS No. 109 also specifies the criteria for
recognition and measurement of deferred income tax benefits.
<PAGE>
Page 8
Notes to Consolidated Financial Statements (cont'd.)
Income Per Share:
Per share amounts are based on the weighted average number of shares
outstanding throughout the period adjusted for the assumed exercise of
stock options.
<TABLE>
<CAPTION>
Quarter Ended
March 31
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Average Shares Outstanding....... 159,463,677 161,099,451
</TABLE>
Note B - Investment Securities
- ------------------------------
The following is a summary of the amortized cost and fair value of Investment
Securities Available-for-Sale and Held-to-Maturity at March 31, 1995:
<TABLE>
<CAPTION>
Investment Securities Available-for-Sale
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury................................... $ 525,394 $ 2,707 $ 143 $ 527,958
U.S. Government Agencies:
Mortgage-backed Securities..................... 1,801,590 656 55,110 1,747,136
Collateralized Mortgage Obligations............ 1,394,722 5,080 28,201 1,371,601
Other.......................................... 206,790 144 358 206,576
States and Political Subdivisions............... 90,453 112 137 90,428
Collateralized Mortgage Obligations(a).......... 103,540 359 140 103,759
Other........................................... 250,236 516 48,153 202,599
------------ ------------ ----------- ------------
Total......................................... $ 4,372,725 $ 9,574 $ 132,242 $ 4,250,057
============ ============ =========== ============
<CAPTION>
Investment Securities Held-to-Maturity
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury................................... $ 517,869 $ 782 $ 5,152 $ 513,499
U.S. Government Agencies:
Mortgage-backed Securities..................... 5,449,913 77,274 134,186 5,393,001
Other.......................................... 8,305 6 145 8,166
States and Political Subdivisions............... 1,365,669 69,887 7,098 1,428,458
Other........................................... 500 2 - 502
------------ ----------- ----------- ------------
Total......................................... $ 7,342,256 $ 147,951 $ 146,581 $ 7,343,626
=========== =========== =========== ============
</TABLE>
(a) All of the Collateralized Mortgage Obligations of private issuers have
underlying collateral consisting of obligations of U.S. Government Agencies.
<PAGE>
Page 9
Notes to Consolidated Financial Statements (cont'd.)
The following is a summary of the amortized cost and fair value of Investment
Securities Available-for-Sale and Held-to-Maturity at December 31, 1994:
<TABLE>
<CAPTION>
Investment Securities Available-for-Sale
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury................................. $ 505,540 $ 96 $ 592 $ 505,044
U.S. Government Agencies:
Mortgage-backed Securities................... 2,655,673 4 160,195 2,495,482
Collateralized Mortgage Obligations.......... 1,461,321 4,940 45,974 1,420,287
Other........................................ 22,916 1,267 3 24,180
States and Political Subdivisions............. 76,586 33 363 76,256
Collateralized Mortgage Obligations(a)........ 111,351 76 936 110,491
Other......................................... 222,931 459 40,878 182,512
------------ ----------- ------------ ------------
Total....................................... $ 5,056,318 $ 6,875 $ 248,941 $ 4,814,252
============ =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Investment Securities Held-to-Maturity
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury................................. $ 519,656 $ 225 $ 13,145 $ 506,736
U.S. Government Agencies:
Mortgage-backed Securities................... 5,664,739 45,612 282,356 5,427,995
Other........................................ 8,420 6 145 8,281
States and Political Subdivisions............. 1,415,398 46,182 23,626 1,437,954
Other......................................... 500 10 - 510
------------ ------------ ------------ ------------
Total....................................... $ 7,608,713 $ 92,035 $ 319,272 $ 7,381,476
============ ============ ============ ============
</TABLE>
(a) All of the Collateralized Mortgage Obligations of private issuers have
underlying collateral consisting of obligations of U.S. Government Agencies.
Note C - Allowance For Possible Credit Losses
- ---------------------------------------------
The Corporation has adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," effective January 1,
1995. Under these statements, a loan is considered impaired when it is probable
that all amounts due will not be collected according to the contractual terms of
the loan agreement. The statements require that an impaired loan be measured
based on the present value of the expected future cash flows discounted at the
loan's effective interest rate, the observable market price of the loan or the
fair value of the collateral if the loan is collateral dependent.
Nonperforming Loans are defined by the Corporation to include loans on which
interest is not being accrued, and restructured loans where interest rates have
been renegotiated at below market rates. Nonperforming loans totaled
$166,746,000 at March 31, 1995, and $180,041,000 at January 1, 1995.
<PAGE>
Page 10
Notes to Consolidated Financial Statements (cont'd.)
For purposes of calculating an impairment reserve in accordance with SFAS No.
114, the Corporation considers all nonperforming loans as meeting the
statements' definition of impaired. Large balance nonperforming loans (generally
those with balances of $1 million or more) accounted for $118,743,000, or 71
percent, of total nonperforming loans at March 31, 1995, and $148,942,000, or 83
percent, at January 1, 1995, and were individually evaluated to determine a
reserve for impairment. The impairment reserve included in the Allowance for
Possible Credit Losses balances disclosed below amounted to $1,721,000 at March
31, 1995, and $535,000 at January 1, 1995. Other nonperforming loans were
collectively evaluated for impairment, along with the performing loan and lease
portfolio.
The average balance of nonperforming loans was $169,383,000 for the three months
ended March 31, 1995. Interest income recognized during the time the loans were
impaired was $2,564,000 (of which $2,464,000 was recorded on a cash basis).
The changes in the Allowance for Possible Credit Losses are summarized below:
<TABLE>
<CAPTION>
Quarter Ended
March 31
----------------------
1995 1994
---------- ----------
(in thousands)
<S> <C> <C>
Balance, Beginning of Period........ $ 435,051 $423,030
Provision.......................... 20,096 15,460
Charge-offs........................ (19,239) (31,044)
Recoveries......................... 19,743 15,674
---------- ----------
Net (Charge-offs)Recoveries....... 504 (15,370)
Acquisition and Other.............. 2,506 290
---------- ----------
Balance, End of Period............ $458,157 $423,410
========== ==========
</TABLE>
Note D - Assets Pledged
- -----------------------
Assets, principally Investment Securities, carried at approximately
$6,587,596,000 were pledged at March 31, 1995, to secure public deposits
(including deposits of $44,206,000 of the Treasurer, State of Michigan),
repurchase agreements and for other purposes required by law.
Note E - Extraordinary Item
- ----------------------------
On March 15, 1994, an extraordinary item charge of $7,730,000 (net of income
taxes) was incurred, representing the premium paid and unamortized issuance
costs related to the Corporation's call and redemption of the $199,985,000 7.25%
Convertible Subordinated Debentures Due 2006.
Note F - Other Commitments and Contingent Liabilities
- ------------------------------------------------------
In the normal course of business the Corporation and its subsidiaries have
various outstanding commitments and contingent liabilities, including
guarantees, commitments to extend credit, foreign exchange futures contracts,
etc., which are not reflected in the financial statements. Management does not
anticipate any material loss as a result of these transactions.
The Corporation is a defendant in various legal proceedings arising in the
normal course of business. In the opinion of management, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Corporation's financial position.
Outstanding standby letters of credit at March 31, 1995, totaled approximately
$2,126,000,000.
