<PAGE>
Cover
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Washington, D.C. 20549
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-7127
- -----------------------------------------------------------------------------
NBD BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-1984850
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
611 Woodward Avenue, Detroit, Michigan 48226
(Address of principal executive offices) (zip code)
(313) 225-1000
(Registrant's telephone number, including area code)
- ----------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at October 31, 1995
----------------------------- -----------------------------
Common Stock, $1.00 Par Value 158,260,364
- -----------------------------------------------------------------------------
<PAGE>
Page 1
<TABLE>
<CAPTION>
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
NBD BANCORP, Inc. Consolidated Balance Sheet
(in thousands except share data)
Assets
September 30 December 31 September 30
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash and Due From Banks..................................... $ 2,540,295 $ 2,587,007 $ 2,344,939
Interest-Bearing Deposits................................... 668,931 630,688 642,969
Federal Funds Sold and Resale Agreements.................... 210,147 399,725 163,295
Trading Account Securities.................................. 205,051 122,135 187,474
Investment Securities (Note B):
Available-for-Sale (At Fair Value)....................... 2,868,502 4,814,252 4,791,169
Held-to-Maturity (Fair Value of $6,963,401,
$7,381,476 and $7,757,535, respectively).............. 6,831,803 7,608,713 7,832,855
------------ ------------ ------------
9,700,305 12,422,965 12,624,024
------------ ------------ ------------
Loans and Leases (Net of Unearned Income of $214,642,
$171,207 and $150,832, respectively):
Commercial............................................... 17,199,483 15,525,645 14,898,990
Real Estate Construction................................. 935,833 817,452 785,543
Residential Mortgage..................................... 4,422,097 3,351,840 3,187,130
Mortgages Held For Sale.................................. 341,829 30,171 41,008
Consumer................................................. 8,372,663 7,667,907 7,421,699
Lease Financing.......................................... 428,125 363,200 335,860
Foreign.................................................. 1,712,762 1,473,449 1,215,322
------------ ------------ ------------
33,412,792 29,229,664 27,885,552
Allowance For Possible Credit Losses (Note C)............ (487,726) (435,051) (423,700)
------------ ------------ ------------
32,925,066 28,794,613 27,461,852
------------ ------------ ------------
Net Premises and Equipment.................................. 670,372 630,357 636,755
Customers' Liability on Acceptances......................... 183,898 193,866 186,370
Other Assets................................................ 1,397,581 1,329,777 1,318,624
------------ ------------ ------------
Total Assets.................................... $48,501,646 $47,111,133 $45,566,302
============ ============ ============
</TABLE>
<PAGE>
Page 2
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
September 30 December 31 September 30
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Deposits:
Demand (Non-Interest Bearing)............................ $ 6,700,165 $ 6,731,050 $ 6,349,603
Savings.................................................. 7,341,687 7,679,922 7,745,473
Money Market Accounts.................................... 5,030,957 4,959,816 5,110,887
Time..................................................... 10,198,717 8,055,429 7,603,690
Foreign Office........................................... 4,427,137 5,803,224 3,693,457
------------ ------------ ------------
33,698,663 33,229,441 30,503,110
Short-Term Borrowings....................................... 6,940,959 7,119,972 8,483,258
Liability on Acceptances.................................... 183,898 193,866 186,370
Accrued Expenses and Sundry Liabilities..................... 813,398 771,963 757,595
Long-Term Debt.............................................. 3,111,426 2,504,348 2,381,382
------------ ------------ ------------
Total Liabilities..................................... 44,748,344 43,819,590 42,311,715
------------ ------------ ------------
Shareholders' Equity:
Series A Preferred Stock - Par Value $1, Stated Value $50 - - -
September 30 December 31 September 30
No. of Shares 1995 1994 1994
------------- ------------ ------------ ------------
Authorized... 460,000 460,000 460,000
Issued....... - - -
Preferred Stock - No Par Value........................... - - -
September 30 December 31 September 30
No. of Shares 1995 1994 1994
------------- ------------ ------------ ------------
Authorized... 10,000,000 10,000,000 10,000,000
Issued....... - - -
Common Stock - Par Value $1.............................. 160,883 160,877 160,877
September 30 December 31 September 30
No. of Shares 1995 1994 1994
------------- ------------ ------------ ------------
Authorized... 500,000,000 500,000,000 500,000,000
Issued....... 160,883,008 160,876,819 160,876,819
Capital Surplus.......................................... 537,722 545,717 547,710
Retained Earnings........................................ 3,177,975 2,903,394 2,813,263
Fair Value Adjustment on Investment Securities
Available-for-Sale (Note B)........................... (34,544) (154,305) (111,675)
Accumulated Translation Adjustment....................... 9,254 6,942 7,663
Deferred Compensation.................................... (26,786) (17,438) (21,859)
Treasury Stock (2,008,872, 4,968,147 and
4,546,230 shares, respectively)....................... (71,202) (153,644) (141,392)
------------ ------------ ------------
Total Shareholders' Equity............................ 3,753,302 3,291,543 3,254,587
------------ ------------ ------------
Total Liabilities and Shareholders' Equity...... $48,501,646 $47,111,133 $45,566,302
============ ============ ============
</TABLE>
<PAGE>
Page 3
<TABLE>
<CAPTION>
NBD Bancorp, Inc. Consolidated Statement of Income
(in thousands except per share data)
Quarter Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
Interest Income:
<S> <C> <C> <C> <C>
Loans and Leases (including fees)................................. $ 723,508 $ 542,238 $2,069,298 $1,511,258
Investment Securities:
Taxable........................................................ 158,225 182,319 508,523 481,793
Non-Taxable.................................................... 21,804 24,557 68,944 74,386
Trading Account Securities........................................ 2,372 1,878 5,906 4,257
Federal Funds Sold and Resale Agreements.......................... 1,518 2,849 7,861 5,712
Interest-Bearing Deposits......................................... 10,368 9,236 33,296 24,228
----------- ----------- ----------- -----------
Total Interest Income.......................................... 917,795 763,077 2,693,828 2,101,634
----------- ----------- ----------- -----------
Interest Expense:
Deposits.......................................................... 324,068 227,662 928,129 618,491
Short-Term Borrowings............................................. 107,971 84,526 339,282 192,201
Long-Term Debt.................................................... 51,248 36,098 142,644 88,503
----------- ----------- ----------- -----------
Total Interest Expense......................................... 483,287 348,286 1,410,055 899,195
----------- ----------- ----------- -----------
Net Interest Income.................................................. 434,508 414,791 1,283,773 1,202,439
Provision for Possible Credit Losses.............................. 25,038 7,907 65,225 31,946
----------- ----------- ----------- -----------
Net Interest Income After Provision
For Possible Credit Losses........................................ 409,470 406,884 1,218,548 1,170,493
----------- ----------- ----------- -----------
Non-Interest Income:
Trust Fees........................................................ 41,568 39,400 122,321 117,313
Service Charges on Deposit Accounts............................... 41,777 40,752 122,848 120,521
Credit Card Fees.................................................. 11,008 10,052 31,139 28,120
Securities Gains.................................................. 1,493 740 3,177 1,045
Other............................................................. 50,046 45,653 147,543 142,296
----------- ----------- ----------- -----------
Total Non-Interest Income...................................... 145,892 136,597 427,028 409,295
----------- ----------- ----------- -----------
Non-Interest Expenses:
Compensation:
Salaries....................................................... 142,838 137,292 416,187 405,607
Benefits....................................................... 45,261 44,436 133,677 131,631
----------- ----------- ----------- -----------
Total Compensation.......................................... 188,099 181,728 549,864 537,238
Net Occupancy..................................................... 29,115 29,242 89,442 89,291
Equipment Rentals, Depreciation and Maintenance................... 23,239 21,387 68,877 66,126
FDIC and Other Regulatory Assessments............................. 173 16,631 33,287 50,047
Amortization of Intangibles....................................... 8,659 6,415 23,684 19,516
Other............................................................. 77,804 67,089 221,664 214,902
----------- ----------- ----------- -----------
Total Non-Interest Expenses.................................... 327,089 322,492 986,818 977,120
----------- ----------- ----------- -----------
Income before Income Taxes........................................... 228,273 220,989 658,758 602,668
Income Tax Expense(Benefit) (Including tax effect of $513, $260,
$1,105 and $374, respectively, on securities sales)............ 78,723 73,335 224,875 196,914
----------- ----------- ----------- -----------
Income before Extraordinary Item and Cumulative
Effect of Accounting Change....................................... 149,550 147,654 433,883 405,754
Extraordinary Item (net of income tax effect) (Note F)......... - - - (7,730)
Cumulative Effect of Accounting Change (net of
income tax effect) (Note A)................................. - - - (7,885)
----------- ----------- ----------- -----------
Net Income........................................................... $ 149,550 $ 147,654 $ 433,883 $ 390,139
=========== =========== =========== ===========
Net Income Per Share (on average shares outstanding):
Income before Extraordinary Item and Cumulative
Effect of Accounting Change.................................... $ 0.94 $ 0.93 $ 2.73 $ 2.54
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................................................. $ 0.94 $ 0.93 $ 2.73 $ 2.44
=========== =========== =========== ===========
</TABLE>
<PAGE>
Page 4
<TABLE>
<CAPTION>
NBD Bancorp, Inc. Consolidated Statement of Shareholders' Equity
(in thousands except share data)
Quarter Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
Preferred Stock:
<S> <C> <C> <C> <C>
Balance, Beginning and End of Period......................... $ - $ - $ - $ -
----------- ----------- ----------- -----------
Common Stock:
Balance, Beginning of Period................................. 160,883 160,877 160,877 160,715
Acquisition of Subsidiary Bank............................ - - 270 -
Cancellation of Shares Held in Treasury................... - - (270) -
Other..................................................... - - 6 162
----------- ----------- ----------- -----------
Balance, End of Period....................................... 160,883 160,877 160,883 160,877
----------- ----------- ----------- -----------
Capital Surplus:
Balance, Beginning of Period................................. 533,129 546,829 545,717 541,232
Acquisition of Subsidiary Bank............................ 2,885 - (3,438) -
Cancellation of Shares Held in Treasury................... - - (8,130) -
Other..................................................... 1,708 881 3,573 6,478
----------- ----------- ----------- -----------
Balance, End of Period....................................... 537,722 547,710 537,722 547,710
----------- ----------- ----------- -----------
Retained Earnings:
Balance, Beginning of Period................................. 3,082,012 2,712,268 2,903,394 2,565,627
Net Income................................................ 149,550 147,654 433,883 390,139
Cash Dividends Declared on Common Stock
($.33, $.30, $.99 and $.90 per share, respectively).... (53,587) (46,659) (159,302) (142,503)
----------- ----------- ----------- -----------
Balance, End of Period....................................... 3,177,975 2,813,263 3,177,975 2,813,263
----------- ----------- ----------- -----------
Fair Value Adjustment on Investment Securities
Available-for-Sale:
Balance, Beginning of Period................................. (39,327) (89,936) (154,305) (7,012)
Change in Fair Value (net of tax)......................... 4,783 (21,739) 119,761 (104,663)
----------- ----------- ----------- -----------
Balance, End of Period....................................... (34,544) (111,675) (34,544) (111,675)
----------- ----------- ----------- -----------
Accumulated Translation Adjustment:
Balance, Beginning of Period................................. 9,444 7,118 6,942 4,384
Translation Gain(Loss) (net of tax)....................... (190) 545 2,312 3,279
----------- ----------- ----------- -----------
Balance, End of Period....................................... 9,254 7,663 9,254 7,663
----------- ----------- ----------- -----------
Deferred Compensation:
Balance, Beginning of Period................................. (27,364) (23,897) (17,438) (16,347)
Awards Granted............................................ (171) - (13,418) (14,322)
Amortization of Deferred Compensation..................... 3,207 2,899 8,683 8,386
Other..................................................... (2,458) (861) (4,613) 424
----------- ----------- ----------- -----------
Balance, End of Period....................................... (26,786) (21,859) (26,786) (21,859)
----------- ----------- ----------- -----------
Treasury Stock:
Balance, Beginning of Period................................. (116,511) (63,116) (153,644) -
Purchase of Common Stock (6,301,179 shares in 1995)....... (65,156) (78,893) (204,830) (153,814)
Acquisition of Subsidiary Bank (8,457,369 shares)......... 108,743 - 262,243 -
Cancellation of Shares Held in Treasury................... - - 8,400 -
Other..................................................... 1,722 617 16,629 12,422
----------- ----------- ----------- -----------
Balance, End of Period....................................... (71,202) (141,392) (71,202) (141,392)
----------- ----------- ----------- -----------
Total Shareholders' Equity, End of Period....................... $3,753,302 $3,254,587 $3,753,302 $3,254,587
=========== =========== =========== ===========
</TABLE>
<PAGE>
Page 5
<TABLE>
<CAPTION>
NBD Bancorp, Inc. Consolidated Statement of Cash Flows
(in thousands)
Nine Months Ended
September 30
---------------------------
1995 1994
------------ ------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income.................................................................. $ 433,883 $ 390,139
Adjustments to Reconcile Net Income to Net Cash Provided by Operations:
Depreciation and Amortization............................................ 85,078 76,474
Provision for Possible Credit Losses..................................... 65,225 31,946
Securities Gains......................................................... (3,177) (1,045)
Extraordinary Item - Redemption of Debt.................................. - 7,730
Increase in Interest Receivable.......................................... (97,800) (37,807)
Increase(Decrease) in Income Taxes Payable............................... (12,159) 22,963
Increase(Decrease) in Accrued Expenses................................... 58,183 (123,244)
Increase in Trading Account Investments.................................. (81,778) (77,043)
(Increase)Decrease in Mortgages Held for Sale............................ (311,658) 214,894
Other, net............................................................... 6,286 (12,071)
------------ ------------
Net Cash Provided by Operating Activities............................. 142,083 492,936
------------ ------------
Cash Flows from Investing Activities:
Decrease in Interest-Bearing Deposits....................................... 50,886 87,826
Decrease in Federal Funds Sold and Resale Agreements........................ 189,578 119,186
Purchase of Investment Securities Available-for-Sale........................ (1,407,332) (3,768,241)
Proceeds from Maturity or Call of Investment Securities Available-for-Sale.. 1,012,297 1,576,672
Proceeds from Sale of Investment Securities Available-for-Sale.............. 3,114,766 978,305
Purchase of Investment Securities Held-to-Maturity.......................... (20,498) (2,763,717)
Proceeds from Maturity or Call of Investment Securities Held-to-Maturity.... 788,099 1,502,523
Increase in Loans and Leases................................................ (2,933,993) (2,468,850)
Proceeds from Sale of Loan Portfolios....................................... 42,467 -
Purchase of Premises and Equipment and Other Assets......................... (74,622) (273,717)
Proceeds from Sale of Premises and Equipment and Other Assets............... 24,641 51,019
Net Cash Acquired(Paid) in Purchase of Subsidiaries......................... 33,715 (5,720)
------------ ------------
Net Cash Provided(Used) by Investing Activities.......................... 820,004 (4,964,714)
------------ ------------
Cash Flows from Financing Activities:
(Decrease)Increase in Deposits.............................................. (1,049,241) 635,152
(Decrease) Increase in Short-Term Borrowings................................ (206,633) 3,127,198
Proceeds from the Issuance of Long-Term Debt................................ 725,000 1,250,000
Principal Payments on Long-Term Debt........................................ (116,046) (101,269)
Redemption of Long-Term Debt................................................ - (208,734)
Proceeds from Stock Option Exercises........................................ 1,186 1,285
Payments to Acquire Treasury Stock.......................................... (204,830) (153,814)
Dividends Paid.............................................................. (158,299) (138,996)
------------ ------------
Net Cash (Used)Provided by Financing Activities.......................... (1,008,863) 4,410,822
------------ ------------
Effect of Exchange Rate Changes on Cash and Due From Banks..................... 64 201
------------ ------------
Net Decrease in Cash and Due From Banks........................................ (46,712) (60,755)
Cash and Due From Banks - Beginning of Period.................................. 2,587,007 2,405,694
------------ ------------
Cash and Due From Banks - End of Period........................................ $ 2,540,295 $ 2,344,939
============ ============
Other Cash Flow Disclosures:
Interest Paid............................................................... $ 1,332,888 $ 994,071
State and Federal Taxes Paid................................................ 237,034 169,514
</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
and nine months ended September 30, 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.
Gains and losses realized on the sale of Investment Securities are
determined on the specific identification method and included in
Securities Gains(Losses).
<PAGE>
Page 7
Notes to Consolidated Financial Statements (cont'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. For purposes of applying SFAS Nos. 114 and 118,
"impaired loans" are defined as equivalent to non-accrual and
restructured loans.
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.
Quarter Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
Average Shares
Outstanding........ 160,510,231 157,667,003 159,217,241 159,683,663
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 September 30, 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................................. $ 419,344 $ 1,492 $ 24 $ 420,812
U.S. Government Agencies:
Mortgage-backed Securities................. 1,360,236 1,164 17,399 1,344,001
Collateralized Mortgage Obligations........ 647,710 2,863 8,388 642,185
Other...................................... 205,162 609 11 205,760
States and Political Subdivisions............. 40,820 188 7 41,001
Collateralized Mortgage Obligations(a)........ 25,846 61 93 25,814
Other......................................... 223,205 867 35,143 188,929
----------- ----------- ----------- -----------
Total................................... $2,922,323 $ 7,244 $ 61,065 $2,868,502
=========== =========== =========== ===========
</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................................. $ 514,115 $ 2,794 $ 634 $ 516,275
U.S. Government Agencies:
Mortgage-backed Securities................. 5,049,319 113,775 54,339 5,108,755
Other...................................... 7,765 3 37 7,731
States and Political Subdivisions............. 1,260,604 74,653 4,617 1,330,640
----------- ----------- ----------- -----------
Total................................... $6,831,803 $ 191,225 $ 59,627 $6,963,401
=========== =========== =========== ===========
(a) All Collateralized Mortgage Obligations of private issuers have underlying collateral consisting
of obligations of U. S. Government Agencies.
</TABLE>
<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
============ ============ ============ ============
(a) All Collateralized Mortgage Obligations of private issuers have underlying collateral consisting of obligations
of U. S. Government Agencies.
</TABLE>
Note C - Allowance For Possible Credit Losses
- ---------------------------------------------
The changes in the Allowance for Possible Credit Losses are summarized below:
Nine Months Ended
September 30
---------------------
1995 1994
-------- --------
(in thousands)
Balance, Beginning of Period............ $435,051 $423,030
Provision............................ 65,225 31,946
Charge-offs.......................... (81,516) (87,320)
Recoveries........................... 59,828 55,586
-------- --------
Net Charge-offs................... (21,688) (31,734)
Acquisition and Other................ 9,138 458
-------- --------
Balance, End of Period.................. $487,726 $423,700
======== ========
<PAGE>
Page 10
Notes to Consolidated Financial Statements (cont'd.)
Note D - Interest Rate 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, including mitigating the risk in customer
accommodation contracts, and, on a limited scale, generating trading profits.
These contracts include interest rate swaps, futures and option contracts.
The following tables show the contract or notional amount of risk management
contracts and the related unrealized gains and losses as of the periods
indicated.
<TABLE>
<CAPTION>
Risk Management Contracts:
September 30, 1995
----------------------------------------------------
Contract or Net
Notional Unrealized Unrealized Unrealized
Amount Gains Losses Gains(Losses)
----------- ----------- ----------- -------------
(in thousands)
Interest Rate Swaps:
Modifying the Interest Rate Characteristics of:
<S> <C> <C> <C> <C>
Interest-Earning Assets.............................. $ 583,148 $ 460 $ (19,641) $ (19,181)
Interest-Bearing Liabilities......................... 1,545,000 27,202 (5,370) 21,832
----------- ----------- ----------- -----------
$2,128,148 27,662 (25,011) 2,651
===========
Futures and Options Contracts:
Purchased:
Modifying the Interest Rate Characteristics of
Interest-Earning Assets........................... $ 55,911 1 (29) (28)
Sold:
Modifying the Interest Rate Characteristics of
Interest-Earning Assets........................... 31,660 - - -
-----------
$ 87,571
=========== ----------- ----------- -----------
$ 27,663 $ (25,040) $ 2,623
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------------------
Contract or Net
Notional Unrealized Unrealized Unrealized
Amount Gains Losses Gains(Losses)
----------- ----------- ----------- -------------
(in thousands)
Interest Rate Swaps:
Modifying the Interest Rate Characteristics of:
<S> <C> <C> <C> <C>
Interest-Earning Assets.............................. $ 686,095 $ 1,072 $ (8,231) $ (7,159)
Interest-Bearing Liabilities......................... 1,209,028 20,197 (8,368) 11,829
----------- ----------- ----------- -----------
$1,895,123 21,269 (16,599) 4,670
===========
Futures and Options Contracts Purchased:
Modifying the Interest Rate Characteristics of
Interest-Earning Assets.............................. $ 11,103 299 - 299
=========== ----------- ----------- -----------
$ 21,568 $ (16,599) $ 4,969
=========== =========== ===========
</TABLE>
Unrealized gains and losses in the preceding tables are calculated based on
differences between current market interest rates, as of the dates indicated,
and the interest rates specified in the contracts. 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 the terms
of the contract.
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 and
recognized over the period to which the risk management contract related.
As of September 30, 1995, there was $10,529,000 of deferred losses which will
be amortized over a period of approximately two years.
<PAGE>
Page 11
Notes to Consolidated Financial Statements (cont'd.)
The following tables show the contract or notional amount and the fair value
of customer accommodation and other contracts at September 30, 1995, and
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.
<TABLE>
<CAPTION>
Customer Accommodation and
Other Contracts:
September 30, 1995
-------------------------------------
Contract or Fair Value
Notional ------------------------
Amount Asset Liability
---------- ----------- -----------
(in thousands)
Interest Rate Swaps:
<S> <C> <C> <C>
Receive Fixed........................... $ 807,798 $ 13,893 $ 6,022
Pay Fixed............................... 706,069 6,532 13,201
Basis................................... 450,000 339 169
----------- ----------- -----------
$1,963,867 20,764 19,392
===========
Futures Contracts:
Purchased............................... $ 2,000 221 577
Sold.................................... 1,378,500 - -
Interest Rate Options:
Purchased............................... 215,778 770 -
Written................................. 623,727 - 741
----------- -----------
$ 21,755 $ 20,710
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------
Contract or Fair Value
Notional ------------------------
Amount Asset Liability
----------- ----------- -----------
(in thousands)
Interest Rate Swaps:
<S> <C> <C> <C>
Receive Fixed........................... $ 666,419 $ 6,008 $ 17,262
Pay Fixed............................... 584,388 15,963 5,683
Basis................................... 430,000 75 64
----------- ----------- -----------
$1,680,807 22,046 23,009
===========
Futures Contracts:
Purchased............................... $ 69,100 - -
Sold.................................... 614,100 - -
Interest Rate Options:
Purchased............................... 224,904 4,415 -
Written................................. 224,892 - 4,435
----------- -----------
$ 26,461 $ 27,444
=========== ===========
</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 in
Non-Interest Income. The net amount of such gains and losses recognized in
each of the following periods was:
Nine Months Ended September 30
------------------------------
1995 1994
-------------- --------------
(in thousands)
Interest Rate Swaps................... $ 3,792 $ 298
Futures Contracts..................... (3,866) 1,104
Interest Rate Options................. 141 73
-------------- --------------
$ 67 $ 1,475
============== ==============
<PAGE>
Page 12
Notes to Consolidated Financial Statements (cont'd.)
Note E - Assets Pledged
- -----------------------
Assets, principally Investment Securities, carried at approximately
$5,464,870,000 were pledged at September 30, 1995, to secure public deposits
(including deposits of $106,709,000 of the Treasurer, State of Michigan),
repurchase agreements and for other purposes required by law.
Note F - 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 G - Commitments and Contingencies
- --------------------------------------
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 September 30, 1995, totaled
approximately $2,328,000,000.
Note H - Pending Merger
- -----------------------
The Corporation and First Chicago Corporation (First Chicago) entered into
an Agreement and Plan of Merger, dated July 11, 1995, pursuant to which First
Chicago will merge with and into the Corporation. The name of the combined
companies will be First Chicago NBD Corporation (FCNBD). Stockholders of the
Corporation and First Chicago approved the merger in October 1995, and the
final regulatory approval was received in November 1995. It is anticipated
that the merger will be accounted for as a pooling-of-interests and will be
consummated on November 30, 1995, pending 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 the Corporation 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 substantially identical to those of the
existing First Chicago preferred stock.
In connection with the execution of the merger agreement, the Corporation
granted First Chicago an option to purchase, under certain circumstances, up
to 19.9 percent of the Corporation's outstanding shares of common stock.
First Chicago also granted the Corporation an option to purchase, under
certain circumstances, up to 19.9 percent of First Chicago's outstanding
shares of common stock.
<PAGE>
Page 13
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------ --------------------------------------------------------------
Results of Operations
----------------------
The following discussion and analysis supplements information contained in
the financial statements and related notes appearing in this report.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
NBD Bancorp, Inc. Financial Highlights
(in thousands except per share data)
- -------------------------------------------------------------------------------------------------------------------------------
Operating Results Quarter Ended September 30 Nine Months Ended September 30
------------------------------- -------------------------------
1995 1994 Change 1995 1994 Change
----------- ----------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income........................................ $ 434,508 $ 414,791 4.8 % $1,283,773 $1,202,439 6.8 %
Provision for Possible Credit Losses....................... 25,038 7,907 216.7 65,225 31,946 104.2
Non-Interest Income........................................ 145,892 136,597 6.8 427,028 409,295 4.3
Non-Interest Expenses...................................... 327,089 322,492 1.4 986,818 977,120 1.0
----------- ----------- ----------- -----------
Income before Income Taxes................................. 228,273 220,989 3.3 658,758 602,668 9.3
Income Tax Expense......................................... 78,723 73,335 7.3 224,875 196,914 14.2
----------- ----------- ----------- -----------
Income before Extraordinary Item and Accounting Change..... 149,550 147,654 1.3 433,883 405,754 6.9
Extraordinary Item (Redemption of Debt).................... - - - (7,730)
Cumulative Effect of Accounting Change (SFAS No. 112)...... - - - (7,885)
----------- ----------- ----------- -----------
Net Income................................................. $ 149,550 $ 147,654 1.3 % $ 433,883 $ 390,139 11.2 %
- -------------------------------------------------------------------------------------------------------------------------------
Per Share:
Income before Extraordinary Item and
Accounting Change.................................... $ 0.94 $ 0.93 1.1 % $ 2.73 $ 2.54 7.5 %
Net Income.............................................. 0.94 0.93 1.1 2.73 2.44 11.9
Net Interest Margin........................................ 4.01 % 4.16 % 4.03 % 4.25 %
- -------------------------------------------------------------------------------------------------------------------------------
Stock Data (per share)
Cash Dividends Declared.................................... $ 0.33 $ 0.30 10.0 % $ 0.99 $ 0.90 10.0 %
Book Value (period end).................................... 23.62 20.82 13.4 23.62 20.82 13.4
Market Value:
Period End.............................................. 38 1/4 28 5/8 38 1/4 28 5/8
High.................................................... 39 1/4 33 39 1/4 33
Low..................................................... 31 1/2 28 3/8 27 3/8 27 1/4
Average Shares Outstanding................................. 160,510 157,667 159,217 159,684
- -------------------------------------------------------------------------------------------------------------------------------
Financial and Capital Ratios
Return on Average Shareholders' Equity:
Before Extraordinary Item and Accounting Change......... 15.87 % 17.97 % 16.00 % 16.32 %
After Extraordinary Item and Accounting Change.......... 15.87 17.97 16.00 15.75
Return on Average Assets:
Before Extraordinary Item and Accounting Change......... 1.23 1.31 1.20 1.25
After Extraordinary Item and Accounting Change.......... 1.23 1.31 1.20 1.20
Capital Ratios (period end):
Tier 1 Capital Ratio.................................... 7.99 8.63 7.99 8.63
Total Capital Ratio..................................... 12.19 12.18 12.19 12.18
Tier 1 Leverage Ratio................................... 7.03 6.82 7.03 6.82
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Balance Sheet Data September 30 December 31 September 30
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Total Assets.......................................... $48,501,646 $47,111,133 $45,566,302
Total Earning Assets.................................. 44,197,226 42,805,177 41,503,314
Total Loans and Leases................................ 33,412,792 29,229,664 27,885,552
Total Goodwill........................................ 379,850 245,003 249,949
Total Deposits........................................ 33,698,663 33,229,441 30,503,110
Total Common Shareholders' Equity..................... 3,753,302 3,291,543 3,254,587
- ------------------------------------------------------------------------------------------------------------
Credit Quality September 30 December 31 September 30
1995 1994 1994
------------ ------------ ------------
Allowance for Possible Credit Losses.................. $ 487,726 $ 435,051 $ 423,700
Nonperforming Loans................................... 181,066 180,041 177,547
Other Real Estate Owned............................... 31,597 29,376 27,962
Total Nonperforming Assets............................ 212,663 209,417 205,509
Net Loan Charge-offs (quarter-ended).................. 13,538 8,732 7,861
- ------------------------------------------------------------------------------------------------------------
Ratios:
Nonperforming Loans to Total Loans................. 0.54 % 0.62 % 0.64 %
Allowance to Total Loans........................... 1.46 1.49 1.52
Allowance to Nonperforming Loans................... 269.36 241.64 238.64
Net Loan Charge-offs (quarter-ended) (annualized).. 0.16 0.12 0.12
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 14
SUMMARY OF OPERATIONS
- ---------------------
Net Income for the third quarter of 1995 totaled $149,550,000, or $.94 per
share. This was 1 percent higher than the $147,654,000, or $.93 per share,
earned in the third quarter of 1994.
For the first nine months of 1995, Net Income was $433,883,000, or $2.73 per
share, a 7 percent increase over the $405,754,000, or $2.54 per share, of
Income before the effect of an extraordinary item and an accounting change
for the first nine months of 1994. Net Income for the first nine months of
1994 was $390,139,000, or $2.44 per share.
An extraordinary charge of $7,730,000 (net of income taxes), or five cents
per share, was incurred in the first quarter of 1994 relating to the
redemption on March 15, 1994, of the $199,985,000 7.25% Convertible
Subordinated Debentures due March 2006. Also, Financial Accounting Standard
No. 112, Employers' Accounting for Postemployment Benefits, was adopted as
of January 1, 1994, which required a charge against earnings of $7,885,000
(net of income taxes), or five cents per share.
Results for 1995 include the $910 million asset AmeriFed Financial Corp.,
which was acquired on January 9, 1995, and the $760 million asset Deerbank
Corporation, which was acquired on July 1, 1995. Both acquisitions were
accounted for as purchases.
On July 12, 1995, the Corporation announced the signing of a definitive
merger agreement pursuant to which First Chicago Corporation, a $72 billion
asset bank holding company headquartered in Chicago, Illinois, would merge
with and into NBD Bancorp, Inc. See Note H to the interim consolidated
financial statements for further information on the merger agreement.
<TABLE>
<CAPTION>
Table 1
Summary of Operations
(in thousands except per share data)
Quarter Ended Year-to-Date
---------------------------------------------------------- --------------------------
September June March December September September 30
1995 1995 1995 1994 1994 1995 1994
---------- ---------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income - Including Taxable
Equivalent Adjustment.............. $ 931,630 $ 918,744 $ 886,955 $ 828,739 $ 778,523 $ 2,737,329 $ 2,150,263
Interest Expense...................... (483,287) (475,372) (451,396) (391,431) (348,286) (1,410,055) (899,195)
---------- ---------- ---------- ---------- ---------- ------------ ------------
Net Interest Income - Taxable
Equivalent......................... 448,343 443,372 435,559 437,308 430,237 1,327,274 1,251,068
Taxable Equivalent Adjustment......... (13,835) (14,799) (14,867) (14,979) (15,446) (43,501) (48,629)
---------- ---------- ---------- ---------- ---------- ------------ ------------
Net Interest Income................... 434,508 428,573 420,692 422,329 414,791 1,283,773 1,202,439
Provision For Possible Credit Losses.. (25,038) (20,091) (20,096) (20,086) (7,907) (65,225) (31,946)
Securities Gains(Losses).............. 1,493 308 1,376 (3,514) 740 3,177 1,045
Other Non-Interest Income (Table 2)... 144,399 145,098 134,354 139,785 135,857 423,851 408,250
---------- ---------- ---------- ---------- ---------- ------------ ------------
Total Non-Interest Income.......... 145,892 145,406 135,730 136,271 136,597 427,028 409,295
---------- ---------- ---------- ---------- ---------- ------------ ------------
Compensation.......................... (188,099) (184,468) (177,297) (183,495) (181,728) (549,864) (537,238)
Other Non-Interest Expenses (Table 3) (138,990) (151,790) (146,174) (143,655) (140,764) (436,954) (439,882)
---------- ---------- ---------- ---------- ---------- ------------ ------------
Total Non-Interest Expenses........ (327,089) (336,258) (323,471) (327,150) (322,492) (986,818) (977,120)
---------- ---------- ---------- ---------- ---------- ------------ ------------
Income Before Taxes................... 228,273 217,630 212,855 211,364 220,989 658,758 602,668
Applicable Taxes...................... (78,723) (74,188) (71,964) (69,839) (73,335) (224,875) (196,914)
---------- ---------- ---------- ---------- ---------- ------------ ------------
Income before Extraordinary Item and
Cumulative Effect of Accounting
Change............................. 149,550 143,442 140,891 141,525 147,654 433,883 405,754
Extraordinary Item................. - - - - - - (7,730)
Cumulative Effect of Accounting
Change.......................... - - - - - - (7,885)
---------- ---------- ---------- ---------- ---------- ------------ ------------
Net Income............................ $ 149,550 $ 143,442 $ 140,891 $ 141,525 $ 147,654 $ 433,883 $ 390,139
========== ========== ========== ========== ========== ============ ============
Income Per Share:
Income before Extraordinary Item
and Accounting Change............ $ 0.94 $ 0.91 $ 0.88 $ 0.91 $ 0.93 $ 2.73 $ 2.54
Net Income......................... $ 0.94 $ 0.91 $ 0.88 $ 0.91 $ 0.93 $ 2.73 $ 2.44
Average Shares Outstanding............ 160,510 157,666 159,464 156,279 157,667 159,217 159,684
Average Earning Assets (in millions).. $ 44,597 $ 43,764 $ 43,550 $ 41,906 $ 41,242 $ 43,974 $ 39,318
Net Interest Margin................... 4.01% 4.06% 4.02% 4.16% 4.16% 4.03% 4.25%
Expense Ratio......................... 55.18% 57.14% 56.76% 56.69% 56.97% 56.35% 58.89%
</TABLE>
<PAGE>
Page 15
Net Interest Income
Taxable equivalent net interest income in the third quarter of 1995 was
$448.3 million, an increase of $18.1 million, or 4.2 percent, compared with
the third quarter of last year. The growth was attributable to an increase
of $3.4 billion, or 8.1 percent, in average earning assets, partially offset
by a lower net interest margin, which decreased 15 basis points from 4.16
percent in the third quarter of 1994 to 4.01 percent in the third quarter of
1995.
For the first nine months of 1995, taxable equivalent net interest income
rose $76.2 million, or 6.1 percent, over the corresponding period of 1994.
The increase was attributable to a $4.7 billion, or 11.8 percent, increase
in average earning assets, partially offset by a 22 basis point decrease in
the net interest margin.
Further detail on average balances, yields and rates is shown in Table 7.
Provision for Possible Credit Losses
The Provision for Possible Credit Losses in the third quarter of 1995
amounted to $25.0 million, an increase from the $7.9 million in the same
period one year ago, reflecting increased loan and lease volume. On a year-
to-date basis, the provision was $65.2 million in 1995 versus $31.9 million
in 1994. A comprehensive analysis of the related Allowance for Possible
Credit Losses, charge-offs, nonperforming assets and ratios is presented in
Table 5.
Securities Transactions
Securities gains or losses were insignificant over the last five quarters.
The securities losses realized in the fourth quarter of 1994 were primarily
attributable to the sale of U.S. Treasury securities from the Available-for-
Sale portfolio.
Other Non-Interest Income
Non-Interest Income (excluding securities gains or losses) amounted to $144.4
million in the third quarter of 1995 versus $135.9 million in the comparable
period of 1994, an increase of $8.5 million, or 6.3 percent. For the first
three quarters of 1995 and 1994, Other Non-Interest Income totaled $423.9
million and $408.3 million, respectively. Table 2 and its related discussion
provide additional details of the composition of Other Non-Interest Income.
Compensation
In the third quarter of 1995, compensation expense amounted to $188.1
million, which was $6.4 million, or 3.5 percent, higher than the third
quarter of 1994.
For the first three quarters of 1995, compensation expense was $549.9
million, an increase of $12.6 million, or 2.4 percent, compared with the
first three quarters of 1994. Salaries increased $10.6 million, or 2.6
percent, the net result of a 4.5 percent average merit increase partially
offset by a 2.1 percent decrease in average full-time equivalent employment.
Benefits expense increased $2.0 million, or 1.6 percent.
<PAGE>
Page 16
Other Non-Interest Expenses
Non-Interest Expenses (excluding compensation expense) totaled $139.0 million
for the third quarter of 1995 compared with $140.8 million for the same
quarter one year ago, a decrease of 1.3 percent. On a year-to-date basis,
Other Non-Interest Expenses decreased 0.7 percent. Table 3 provides detail
on the components of Other Non-Interest Expenses.
Income Taxes
Income Tax Expense was $78.7 million in the third quarter of 1995 versus
$73.3 million in the same quarter last year. For the first three quarters
of 1995 and 1994, Income tax expense was $224.9 million and $196.9 million,
respectively. The Corporation's effective tax rate, when computed after
adding the taxable equivalent adjustment to both pre-tax income and income
tax expense, was 38 percent for the first nine months of both 1995 and 1994.
<PAGE>
Page 17
OTHER NON-INTEREST INCOME
- -------------------------
The table below provides details of the composition of Other Non-Interest
Income. The increase of $4.9 million in Foreign Exchange and Translation for
the first nine months of 1995 compared with the 1994 period was due to
increased profits from foreign exchange contracts. The decrease of $3.7
million in Profit on Mortgage Sales for the first nine months of 1995 was due
to lower residential mortgage originations and related sales activity.
<TABLE>
<CAPTION>
Table 2
Other Non-Interest Income
(in thousands)
Quarter Ended Year-to-Date
------------------------------------------ ----------------
Sept. June March Dec. Sept. September 30
1995 1995 1995 1994 1994 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Deposit Service Charges.................$ 41,777 $ 40,964 $40,107 $ 39,475 $ 40,752 $122,848 $120,521
Trust Income............................ 41,568 42,242 38,511 40,042 39,400 122,321 117,313
Credit Card Fees........................ 11,008 10,615 9,516 10,446 10,052 31,139 28,120
Data Processing Fees.................... 9,587 8,741 7,979 8,214 8,416 26,307 23,460
Letter of Credit Fees................... 6,367 7,301 5,635 7,032 5,583 19,303 15,861
Other Domestic and International Fees... 4,716 6,474 4,980 5,641 5,105 16,170 16,068
Foreign Exchange and Translation........ 4,861 5,063 4,012 4,066 3,126 13,936 9,036
Insurance Premiums and Commissions...... 4,292 3,650 4,187 3,255 3,552 12,129 11,779
Mortgage Loan Servicing................. 3,738 3,818 3,770 3,933 4,061 11,326 12,335
Retail Banking Fees..................... 3,380 3,302 3,550 3,172 3,583 10,232 10,262
Rental Income........................... 2,502 2,584 2,466 2,575 2,574 7,552 7,860
Mutual Fund and Annuity Product Fees.... 2,202 1,874 2,083 2,038 1,742 6,159 4,990
OREO Gains.............................. 1,180 1,419 940 1,497 1,172 3,539 4,887
Securities Trading and Underwriting..... 1,433 1,339 678 1,541 1,371 3,450 4,484
Profit(Loss) on Mortgage Sales.......... 744 (115) (516) (636) 112 113 3,782
Other................................... 5,044 5,827 6,456 7,494 5,256 17,327 17,492
-------- -------- -------- -------- -------- -------- --------
Total Other Non-Interest Income......$144,399 $145,098 $134,354 $139,785 $135,857 $423,851 $408,250
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
Page 18
OTHER NON-INTEREST EXPENSES
- ---------------------------
The table below provides details of the composition of Other Non-Interest
Expenses. The expense ratio for the first three quarters of 1995 improved
to 56.35 percent from 58.89 percent for the 1994 period.
The decrease in FDIC & Other Regulatory Assessments in the third quarter of
1995 was the result of a reduction in the FDIC assessment rate for deposit
insurance from 23 cents to 4 cents, retroactive to June 1, 1995. The
increase in Amortization of Intangibles in 1995 was due to the increase in
the balance of intangibles from the AmeriFed and Deerbank acquisitions. The
increase in Marketing expense in the second quarter of 1995 was largely the
result of a direct mail solicitation program for credit cards. The decrease
in Operating and Other Taxes in the second quarter of 1995 was attributable
to a refund of prior years' Indiana bank taxes. The increase in Public
Relations expense in 1995 was largely due to an increase in charitable
contributions.
<TABLE>
<CAPTION>
Table 3
Other Non-Interest Expenses
(in thousands)
Quarter Ended Year-to-Date
------------------------------------------ ------------------
Sept. June March Dec. Sept. September 30
1995 1995 1995 1994 1994 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Occupancy..............................$ 29,115 $ 29,920 $ 30,407 $ 27,962 $ 29,242 $ 89,442 $ 89,291
Equipment.............................. 23,239 22,775 22,863 21,714 21,387 68,877 66,126
FDIC & Other Regulatory Assessments.... 173 16,507 16,607 16,616 16,631 33,287 50,047
Telephone.............................. 8,338 8,847 8,173 7,379 7,687 25,358 23,753
Amortization of Intangibles............ 8,659 7,521 7,504 6,290 6,415 23,684 19,516
Professional Services.................. 9,034 7,540 6,851 7,033 6,449 23,425 20,449
Marketing.............................. 6,091 9,931 5,656 6,595 5,351 21,678 15,292
Purchased Services..................... 7,111 7,516 6,172 6,518 7,255 20,799 21,970
Operating and Other Taxes.............. 7,226 4,285 6,581 6,056 5,699 18,092 18,581
Postage................................ 5,757 5,289 5,225 4,680 5,168 16,271 15,161
Travel and Entertainment............... 4,852 4,998 4,115 5,082 4,368 13,965 12,860
Stationery and Supplies................ 4,287 3,202 4,123 3,844 3,803 11,612 12,788
Public Relations....................... 3,978 3,742 3,782 3,987 2,968 11,502 8,636
Loan and Credit Charges................ 3,332 2,360 2,075 2,362 1,841 7,767 6,719
Armored Carrier and Cartage............ 2,097 1,836 1,970 1,918 2,084 5,903 6,101
Federal Reserve Service Charges........ 1,606 1,620 1,525 1,596 1,913 4,751 5,931
Other Insurance........................ 978 927 892 804 938 2,797 2,812
OREO Expense........................... 540 982 466 822 950 1,988 3,360
Other.................................. 12,577 11,992 11,187 12,397 10,615 35,756 40,489
-------- -------- -------- -------- -------- -------- --------
Total Other Non-Interest Expenses...$138,990 $151,790 $146,174 $143,655 $140,764 $436,954 $439,882
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
Page 19
FINANCIAL CONDITION AND CAPITAL ACCOUNTS
- ----------------------------------------
The Corporation's consolidated balance sheet is presented on pages 1 and 2.
Total assets at September 30, 1995, were $48.5 billion, an increase of $1.4
billion since year-end 1994, principally the net result of an increase of
$4.2 billion in Loans and Leases partially offset by a decrease of $2.7
billion in Investment Securities.
The $2.7 billion decrease in Investment Securities since year-end 1994
primarily reflects decreases in mortgage-backed U.S. Agency Securities due
to sales from the Available-for-Sale portfolio and maturities from the Held-
to-Maturity portfolio.
The increase in Total Loans and Leases of $4.2 billion since December 31,
1994, was mainly attributable to commercial loan growth of $1.7 billion, and
increases in residential mortgages and consumer loans of $1.1 billion and
$0.7 billion, respectively. The increase in residential mortgages related
mostly to the AmeriFed and Deerbank acquisitions. The increase in mortgages
held for sale of $0.3 billion reflected management's intent to hold less of
the recent originations in the portfolio.
The $0.9 billion increase in Total Liabilities since year-end 1994 was the
result of increases of $0.5 billion in deposit liabilities and $0.6 billion
in Long-Term Debt, offset by a $0.2 billion decrease in Short-Term
Borrowings.
The increase of $0.5 billion in total deposits was primarily the net result
of an increase of $2.1 billion in Time Deposits, partially offset by decreases
of $0.3 billion and $1.4 billion, respectively, in Savings and Foreign Office
Deposits. The increase of $2.1 billion in Time Deposits consisted of a $2.0
billion increase in retail deposits and a $0.1 billion increase in large
certificates of deposit. The increase in retail deposits reflected a
leveling of the growth trend noted in the first quarter of this year caused
by the competitive rate structure instituted by the Corporation's banks in
1994. In addition, approximately $0.8 billion of the increase in retail
deposits was due to the acquisitions completed in 1995. The decreases in
Foreign Office Deposits and Short-Term Borrowings occurred concurrent with
the increase in large certificates of deposit, which is an alternative source
of short-term funding, and the increase in Long-Term Debt.
The decrease of $0.2 billion in Short-Term Borrowings mostly reflects a net
decrease in Federal Funds purchased and repurchase agreements, while the
increase in Long-Term Debt of $0.6 billion reflects a $410 million increase in
bank notes since year-end 1994 and the issuance in May 1995 of $200 million
7.125% Fixed Rate Subordinated Notes Due 2007.
Shareholders' Equity totaled $3.8 billion at September 30, 1995, an increase
of $462 million since year-end 1994. In addition to a net increase of $275
million in Retained Earnings, the increase was also caused by a positive
change in fair value of $120 million (net of tax) in Investment Securities
Available-for-Sale, and a net decrease of $82 million in the amount of
Treasury Stock held.
<PAGE>
Page 20
ANALYSIS OF CAPITAL
- -------------------
The table that follows presents the components of Tier I Capital and Total
Capital. Both Tier I and Total capital ratios exceed the regulatory minimum
requirements of 4.0 percent and 8.0 percent, respectively. The Tier I
Leverage Ratio, also presented below, exceeds the regulatory minimum of 3.0
percent.
<TABLE>
<CAPTION>
Table 4
Analysis of Capital
(dollars in thousands)
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
1995 1995 1995 1994 1994
----------- ----------- ----------- ----------- -----------
Capital Components:
Tier 1 Capital:
<S> <C> <C> <C> <C> <C>
Common Shareholders' Equity.................. $3,753,302 $3,602,266 $3,504,996 $3,291,543 $3,254,587
Intangible Assets and Other
Adjustments............................. (368,908) (303,510) (269,401) (111,670) (159,834)
----------- ----------- ----------- ----------- -----------
Total Tier 1 Capital....................... $3,384,394 $3,298,756 $3,235,595 $3,179,873 $3,094,753
=========== =========== =========== =========== ===========
Total Capital:
Common Shareholders' Equity.................. $3,753,302 $3,602,266 $3,504,996 $3,291,543 $3,254,587
Qualifying Allowance for Possible
Credit Losses........................... 487,726 469,803 458,157 435,051 423,700
Qualifying Long-Term Debt.................... 1,300,000 1,300,000 1,102,000 1,102,000 852,000
Intangible Assets and Other
Adjustments............................. (378,726) (313,084) (276,828) (117,021) (164,006)
----------- ----------- ----------- ----------- -----------
Total Capital.............................. $5,162,302 $5,058,985 $4,788,325 $4,711,573 $4,366,281
=========== =========== =========== =========== ===========
Ratios (End of Period):
Risk-Based Capital Ratios:
Tier 1 Capital Ratio......................... 7.99 % 7.99 % 8.20 % 8.44 % 8.63 %
Total Capital Ratio.......................... 12.19 % 12.25 % 12.14 % 12.50 % 12.18 %
Tier 1 Leverage Ratio......................... 7.03 % 6.91 % 6.81 % 6.77 % 6.82 %
</TABLE>
<PAGE>
Page 21
ALLOWANCE FOR POSSIBLE CREDIT LOSSES
- ------------------------------------
An analysis of the changes in the Allowance for Possible Credit Losses and
related credit quality data is presented below. The Allowance at September
30, 1995, of $487.7 million was equal to 1.46 percent of total loans and
leases, slightly below the percentages at December 31, 1994, and September
30, 1994. While the Allowance has increased by 15.1 percent over the past
year, nonperforming loans have increased by only 2.0 percent, generating an
improvement in the Allowance as a percent of nonperforming loans and leases
to 269.36 percent as of September 30, 1995, compared with 241.64 percent at
year-end 1994 and 238.64 percent at September 30, 1994.
The Corporation recorded net charge-offs of $21.7 million for the first nine
months of 1995, representing an annualized net charge-off ratio of 0.09
percent, compared with net charge-offs of $31.7 million and an annualized net
charge-off ratio of 0.16 percent in the comparable period of 1994.
Nonperforming loans and leases totaled $181.1 million as of September 30,
1995, compared with $180.0 million at December 31, 1994, and $177.5 million
at the end of the third quarter of 1994.
<TABLE>
<CAPTION>
Table 5
(dollars in thousands)
Allowance for Possible Credit Losses
Quarter Ended Year-to-Date
------------------------------------------------- -------------------
September June March December September September 30
1995 1995 1995 1994 1994 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period.........................$469,803 $458,157 $435,051 $423,700 $423,624 $435,051 $423,030
Provision for Credit Losses............................ 25,038 20,091 20,096 20,086 7,907 65,225 31,946
Acquisition and Other.................................. 6,423 209 2,506 (3) 30 9,138 458
Charge-Offs............................................ (31,161) (31,116) (19,239) (33,706) (25,395) (81,516) (87,320)
Recoveries............................................. 17,623 22,462 19,743 24,974 17,534 59,828 55,586
--------- --------- --------- --------- --------- --------- ---------
Net (Charge-Offs)Recoveries......................... (13,538) (8,654) 504 (8,732) (7,861) (21,688) (31,734)
--------- --------- --------- --------- --------- --------- ---------
Balance at End of Period...............................$487,726 $469,803 $458,157 $435,051 $423,700 $487,726 $423,700
========= ========= ========= ========= ========= ========= =========
Net Loan (Charge-Offs)Recoveries by Category:
Commercial and Foreign................................. ($2,189) $3,605 $4,583 $806 ($2,397) $5,999 ($16,025)
Real Estate Construction............................... 59 (3,998) 2,142 765 758 (1,797) 1,419
Residential Mortgage................................... (94) (5) (11) (226) (60) (110) (270)
Consumer............................................... (10,770) (8,021) (7,117) (9,547) (6,256) (25,908) (16,336)
Lease Financing........................................ (544) (235) 907 (530) 94 128 (522)
--------- --------- --------- --------- --------- --------- ---------
Total Net (Charge-Offs)Recoveries...................($13,538) ($8,654) $504 ($8,732) ($7,861) ($21,688) ($31,734)
========= ========= ========= ========= ========= ========= =========
Net Charge-Off(Recovery)
Ratio (Annualized).................................. 0.16% 0.11% (0.01)% 0.12% 0.12% 0.09% 0.16%
Allowance for Possible Credit Losses as a Percent of:
Total Loans and Leases.............................. 1.46% 1.47% 1.49% 1.49% 1.52% 1.46% 1.52%
Nonperforming Loans and
Leases......................................... 269.36% 262.60% 274.76% 241.64% 238.64% 269.36% 238.64%
- ------------------------------------------------------------------------------------------------------------------------------
Analysis of Nonperforming Assets*
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
1995 1995 1995 1994 1994
--------- --------- --------- --------- ---------
Loans:
Non-Accrual.........................................$162,083 $159,922 $147,760 $157,141 $177,491
Restructured........................................ 18,983 18,983 18,986 22,900 56
--------- --------- --------- --------- ---------
Total Loans....................................... 181,066 178,905 166,746 180,041 177,547
Other Real Estate Owned................................ 31,597 28,365 28,334 29,376 27,962
--------- --------- --------- --------- ---------
Total Nonperforming Assets........................$212,663 $207,270 $195,080 $209,417 $205,509
========= ========= ========= ========= =========
Nonperforming Assets as a Percent of:
Total Loans and Leases.............................. 0.64% 0.65% 0.63% 0.72% 0.74%
Allowance for Possible
Credit Losses..................................... 43.60% 44.12% 42.58% 48.14% 48.50%
*Excludes Loans 90 Days or More Past Due and Still Accruing Interest
- ------------------------------------------------------------------------------------------------------------------------------
Loans 90 Days or More Past Due
and Still Accruing Interest......................... $47,768 $42,380 $42,236 $44,750 $45,984
</TABLE>
<PAGE>
Page 22
ORGANIZATIONAL PERFORMANCE
- --------------------------
Table 6 presents performance data and other information organized by the
three major geographical banking markets serviced by the Corporation.
<TABLE>
<CAPTION>
Table 6
Organizational Performance
(dollars in thousands)
For the Quarter Ended September 30, 1995 Michigan Indiana Illinois All Other Total
- ------------------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Income...................................... $ 103,076 $ 31,293 $ 20,793 $ (5,612) $ 149,550
Average Earning Assets ($ millions)............. 28,684 9,454 6,333 126 44,597
Return on Assets................................ 1.32 % 1.21 % 1.20 % - 1.23 %
Full-Time Equivalent Employees.................. 8,609 4,764 2,353 2,412 18,138
For the Quarter Ended June 30, 1995
- ------------------------------------------------
Net Income...................................... $ 93,857 $ 34,820 $ 19,487 $ (4,722) $ 143,442
Average Earning Assets ($ millions)............. 28,757 9,438 5,669 (100) 43,764
Return on Assets................................ 1.20 % 1.34 % 1.26 % - 1.20 %
Full-Time Equivalent Employees.................. 8,517 4,776 2,154 2,395 17,842
For the Quarter Ended March 31, 1995
- ------------------------------------------------
Net Income...................................... $ 90,510 $ 32,559 $ 18,658 $ (836) $ 140,891
Average Earning Assets ($ millions)............. 28,796 9,383 5,730 (359) 43,550
Return on Assets................................ 1.16 % 1.26 % 1.20 % - 1.18 %
Full-Time Equivalent Employees.................. 8,512 4,856 2,229 2,402 17,999
For the Quarter Ended December 31, 1994
- ------------------------------------------------
Net Income...................................... $ 102,085 $ 24,659 $ 17,117 $ (2,336) $ 141,525
Average Earning Assets ($ millions)............. 28,334 9,241 4,878 (547) 41,906
Return on Assets................................ 1.32 % 0.95 % 1.30 % - 1.23 %
Full-Time Equivalent Employees.................. 8,404 5,011 1,897 2,480 17,792
For the Quarter Ended September 30, 1994
- ------------------------------------------------
Net Income...................................... $ 101,425 $ 28,593 $ 18,372 $ (736) $ 147,654
Average Earning Assets ($ millions)............. 27,814 9,182 4,773 (527) 41,242
Return on Assets................................ 1.34 % 1.12 % 1.43 % - 1.31 %
Full-Time Equivalent Employees.................. 8,551 5,157 1,942 2,576 18,226
</TABLE>
<PAGE>
Page 23
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES
- ----------------------------------
The following table presents average asset and liability balances and related yields and rates for the latest five quarters
and the year-to-date periods.
Table 7
Average Balances, Yields and Rates
(Yields are on a fully taxable equivalent basis.)
(dollars in millions)
Third Quarter Second Quarter First Quarter Fourth Quarter Third Quarter
1995 1995 1995 1994 1994
-------------- -------------- -------------- -------------- --------------
Average Yield/ Average Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits...........$ 657 6.26 % $ 668 6.99 % $ 711 6.43 % $ 624 5.40 % $ 682 5.37 %
Federal Funds Sold and
Resale Agreements................. 94 6.38 145 6.18 280 5.95 219 5.39 245 4.62
Trading Account Securities.......... 168 5.67 122 5.79 122 5.96 185 5.44 159 4.80
Investment Securities:
U.S. Treasury...................... 947 6.51 967 6.58 1,083 6.69 1,095 5.87 1,231 5.55
U.S. Government Agencies........... 8,072 6.89 8,572 6.93 9,472 6.86 9,706 6.76 9,938 6.56
States and Political
Subdivisions..................... 1,343 9.41 1,413 8.82 1,468 9.14 1,498 9.37 1,459 9.44
Other.............................. 262 7.18 295 7.95 318 7.35 321 6.64 332 5.98
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total Investment Securities......... 10,624 7.19 11,247 7.16 12,341 7.13 12,620 6.99 12,960 6.77
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Loans and Leases:
Commercial......................... 17,249 8.81 16,870 9.09 15,803 8.92 15,014 8.41 14,549 7.88
Real Estate Construction........... 915 9.63 886 9.93 855 9.42 801 8.89 763 7.88
Residential Mortgage............... 4,665 7.88 4,027 7.85 3,891 7.79 3,293 7.61 3,084 7.55
Consumer........................... 8,226 9.17 7,869 9.17 7,712 8.98 7,537 8.70 7,313 8.59
Lease Financing.................... 417 10.05 393 10.07 368 9.91 343 9.74 314 9.52
Foreign............................ 1,582 7.37 1,537 7.39 1,467 7.23 1,270 7.04 1,173 5.89
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total Loans and Leases.............. 33,054 8.74 31,582 8.91 30,096 8.73 28,258 8.36 27,196 7.97
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total Earning Assets................ 44,597 8.32 % 43,764 8.41 % 43,550 8.22 % 41,906 7.87 % 41,242 7.52 %
====== ====== ====== ====== ======
Cash and Due From Banks............. 2,440 2,479 2,327 2,509 2,328
Other Assets........................ 2,222 2,159 2,135 2,064 2,074
Less Allowance for Possible
Credit Losses..................... (487) (473) (452) (432) (434)
------- ------- ------- ------- -------
Total Assets........................$48,772 $47,929 $47,560 $46,047 $45,210
======= ======= ======= ======= =======
Liabilities and Shareholders'
Equity:
Interest-Bearing Deposits:
Savings..........................$ 7,468 2.64 % $ 7,395 2.73 % $ 7,588 2.73 % $ 7,597 2.46 % $ 7,797 2.34 %
Money Market Accounts............ 5,096 4.42 4,928 4.51 4,971 4.35 5,048 3.71 5,208 3.22
Time............................. 11,791 5.76 11,147 5.69 10,974 5.37 9,915 4.86 9,205 4.48
Foreign Office................... 3,063 6.01 3,069 6.21 2,864 6.05 2,963 5.22 2,981 4.71
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total Interest-Bearing
Deposits.......................... 27,418 4.69 26,539 4.71 26,397 4.49 25,523 3.96 25,191 3.59
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Short-Term Borrowings............... 7,027 6.10 7,471 6.21 7,833 5.99 7,404 5.27 7,182 4.67
Long-Term Debt...................... 3,052 6.71 2,886 6.69 2,624 6.57 2,420 6.33 2,375 6.08
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total Interest-Bearing
Liabilities....................... 37,497 5.12 % 36,896 5.17 % 36,854 4.96 % 35,347 4.39 % 34,748 3.98 %
====== ====== ====== ====== ======
Demand Deposits..................... 6,540 6,472 6,293 6,472 6,297
Other Liabilities................... 966 980 917 915 877
Shareholders' Equity................ 3,769 3,581 3,496 3,313 3,288
Total Liabilities and ------- ------- ------- ------- -------
Shareholders' Equity..............$48,772 $47,929 $47,560 $46,047 $45,210
======= ======= ======= ======= =======
Interest Rate Spread................ 3.20 % 3.24 % 3.26 % 3.48 % 3.54 %
====== ====== ====== ====== ======
Net Interest Margin................. 4.01 % 4.06 % 4.02 % 4.16 % 4.16 %
====== ====== ====== ====== ======
The FTE adjustments are computed using a combined federal and state income tax rate of 36.4% in 1995 and 1994.
The combined amounts for Investment Securities Available-for-Sale and Held-to-Maturity are based on their respective carrying
values. Based on the amortized cost of Investment Securities Available-for-Sale, the combined average balance for the Third
Quarter 1995 would be $10,684 million and the average yield would be 7.14%, and the combined average balance for Year-to-Date
September 30, 1995, would be $11,514 million and the average yield would be 7.09%.
</TABLE>
<PAGE>
Page 24
<TABLE>
<CAPTION>
Table 7 (cont'd.)
Average Balances, Yields and Rates
(Yields are on a fully taxable equivalent basis.)
(dollars in millions)
Year-to-Date Year-to-Date
September 30, September 30,
1995 1994
--------------- ---------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
------- ------ ------- ------
Assets:
<S> <C> <C> <C> <C>
Interest-Bearing Deposits...........$ 678 6.56 % $ 660 4.90 %
Federal Funds Sold and
Resale Agreements................. 172 6.09 183 4.18
Trading Account Securities.......... 138 5.79 128 4.52
Investment Securities:
U.S. Treasury...................... 999 6.60 1,475 5.38
U.S. Government Agencies........... 8,700 6.90 8,745 6.49
States and Political
Subdivisions..................... 1,408 9.12 1,476 8.81
Other.............................. 291 7.52 355 4.84
------- ------ ------- ------
Total Investment Securities......... 11,398 7.16 12,051 6.59
------- ------ ------- ------
Loans and Leases:
Commercial......................... 16,646 8.94 14,204 7.47
Real Estate Construction........... 885 9.66 757 7.56
Residential Mortgage............... 4,197 7.84 2,918 7.52
Consumer........................... 7,938 9.10 7,017 8.57
Lease Financing.................... 393 10.01 296 9.95
Foreign............................ 1,529 7.33 1,104 5.85
------- ------ ------- ------
Total Loans and Leases.............. 31,588 8.79 26,296 7.73
------- ------ ------- ------
Total Earning Assets................ 43,974 8.31 % 39,318 7.30 %
====== ======
Cash and Due From Banks............. 2,416 2,326
Other Assets........................ 2,172 2,012
Less Allowance for Possible
Credit Losses..................... (471) (434)
------- -------
Total Assets........................$48,091 $43,222
======= =======
Liabilities and Shareholders'
Equity:
Interest-Bearing Deposits:
Savings..........................$ 7,483 2.70 % $ 7,861 2.31 %
Money Market Accounts............ 4,999 4.43 5,355 2.90
Time............................. 11,307 5.61 8,642 4.35
Foreign Office................... 3,000 6.09 2,610 4.40
------- ------ ------- ------
Total Interest-Bearing
Deposits.......................... 26,789 4.63 24,468 3.38
------- ------ ------- ------
Short-Term Borrowings............... 7,440 6.10 6,392 4.02
Long-Term Debt...................... 2,856 6.66 1,940 6.08
------- ------ ------- ------
Total Interest-Bearing
Liabilities....................... 37,085 5.08 % 32,800 3.66 %
====== ======
Demand Deposits..................... 6,436 6,249
Other Liabilities................... 954 870
Shareholders' Equity................ 3,616 3,303
------- -------
Total Liabilities and
Shareholders' Equity..............$48,091 $43,222
======= =======
Interest Rate Spread................ 3.23 % 3.64 %
====== =====
Net Interest Margin................. 4.03 % 4.25 %
====== ======
</TABLE>
<PAGE>
Page 25
RATE SENSITIVITY ANALYSIS
- -------------------------
The following table summarizes the Rate Sensitivity of Earning Assets and
Funding Sources as of September 30, 1995. Balances are distributed to future
calendar periods based primarily on contractual interest rate repricing dates
and on contractual maturity (including principal amortization) dates.
Maturity distributions, however, are modified based on historical differences
between contractual versus actual payment flows and to reflect management's
assumptions as to the effect current interest rate levels may have on
historical principal prepayment trends. Additionally, distributions reflect
management's current assumptions as to repricing frequency of indeterminate
maturity liabilities and changes in deposit balances in reaction to interest
rate levels.
The net difference between the amount of earning assets and funding sources
distributed to a calendar period is typically referred to as either the
"asset/liability funding gap" or the "rate sensitivity position." The
magnitude of the funding gap in the various calendar periods provides a
general indication of the extent to which future earnings, primarily net
interest income, may be affected by interest rate changes.
To mitigate the risk to earnings of changes in interest rates, it is the
Corporation's policy that the cumulative funding gap out to one year may not
exceed 10 percent of total earning assets. A funding gap in excess of 5
percent requires Board of Directors approval. In addition, the Corporation
has an "interest rate shock" policy which specifies that in the event of an
immediate change in interest rates of 3 percentage points, the existing
funding gap would not cause the average interest rate margin over the ensuing
year to decline by more than 10 percent.
<TABLE>
<CAPTION>
Rate Sensitivity of Earning Assets and Funding Sources
(in millions)
As of September 30, 1995
-------------------------------------------------------------------
1-30 31-90 91-180 181-365 1-5 Over 5
Days Days Days Days Years Years Total
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits....................... $ 669 $ - $ - $ - $ - $ - $ 669
Federal Funds Sold and Resale Agreements........ 210 - - - - - 210
Trading Account Securities...................... 205 - - - - - 205
Investment Securities........................... 611 681 1,004 1,501 3,668 2,235 9,700
Commercial Loans................................ 11,399 1,686 705 615 2,296 498 17,199
Real Estate Construction Loans.................. 638 69 54 26 126 23 936
Residential Mortgage Loans...................... 84 216 515 855 2,114 638 4,422
Mortgage Loans Held For Sale.................... 228 114 - - - - 342
Consumer Loans.................................. 2,231 517 693 1,179 3,337 416 8,373
Lease Financing................................. 12 24 36 66 275 15 428
Foreign Loans................................... 1,634 43 21 15 - - 1,713
------- ------- ------- ------- ------- ------- -------
Total Earning Assets.................. $ 17,921 $ 3,350 $ 3,028 $ 4,257 $ 11,816 $ 3,825 $ 44,197
------- ------- ------- ------- ------- ------- -------
Savings Deposits................................ $ 3,236 $ - $ - $ - $ 4,106 $ - $ 7,342
Money Market Accounts........................... 4,247 - - - 784 - 5,031
Time Deposits................................... 1,760 1,916 1,935 1,837 2,681 70 10,199
Foreign Office Deposits......................... 4,402 25 - - - - 4,427
Short-Term Borrowings........................... 5,241 397 323 926 54 - 6,941
Long-Term Debt.................................. 2 97 101 577 1,134 1,200 3,111
Non-Interest-Bearing Liabilities and Equity
Capital...................................... 1,007 - - - 3,355 2,784 7,146
------- ------- ------- ------- ------- ------- -------
Total Sources of Funding.............. $ 19,895 $ 2,435 $ 2,359 $ 3,340 $ 12,114 $ 4,054 $ 44,197
------- ------- ------- ------- ------- ------- -------
Asset(Liability) Funding Gap.................... $ (1,974) $ 915 $ 669 $ 917 $ (298) $ (229) $ -
------- ------- ------- ------- ------- ------- -------
Net Interest Rate Swap Position................. $ 118 $ 580 $ (726) $ (172) $ (56) $ 256 $ -
------- ------- ------- ------- ------- ------- -------
Net Asset(Liability) Funding Gap................ $ (1,856) $ 1,495 $ (57) $ 745 $ (354) $ 27 $ -
------- ------- ------- ------- ------- ------- -------
Cumulative Net Asset(Liability) Funding Gap..... $ (1,856) $ (361) $ (418) $ 327 $ (27) $ - $ -
======= ======= ======= ======= ======= ======= =======
Cumulative Net Asset(Liability) Funding Gap as
a Percent of Total Earning Assets............. (4.20)% (0.82)% (0.95)% 0.74 % (0.06)%
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Page 26
It can be seen from the table that management's assumptions regarding the
repricing of indeterminate maturity liabilities (e.g., savings deposits) and
the reaction of non-interest bearing liabilities (primarily net demand
deposits) to rate changes has a significant bearing on the stated funding gap
in a given period.
To more closely monitor the earnings risk of interest rate changes, the
Corporation regularly performs simulation analyses of the effect that
specific interest rate changes would have on net interest income and net
interest margin. Utilizing September 30, 1995, data shown in the preceding
table, a simulation based on interest rates rising by 1 percentage point, in
increments of 25 basis points, over a four-month period indicates that
average interest margin for the 12 months subsequent to September 30, 1995,
would be 3 basis point higher than if rates were unchanged. A simulation
based on interest rates corresponding to the September 30, 1995, forward
yield curve indicates that the margin would increase by 2 basis point in
comparison to a static rate environment. A "shock" analysis, calculated on
the basis of an immediate 3 percentage point increase in rates, would cause
the average interest margin for the following 12 months to decline by an
amount significantly less than the policy limit of 10 percent.
The Corporation utilizes interest rate swap contracts to alter the funding
gap, or interest sensitivity, on the balance sheet. At September 30, 1995,
there were $2.1 billion notional amount of interest rate swap contracts
outstanding for rate management purposes, of which $1.2 billion notional
amount had terms whereby the Corporation was paying a fixed rate of interest
and receiving a variable rate. The rate management swaps reduced net
interest income by $12.6 million, or 4 basis points, for the first nine
months of 1995 and by $29.8 million, or 10 basis points, in the comparable
period of 1994.
During the first nine months of 1995, the Corporation elected to terminate
certain rate management swap contracts which were hedging short-term
borrowings. The terminations enabled the Corporation to maintain its
cumulative gap position within one year in a neutral position in light of
changes in its interest rate sensitivity profile. As of September 30, 1995,
there was $10.5 million of deferred losses on swap terminations which will
be amortized over a period of approximately two years.
See Note D to the interim consolidated financial statements for further
information on interest rate contracts.
INTERNATIONAL BANKING
- ---------------------
At September 30, 1995, the Corporation had total foreign cross-border
outstandings of $1.0 billion. Foreign outstandings consist primarily of
interest-bearing deposits, bankers acceptances, federal funds sold, and loans
denominated in dollars or other non-local currency. Assets denominated in
the local currency are included to the extent they are not hedged or are not
funded by local borrowings. An item is classified as either foreign or
domestic based on the domicile of the party ultimately responsible for
payment.
At September 30, 1995, the Corporation had no foreign outstandings to any
individual country which exceeded 0.75 percent of total assets. However,
foreign cross-border outstandings at September 30, 1995, were $30.2 million
(excluding $98.9 million par value of obligations collateralized by U. S.
Treasury securities) for all countries that the Corporation considers to be
experiencing severe economic and liquidity problems. Of such outstandings,
none were nonperforming. No special reserve was required to be established
under the International Lending Supervision Act of 1983.
<PAGE>
Page 27
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ----------------------------------------------------
The Corporation ("NBD") held a special meeting of
stockholders on October 20, 1995, to consider and vote upon
a proposal to approve and adopt a Merger Agreement, dated
as of July 11, 1995, as amended, by and between NBD and
First Chicago Corporation pursuant to which First Chicago
will merge with and into NBD under the name "First Chicago
NBD Corporation"; the number of authorized shares of
common stock of NBD will be increased to 750,000,000; and
the Series A Preferred Stock, no shares of which are currently
issued and outstanding, will be deleted and certain series
of new preferred stock will be designated. Following are
the results of the voting:
Number of Shares
----------------
For: 116,642,706.2
Against: 3,051,366.7
Abstain: 529,845.4
<PAGE>
Page 28
PART II - OTHER INFORMATION (cont'd.)
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
(11) The Earnings Per Share Computation is attached
hereto.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Corporation filed a Current Report on Form 8-K with
the Securities and Exchange Commission dated July 11,
1995, reporting under Item 5 the Agreement and Plan of
Merger (the "Merger Agreement") dated July 11, 1995,
entered into by the Corporation and First Chicago
Corporation (First Chicago), pursuant to which First
Chicago will merge with and into the Corporation. In
addition, the Merger Agreement, certain other related
agreements and the Press Release dated July 12, 1995, were
filed as exhibits under Item 7.
The Corporation filed a Current Report on Form 8-K with
the Securities and Exchange Commission dated July 21,
1995, referencing under Item 5 the above noted Current
Report on Form 8-K dated July 11, 1995, and filing under
Item 7 the following Financial Statements and Exhibits:
(i) Financial Statements of Business Acquired
The following financial statements of First Chicago
Corporation and subsidiaries:
Independent Auditors' Report
Consolidated Balance Sheet - December 31, 1994 and 1993
Consolidated Statement of Income - Three Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statement of Changes in Stockholders'
Equity - Three Years Ended December 31, 1994, 1993 and
1992
Consolidated Statement of Cash Flows - Three Years
Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Consolidated Interim Balance Sheet - March 31, 1995 and
1994 (Unaudited)
Consolidated Interim Statement of Income - Three Months
Ended March 31, 1995 and 1994 (Unaudited)
Consolidated Interim Statement of Changes in
Stockholders' Equity - Three Months Ended March 31,
1995 and 1994 (Unaudited)
<PAGE>
Page 29
PART II - OTHER INFORMATION (cont'd.)
Consolidated Interim Statement of Cash Flows - Three
Months Ended March 31, 1995 and 1994 (Unaudited)
Notes to Consolidated Interim Financial Statements
(Unaudited)
(ii) Pro Forma Financial Information
The following pro forma condensed combined financial
statements (unaudited) of the Corporation reflecting
the proposed merger with First Chicago Corporation:
Pro Forma Condensed Combined Balance Sheet - March 31,
1995 (Unaudited)
Pro Forma Condensed Combined Statement of Income -
Three Years Ended December 31, 1994, 1993 and 1992 and
Three Months Ended March 31, 1995 and 1994 (Unaudited)
Notes to Pro Forma Condensed Combined Financial
Statements (Unaudited)
(iii) Exhibits
(23) Consent of Arthur Andersen LLP
The Corporation filed a Current Report on Form 8-K with the
Securities and Exchange Commission dated August 15, 1995,
referencing under Item 5 the above noted Current Reports on
Form 8-K dated July 11, 1995 and July 21, 1995, and filing
under Item 7 the following Financial Statements:
(i) Financial Statements of Business Acquired
The following financial statements of First Chicago
Corporation and subsidiaries:
Consolidated Interim Balance Sheet - June 30, 1995 and
1994 (Unaudited)
Consolidated Interim Statement of Income - Three and
Six Months Ended June 30, 1995 and 1994 (Unaudited)
Consolidated Interim Statement of Changes in
Stockholders' Equity - Six Months Ended June 30, 1995
and 1994 (Unaudited)
Consolidated Interim Statement of Cash Flows - Six
Months Ended June 30, 1995 and 1994 (Unaudited)
Notes to Consolidated Interim Financial Statements
(Unaudited)
(ii) Pro Forma Financial Information
The following pro forma condensed combined financial
statements (unaudited) of the Corporation reflecting
the proposed merger with First Chicago Corporation:
<PAGE>
Page 30
PART II - OTHER INFORMATION (cont'd.)
Pro Forma Condensed Combined Balance Sheet - June 30,
1995 (Unaudited)
Pro Forma Condensed Combined Statement of Income - Six
Months Ended June 30, 1995 and 1994 (Unaudited)
Notes to Pro Forma Condensed Combined Financial
Statements (Unaudited)
The Corporation filed a Current Report on Form 8-K with the
Securities and Exchange Commission dated September 18, 1995,
reporting under Item 4 the change in the Corporation's
certifying accountant from Deloitte & Touche LLP to Arthur
Andersen LLP, effective as of September 18, 1995.
The Corporation filed a Current Report on Form 8-K with the
Securities and Exchange Commission dated October 20, 1995,
reporting under Item 5 the following events:
The October 20, 1995, stockholder approval of the Corporation's
proposed merger with First Chicago Corporation; management's
expectation of the completion date of the proposed merger to be
November 30, 1995; and the related combined dividend dates.
The November 7, 1995, Board of Governors of the Federal
Reserve System approval of the Corporation's application for
the merger with First Chicago Corporation.
The November 10, 1995, announcement of the appointments to
the Board of Directors of First Chicago NBD Corporation
following the effective date of the Corporation's proposed
merger with First Chicago Corporation, and the appointments
to the Board of Directors of the First National Bank of
Chicago and NBD Bank (Michigan).
<PAGE>
Page 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NBD BANCORP, INC.
-----------------
(Registrant)
By: /s/ Philip S. Jones
-------------------
Philip S. Jones
Executive Vice President,
Treasurer and
Chief Financial Officer
By: /s/ Gerald K. Hanson
---------------------
Gerald K. Hanson
Senior Vice President
and Comptroller
November 13, 1995
<TABLE>
<CAPTION>
Exhibit (11)
NBD Bancorp, Inc. Consolidated Earnings Per Share Computation
(in thousands except per share data)
Quarter Ended Nine Months Ended
September 30 September 30
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
Primary:
- ----------
<S> <C> <C> <C> <C>
Net Income..................................... $ 149,550 $ 147,654 $ 433,883 $ 390,139
========== ========== ========== ==========
Average Shares Outstanding..................... 159,973 157,230 158,819 159,315
Adjustment:
Shares Applicable to Common Stock Options.... 537 437 398 369
---------- ---------- ---------- ----------
Shares Applicable to Primary Earnings.......... 160,510 157,667 159,217 159,684
========== ========== ========== ==========
Fully Diluted:
- -------------
Net Income..................................... $ 149,550 $ 147,654 $ 433,883 $ 390,139
Adjustment:
Interest on 7.25% Convertible Debentures..... - - - 3,052
Tax Effect on Above.......................... - - - (1,068)
---------- ---------- ---------- ----------
Net Adjustment............................... - - - 1,984
---------- ---------- ---------- ----------
Adjusted Net Income Applicable
to Common Stock.............................. $ 149,550 $ 147,654 $ 433,883 $ 392,123
========== ========== ========== ==========
Average Shares Outstanding..................... 159,973 157,230 158,819 159,315
Adjustment:
Shares Applicable to Convertible Debentures.. - - - 1,759
Shares Applicable to Common Stock Options.... 692 437 712 397
---------- ---------- ---------- ----------
Shares Applicable to Fully Diluted Earnings.... 160,665 157,667 159,531 161,471
========== ========== ========== ==========
Per Share Data:
- ---------------
Primary-Net Income per Share of Common Stock..... $ 0.94 $ 0.93 $ 2.73 $ 2.44
========== ========== ========== ==========
Fully Diluted - Net Income per Share of
Common Stock.................................. $ 0.93 $ 0.93 $ 2.72 $ 2.43
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,540,295
<INT-BEARING-DEPOSITS> 668,931
<FED-FUNDS-SOLD> 210,147
<TRADING-ASSETS> 205,051
<INVESTMENTS-HELD-FOR-SALE> 2,868,502
<INVESTMENTS-CARRYING> 6,831,803
<INVESTMENTS-MARKET> 6,963,401
<LOANS> 33,412,792
<ALLOWANCE> 487,726
<TOTAL-ASSETS> 48,501,646
<DEPOSITS> 33,698,663
<SHORT-TERM> 6,940,959
<LIABILITIES-OTHER> 813,398
<LONG-TERM> 3,111,426
<COMMON> 160,883
0
0
<OTHER-SE> 3,592,419
<TOTAL-LIABILITIES-AND-EQUITY> 48,501,646
<INTEREST-LOAN> 2,069,298
<INTEREST-INVEST> 577,467
<INTEREST-OTHER> 47,063
<INTEREST-TOTAL> 2,693,828
<INTEREST-DEPOSIT> 928,129
<INTEREST-EXPENSE> 1,410,055
<INTEREST-INCOME-NET> 1,283,773
<LOAN-LOSSES> 65,225
<SECURITIES-GAINS> 3,177
<EXPENSE-OTHER> 986,818
<INCOME-PRETAX> 658,758
<INCOME-PRE-EXTRAORDINARY> 433,883
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433,883
<EPS-PRIMARY> 2.73
<EPS-DILUTED> 2.72
<YIELD-ACTUAL> 4.03
<LOANS-NON> 162,083
<LOANS-PAST> 47,768
<LOANS-TROUBLED> 18,983
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 435,051
<CHARGE-OFFS> 81,516
<RECOVERIES> 59,828
<ALLOWANCE-CLOSE> 487,726
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 487,726
</TABLE>
