<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
July 21, 1995
NBD Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-7127 38-1984850
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
611 Woodward Avenue, Detroit, Michigan 48226
Registrant's telephone number, including area code: (313) 225-1000
<PAGE> 2
Item 5. Other Events
Reference is made to the Current Report on Form 8-K filed by the
Registrant on July 19, 1995, announcing the signing of a definitive
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.
Item 7. Financial Statements and Exhibits
The following documents are filed as a part of this Report:
(a) 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 -
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)
Notes to Consolidated Interim Financial Statements (Unaudited)
(b) Pro Forma Financial Information
The following pro forma combined condensed financial statements
(unaudited) of NBD Bancorp, Inc. and subsidiaries 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)
<PAGE> 3
(c) Exhibits
(23) Consent of Arthur Andersen LLP
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.
By: /s/ DANIEL T. LIS
----------------------
Daniel T. Lis
Senior Vice President and
Secretary
Dated: July 21, 1995
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of First Chicago Corporation:
We have audited the accompanying consolidated balance sheet of First Chicago
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Chicago Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles.
As explained in Note 1(c) and 1(q) to the consolidated financial statements,
effective January 1, 1992, the Corporation changed its methods of accounting
for the valuation of venture capital investment securities and recognition of
certain credit card solicitation costs.
/s/ Arthur Andersen LLP
Chicago, Illinois
January 17, 1995
<PAGE> 5
<TABLE>
<CAPTION>
C O N S O L I D A T E D B A L A N C E S H E E T
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
____________________________________________________________________________________________________________________
December 31 (Dollars in millions) 1994 1993
____________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________
<S> <C> <C>
ASSETS
Cash and due from banks--noninterest-bearing....................................... $ 4,265 $ 3,916
Due from banks--interest-bearing................................................... 8,066 6,037
Federal funds sold and securities under resale agreements.......................... 13,302 8,783
Trading account assets............................................................. 4,967 4,536
Investment securities (fair values--$2,589 in 1994 and $2,264 in 1993)............. 2,592 2,256
Loans (net of unearned income--$297 in 1994 and $282 in 1993)...................... 25,947 23,103
Less allowance for credit losses................................................. 723 683
------- ------
Total loans, net................................................................. 25,224 22,420
Premises and equipment............................................................. 665 635
Accrued income receivable.......................................................... 485 407
Customers' acceptance liability.................................................... 526 517
Derivative product assets.......................................................... 4,389 -
Other assets....................................................................... 1,419 3,053
------- -------
Total assets............................................................. $65,900 $52,560
======= =======
____________________________________________________________________________________________________________________
LIABILITIES
Deposits
Demand........................................................................... $ 7,647 $ 8,184
Savings.......................................................................... 7,448 7,541
Time............................................................................. 5,149 4,925
Foreign offices.................................................................. 11,422 7,536
------- --------
Total deposits........................................................... 31,666 28,186
Federal funds purchased and securities under repurchase agreements................. 13,026 8,255
Other funds borrowed............................................................... 7,665 6,007
Long-term debt..................................................................... 2,271 2,065
Acceptances outstanding............................................................ 526 517
Derivative product liabilities..................................................... 4,097 -
Other liabilities.................................................................. 2,116 3,266
------- --------
Total liabilities........................................................ 61,367 48,296
____________________________________________________________________________________________________________________
STOCKHOLDERS' EQUITY
Preferred stock--without par value, authorized 15,000,000 shares
Outstanding:
____________________________________________________________________________________
1994 1993
____________________________________________________________________________________
Series A ($50 stated value)................. 2,410,000 2,410,000 121 121
Series B ($100 stated value)................ 1,191,000 1,191,000 119 119
Series C ($100 stated value)................ 713,800 713,800 71 71
Series D ($25 stated value)................. - 6,000,000 - 150
Series E ($625 stated vaue)................. 160,000 160,000 100 100
Convertible Series B ($5,000 stated value).. 40,000 40,000 200 200
Common stock--$5 par value......................................................... 466 434
____________________________________________________________________________________
1994 1993
____________________________________________________________________________________
Number of shares authorized.............. 150,000,000 150,000,000
Number of shares issued.................. 93,148,134 86,715,812
Number of shares outstanding............. 89,859,798 86,398,605
Surplus............................................................................ 1,712 1,724
Retained earnings.................................................................. 1,905 1,358
Other adjustments.................................................................. (4) -
------- -------
Total.................................................................... 4,690 4,277
Less treasury stock at cost, 3,288,336 shares in 1994 and 317,207 shares in 1993... 157 13
____________________________________________________________________________________________________________________
Stockholders' equity..................................................... 4,533 4,264
------- -------
Total liabilities and stockholders' equity............................... $65,900 $52,560
======= =======
____________________________________________________________________________________________________________________
The accompanying notes to consolidated financial statements are an integral part of this balance sheet.
</TABLE>
42
<PAGE> 6
<TABLE>
<CAPTION>
C O N S O L I D A T E D I N C O M E S T A T E M E N T
First Chicago Corporation and Subsidiaries
____________________________________________________________________________________________________________________________________
For the Year (In millions, except per share data) 1994 1993 1992
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans....................................................... $1,897.2 $1,687.4 $1,894.4
Interest on bank balances........................................................ 361.7 298.0 358.0
Interest on federal funds sold and securities under resale agreements............ 615.2 344.8 284.8
Interest on trading account assets............................................... 277.7 221.9 259.0
Interest on investment securities (including dividends).......................... 68.2 72.0 73.4
------- ------- -------
Total.................................................................. 3,220.0 2,624.1 2,869.6
____________________________________________________________________________________________________________________________________
INTEREST EXPENSE
Interest on deposits............................................................. 779.5 644.1 973.7
Interest on federal funds purchased and securities under repurchase agreements... 526.2 308.1 345.3
Interest on other funds borrowed................................................. 413.2 295.8 240.7
Interest on long-term debt....................................................... 170.1 150.3 126.9
--------- --------- ---------
Total.................................................................. 1,889.0 1,398.3 1,686.6
____________________________________________________________________________________________________________________________________
NET INTEREST INCOME.............................................................. 1,331.0 1,225.8 1,183.0
Provision for credit losses...................................................... 224.0 270.0 425.0
Provision for loans held for accelerated disposition............................. - - 491.0
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
AND PROVISION FOR LOANS HELD FOR ACCELERATED DISPOSITION....................... 1,107.0 955.8 267.0
____________________________________________________________________________________________________________________________________
NONINTEREST INCOME
Combined trading profits......................................................... 65.7 284.6 177.3
Equity securities gains.......................................................... 228.6 480.2 204.6
Investment securities gains...................................................... 1.2 0.3 8.6
--------- --------- ---------
Market-driven revenue.......................................................... 295.5 765.1 390.5
Credit card fee revenue.......................................................... 832.1 694.2 516.1
Service charges and commissions.................................................. 421.9 432.5 381.0
Fiduciary and investment management fees......................................... 199.2 200.7 189.8
Net gains from accelerated disposition portfolio activities...................... 45.9 60.0 -
Other income..................................................................... 80.0 49.9 10.8
--------- --------- ---------
Total.................................................................. 1,874.6 2,202.4 1,488.2
____________________________________________________________________________________________________________________________________
NONINTEREST EXPENSE
Salaries and employee benefits................................................... 868.9 853.9 748.0
Occupancy expense of premises, net............................................... 137.3 147.7 186.0
Equipment rentals, depreciation and maintenance.................................. 157.4 110.3 111.2
Other expense.................................................................... 753.3 742.0 719.2
--------- --------- ---------
Subtotal............................................................... 1,916.9 1,853.9 1,764.4
Provision for other real estate held for accelerated disposition................. - - 134.0
Provision for other real estate.................................................. 1.7 4.2 56.9
--------- --------- ---------
Total.................................................................. 1,918.6 1,858.1 1,955.3
____________________________________________________________________________________________________________________________________
INCOME (LOSS) BEFORE INCOME TAXES................................................ 1,063.0 1,300.1 (200.1)
Applicable income taxes (benefit)................................................ 373.3 495.6 (85.6)
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES....... 689.7 804.5 (114.5)
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES--
VALUATION OF VENTURE CAPITAL INVESTMENT SECURITIES............................. - - 220.7
RECOGNITION OF CREDIT CARD SOLICITATION COSTS.................................. - - (12.7)
-------- -------- --------
NET INCOME....................................................................... $ 689.7 $ 804.5 $ 93.5
======== ======== ========
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY........................... $ 637.5 $ 747.5 $ 48.9
======== ======== ========
COMMON SHARE DATA
PRIMARY
Income (loss) before cumulative effect of changes in accounting principles... $7.04 $8.78 $(2.08)
Cumulative effect of changes in accounting principles--
Valuation of venture capital investment securities......................... - - 2.89
Recognition of credit card solicitation costs.............................. - - (0.17)
----- ----- ------
Net income................................................................... $7.04 $8.78 $ 0.64
===== ===== ======
FULLY DILUTED
Income (loss) before cumulative effect of changes in accounting principles... $6.88 $8.43 $(2.08)
Cumulative effect of changes in accounting principles--
Valuation of venture capital investment securities......................... - - 2.89
Recognition of credit card solicitation costs.............................. - - (0.17)
----- ----- ------
Net income................................................................... $6.88 $8.43 $ 0.64
===== ===== ======
_____________________________________________________________________________________________________________________
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
43
<PAGE> 7
<TABLE>
<CAPTION>
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N S T O C K H O L D E R S' E Q U I T Y
First Chicago Corporation and Subsidiaries
___________________________________________________________________________________________________________________________________
For the Three Years Ended December 31, 1994 Treasury
Preferred Common Retained Other Stock
(In millions) Stock Stock Surplus Earnings Adjustments (at Cost) Total
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991.................. $ 569 $345 $1,297 $ 760 $ 3 $ (4) $2,970
Net income................................ - - - 94 - - 94
Issuance of common stock.................. - 67 306 - - - 373
Issuance of preferred stock............... 100 - (4) - - - 96
Cash dividends declared
Preferred stock......................... - - - (44) - - (44)
Common stock............................ - - - (89) - - (89)
Other..................................... - - - - (2) 3 1
__________________________________________________________________________________________________________________________________
Balance, December 31, 1992.................. $ 669 $412 $1,599 $ 721 $ 1 $ (1) $3,401
Net income................................ - - - 804 - - 804
Issuance of common stock.................. - 7 37 - - - 44
Issuance of preferred stock............... 200 - (4) - - - 196
Redemption of preferred stock............. (108) 15 92 - - - (1)
Cash dividends declared
Preferred stock......................... - - - (57) - - (57)
Common stock............................ - - - (110) - - (110)
Treasury stock purchases.................. - - - - - (12) (12)
Other..................................... - - - - (1) - (1)
___________________________________________________________________________________________________________________________________
Balance, December 31, 1993.................. $ 761 $434 $1,724 $1,358 $ - $ (13) $4,264
Net income................................ - - - 690 - - 690
Issuance of common stock.................. - 1 12 - - - 13
Issuance of treasury stock................ - - (38) - - 87 49
Redemption of preferred stock............. (150) - - - - - (150)
Acquisition of Lake Shore Bancorp......... - 31 18 78 (4) - 123
Cash dividends declared
Preferred stock......................... - - (4) (48) - - (52)
Common stock............................ - - - (173) - - (173)
Treasury stock purchases.................. - - - - - (231) (231)
___________________________________________________________________________________________________________________________________
BALANCE, DECEMBER 31, 1994.................. $ 611 $466 $1,712 $1,905 $(4) $(157) $4,533
===== ==== ====== ====== === ===== ======
___________________________________________________________________________________________________________________________________
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
44
<PAGE> 8
<TABLE>
<CAPTION>
__________________________________________________________________________________________________________________________________
C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
First Chicago Corporation and Subsidiaries
__________________________________________________________________________________________________________________________________
For the Year (In millions) 1994 1993 1992
__________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................................ $ 690 $ 804 $ 94
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization....................................................... 175 188 173
Combined credit provisions (including accelerated disposition provision)............ 226 274 1,107
Equity securities gains............................................................. (229) (480) (205)
Net (increase) in net derivative product balances................................... (57) - -
Net gains from accelerated disposition portfolio activities......................... (46) (60) -
Cumulative effect of changes in accounting principles............................... - - (208)
Net (increase) in trading account assets............................................ (416) (1,224) (1,346)
Net (increase) decrease in accrued income receivable................................ (78) (51) 174
Net decrease in other assets........................................................ 51 76 678
Interest income from Brazilian debt restructuring................................... (17) - -
Other noncash adjustments........................................................... 69 6 (87)
--------- -------- ---------
Total adjustments................................................................... (322) (1,271) 286
Net cash provided by (used in) operating activities................................... 368 (467) 380
__________________________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) in federal funds sold and securities under resale agreements........... (4,506) (1,891) (1,684)
Purchase of investment securities..................................................... - (3,068) (1,202)
Purchase of investment securities--available for sale................................. (1,287) - -
Purchase of debt investment securities--held to maturity.............................. (289) - -
Purchase of venture capital investments............................................... (181) - -
Proceeds from maturities of debt securities........................................... - 3,047 703
Proceeds from maturities of debt securities--available for sale....................... 982 - -
Proceeds from maturities of debt securities--held to maturity......................... 299 - -
Proceeds from sales of debt securities................................................ - - 366
Proceeds from sales of debt securities--available for sale............................ 191 - -
Proceeds from sales of equity securities.............................................. - 598 244
Proceeds from sales of equity securities--available for sale.......................... 54 - -
Proceeds from sales of venture capital investments.................................... 333 - -
Net (increase) in credit card receivables............................................. (2,880) (3,493) (1,515)
Credit card receivables securitized................................................... 2,000 1,700 1,000
Net (increase) decrease in loans of bank subsidiaries................................. (1,480) 973 1,186
Loans made to customers and purchased from others by nonbank subsidiaries............. (499) (142) (181)
Principal collected on and proceeds from sale of loans by nonbank subsidiaries........ 506 302 377
Loan recoveries....................................................................... 74 97 88
Net proceeds from sales of assets held for accelerated disposition.................... 112 829 174
Purchases of premises and equipment................................................... (170) (213) (151)
Proceeds from sales of premises and equipment......................................... 38 71 63
Net cash and cash equivalents due to mergers and acquisitions......................... 44 - -
-------- ------ ------
Net cash (used in) investing activities............................................... (6,659) (1,190) (532)
__________________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease)in demand and savings deposits................................ (934) 525 1,934
Net (decrease) in time deposits....................................................... (470) (1,342) (3,269)
Deposits acquired..................................................................... - 12 -
Net increase (decrease) in deposits in foreign offices................................ 3,799 (687) (978)
Net increase in federal funds purchased and securities under repurchase agreements.... 4,722 1,293 1,817
Net (decrease) in commercial paper.................................................... (17) (8) (54)
Proceeds from other funds borrowed.................................................... 249,952 80,869 110,418
Repayment of other funds borrowed..................................................... (248,139) (79,024) (109,134)
Proceeds from issuance of long-term debt.............................................. 204 826 234
Repayment of long-term debt........................................................... (10) (471) (257)
Net increase (decrease) in other liabilities.......................................... 2 285 (1,102)
Dividends paid........................................................................ (211) (158) (145)
Proceeds from issuance of common stock................................................ 12 41 375
Proceeds from reissuance of treasury stock............................................ 39 4 6
Purchase of treasury stock............................................................ (231) (13) (1)
Proceeds from issuance of preferred stock............................................. - 196 96
Payment for redemption of preferred stock............................................. (150) (1) -
--------- -------- ---------
Net cash provided by (used in) financing activities................................... 8,568 2,347 (60)
__________________________________________________________________________________________________________________________________
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.......................... 101 (75) (45)
__________________________________________________________________________________________________________________________________
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 2,378 615 (257)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................................ 9,953 9,338 9,595
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.............................................. $ 12,331 $ 9,953 $ 9,338
========= ======== =========
__________________________________________________________________________________________________________________________________
Interest paid in cash by the Corporation totaled $1.8 billion in 1994, $1.4 billion in 1993 and $1.9 billion in 1992. Income
taxes paid in cash by the Corporation totaled $355 million in 1994, $175 million in 1993 and $50 million in 1992.
The Corporation financed the sale of other real estate in the amount of $2 million, $2 million and $135 million in 1994, 1993
and 1992, respectively. Loans transferred to other real estate were $20 million, $51 million and $192 million in 1994, 1993
and 1992, respectively.
The accompanying notes to consolidated financial statements are an integral part of this statement.
</TABLE>
45
<PAGE> 9
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
First Chicago Corporation and Subsidiaries
_______________________________________________________________________________
N O T E 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements for First Chicago Corporation (the
Corporation) and subsidiaries have been prepared in conformity with generally
accepted accounting principles. A description of those accounting policies of
particular significance follows.
(A) PRINCIPLES OF CONSOLIDATION
The Corporation's consolidated financial statements include the accounts of
all subsidiaries more than 50% owned. All significant intercompany accounts
and transactions have been eliminated in consolidation.
(B) INTANGIBLE ASSETS
Goodwill, representing the cost of investments in subsidiaries and affiliated
companies in excess of the fair value of net assets acquired, is amortized on
a straight-line basis over periods ranging from 10 to 25 years.
Other intangible assets, such as the value of acquired customer lists, core
deposits and credit card relationships, are amortized using various methods
over the periods benefited, ranging from 5 to 17 years.
(C) INVESTMENT SECURITIES
In 1993, the Corporation adopted Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities, for debt and equity securities except those held by its venture
capital subsidiaries. This adoption did not have a material impact on the
Corporation's financial statements.
Under SFAS No. 115, debt investment securities are designated as either held
to maturity or available for sale at the time of acquisition and are
reevaluated to determine appropriate classification in subsequent reporting
periods. Debt securities that the Corporation has the positive intent and
ability to hold to maturity are carried at historical cost, adjusted for
amortization of premiums and accretion of discounts. Previously, such
accounting treatment was applied to debt securities that were intended to be
held as long-term investments. All other debt and equity investment
securities covered by SFAS No. 115 are classified as available for sale and
are carried at fair value, with unrealized gains and losses and applicable
income taxes reported in other adjustments in stockholders' equity.
Previously, these securities were carried at the lower of cost or fair value.
Realized gains and losses and other than temporary impairments related to debt
and equity securities, are determined using the specific identification method
and are reported in noninterest income as investment securities gains for debt
securities and as equity securities gains for equity securities.
The Corporation adopted fair value accounting for investments of its venture
capital subsidiaries on January 1, 1992. Changes in the fair value of such
investments are recognized in noninterest income as equity securities gains.
Previously, such investments were carried at the lower of aggregate cost or
fair value.
The fair value of publicly traded investments takes into account their quoted
market prices with adjustments made for market liquidity or sale restrictions.
For investments that are not publicly traded, estimates of fair value have
been made by management that consider the investees' financial results,
conditions and prospects, and the values of comparable public companies.
Because of the nature of these investments, the equity method of accounting is
not used in situations where the Corporation has a greater than 20% ownership
interest.
46
<PAGE> 10
(D) TRADING ACCOUNT ACTIVITIES
Trading account assets are stated at fair value. Realized and unrealized
gains and losses on trading account activities are reflected in noninterest
income as combined trading profits.
Combined trading profits include interest rate, exchange rate, commodity
price, and equity price trading results from both cash and derivative
financial instruments, excluding equity securities and related hedges. Cash
financial instruments include U.S. government and agency obligations,
municipal obligations, asset-backed securities, and other types of securities,
loans and deposits. Derivative financial instruments include swaps, forwards,
futures, options, caps, floors, forward rate agreements, and other conditional
or exchange contracts. The table below reports the Corporation's net
trading revenue by activity, including both combined trading profits and
related net interest income.
<TABLE>
<CAPTION>
________________________________________________________________________
Trading Revenue (In millions) 1994 1993 1992
________________________________________________________________________
<S> <C> <C> <C>
Foreign exchange and derivatives............ $ 40 $ 98 $103
Fixed income and derivatives................ 66 114 94
Emerging markets............................ (49) 57 21
Funding and arbitrage....................... 39 63 74
Other trading............................... 34 55 40
____ ____ ____
Total..................................... $130 $387 $332
==== ==== ====
________________________________________________________________________
</TABLE>
(E) DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments used in trading and venture capital activities
are valued at prevailing market rates on a present value basis. Realized and
unrealized gains and losses are included in noninterest income as combined
trading profits and equity securities gains. Where appropriate, compensation
for credit risk and ongoing servicing is deferred and taken into income over the
term of the derivatives. Any gain or loss on the early termination of an
interest rate swap used in trading activities is recognized currently in
combined trading profits.
Income or expense on most derivative financial instruments used to manage
interest rate exposure is recorded on an accrual basis as an adjustment to the
yield of the related interest rate exposures over the periods covered by the
contracts. If an interest rate swap that is used to manage interest rate risk
is terminated early, any resulting gain or loss is deferred and amortized as an
adjustment to the yield of the underlying interest rate exposure position over
the remaining periods originally covered by the terminated swap.
In general, purchased option, cap and floor contracts are reported in derivative
product assets, and written option, cap and floor contracts are reported in
derivative product liabilities. For other derivative financial instruments, an
unrealized gain is reported in derivative product assets and an unrealized loss
is reported in derivative product liabilities. Derivative financial instruments
executed with the same counterparty under a legally enforceable master netting
arrangement are reported on a net basis as derivative product assets or
liabilities.
(F) NONPERFORMING LOANS
Loans, including lease-financing receivables, are considered nonperforming
when placed on nonaccrual status, or when a loan is renegotiated and the
renegotiated terms represent an economic concession to the borrower.
A loan, excluding a credit card loan, is placed on nonaccrual status when the
collection of contractual principal or interest is deemed doubtful by
management or becomes 90 days or more past due, and the loan is not well
secured or in the process of collection. Accrued but uncollected interest on
a loan is reversed and charged against interest income when the loan is placed
on nonaccrual status. Accrued but uncollected interest on a credit card loan
is charged against interest income when the loan becomes 180 days past due.
Interest payments received on nonaccrual loans are recorded as reductions of
principal if the collection of the remaining carrying amount is doubtful;
otherwise, such payments are recorded as interest income.
An economic concession on a renegotiated loan is made when the yield under the
renegotiated terms is reduced below current market rates by an agreement with
the borrower. Generally, this occurs when the borrower's cash flow is
insufficient to service the loan under its original terms. Subject to the
above nonaccrual policy, interest on these loans is accrued at the reduced
rates.
(G) CREDIT CARD SECURITIZATION
The Corporation actively packages and sells credit card receivables as
securities to investors. Since the receivables are sold at par value, no
gains or losses are recorded at the time of sale.
The amount of credit card interest income and fee revenue in excess of
interest paid to certificate holders, credit losses and other trust expenses
is recognized monthly as servicing fees in credit card fee revenue over the
term of the transaction. Other transaction costs are deferred and amortized
ratably as a reduction of servicing fees over the terms of the related
securitizations.
47
<PAGE> 11
(H) OTHER REAL ESTATE
Other real estate includes assets that have been either acquired in
satisfaction of debt (assets owned) or substantively repossessed (in-substance
foreclosures). In-substance foreclosures occur when the market value of the
collateral is less than the legal obligation of the borrower and the
Corporation expects repayment of the loan to come only from collateral. Other
real estate is recorded at fair value at the date of transfer. Any valuation
adjustments required at the date of transfer are charged to the allowance for
credit losses. Subsequent to acquisition, other real estate is carried at the
lower of cost or fair value, based on periodic evaluations that consider
changes in market conditions, development and disposition costs, and estimated
holding periods. Operating results from assets acquired in satisfaction of
debt, including rental income less operating costs and depreciation, are
recorded in other noninterest income.
(I) ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level that in management's
judgment is adequate to provide for estimated probable credit losses resulting
from on-balance-sheet credit exposure for items such as loans and derivative
financial instruments, and off-balance-sheet credit exposure for credit-
related and derivative financial instruments. The amount of the allowance is
based on management's formal review and analysis of potential credit losses,
as well as prevailing economic conditions. The allowance is increased by
provisions for credit losses, which are charged to earnings, and is reduced by
charge-offs net of recoveries.
(J) ASSETS HELD FOR ACCELERATED DISPOSITION
In 1992, the Corporation segregated certain commercial real estate assets and
related commitments in an accelerated disposition portfolio. The Corporation
transferred assets to this portfolio at their estimated disposition values.
The assets in this portfolio are carried at the lower of the initially
established carrying values or newly estimated disposition values. The credit
and valuation process related to this portfolio is performed quarterly to
assess the ongoing condition of each individual credit, to determine any
change in credit risk classification, and to determine the need, if any, for
additional valuation adjustments. Income recognition is based on the credit
characteristics of the individual assets in the disposition portfolio. Net
gains as a result of transaction activity related to disposition portfolio
assets are included in noninterest income.
(K) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization, which are computed principally on the straight-line method over
the estimated useful lives of the related assets. Gains and losses on
dispositions are reflected in other noninterest income. Maintenance and
repairs are charged to noninterest expense as incurred.
(L) FOREIGN CURRENCY TRANSLATION
The Corporation's translation policies are based on a determination of the
primary operating currency (functional currency) for each foreign
installation. If a foreign installation's functional currency is the U.S.
dollar, assets and liabilities carried in local currency are translated to
U.S. dollars at current exchange rates except for premises and equipment,
which are translated at historic rates. Translation effects and results of
related hedging transactions, neither of which is material, are included in
other noninterest income.
If the foreign installation's functional currency is its local currency, all
assets and liabilities are translated at current exchange rates. Translation
adjustments, related hedging results and applicable income taxes are included
in other adjustments within stockholders' equity. If a foreign installation
is to be sold or liquidated, the related accumulated other adjustments balance
is reversed and recognized as part of the gain or loss on disposition.
48
<PAGE> 12
Operating results of foreign installations are translated at averages of
exchange rates prevailing during the year. The interest element of hedging
transactions is included in interest expense.
(M) INCOME TAXES
The Corporation's accounting for income taxes is based on an asset and
liability approach. The Corporation recognizes the amount of taxes payable or
refundable for the current year, and deferred tax assets and liabilities for
the future tax consequences that have been recognized in its financial
statements or tax returns. The measurement of tax assets and liabilities is
based on the provisions of enacted tax laws.
(N) FEES RELATED TO LENDING ACTIVITIES
Lending origination fees, net of costs, and loan commitment fees, in general,
are deferred and amortized as interest income over the life of the related
loan. The deferred fees and costs are netted against outstanding loan
balances. Certain credit-related fees, such as syndication management fees,
commercial letters of credit fees, and fees on unused, available lines of
credit, are recorded as service charges and commissions in noninterest income
when earned. Fees on standby letters of credit and guarantees are recorded as
service charges and commissions on a straight-line basis over the term of the
related agreements.
(O) PENSION, OTHER POSTRETIREMENT AND POSTEMPLOYMENT PLANS
The Corporation maintains a noncontributory defined benefit plan covering all
eligible, salaried domestic employees. Retirement benefits are primarily a
function of both an employee's years of service and final levels of
compensation. The Corporation's funding policy is to contribute an amount
equal to the net periodic pension cost for the year, but not less than the
minimum required by ERISA or more than the maximum tax deductible amount based
on IRS limits. For 1994, no contribution was required.
Net experience gains and losses are amortized over three years. Settlement
gains, which occur when vested former employees elect to receive lump sum cash
payments, are recorded as net periodic pension credits. Such gains represent
the accelerated recognition of the transition asset and net experience gains
and losses.
Employees in foreign offices participate to varying degrees in local pension
plans, the forms of which are often prescribed by local laws and customs.
These plans in the aggregate are not significant.
The Corporation has no material other postretirement or postemployment
obligations.
(P) OFFSETTING OF AMOUNTS RELATED TO CERTAIN CONTRACTS
In 1994, the Corporation prospectively adopted Financial Accounting Standards
Board (FASB) Interpretation No. 39, Offsetting of Amounts Related to Certain
Contracts. This interpretation is applicable to the balance sheet
presentation of derivative financial instruments. These derivatives include
interest rate, currency, commodity and equity swaps, forwards, options, caps,
floors, forward rate agreements, and other conditional or exchange contracts,
and include both exchange-traded and over-the-counter contracts.
In general, purchased option, cap and floor contracts are reported in
derivative product assets, and written option, cap and floor contracts are
reported in derivative product liabilities. For other derivative financial
instruments, an unrealized gain is reported in derivative product assets and
an unrealized loss is reported in derivative product liabilities. Previously,
the Corporation reported certain unrealized gains and unrealized losses on a
net basis.
Derivative financial instruments executed with the same counterparty under a
legally enforceable master netting arrangement are reported on a net basis as
derivative product assets or liabilities.
At December 31, 1993, the fair value of currency options purchased totaled
$536 million, while the fair value of currency options written totaled
$501 million. These amounts are recorded in other assets and other
liabilities, respectively.
49
<PAGE> 13
FASB Interpretation No. 41, Offsetting of Amounts Related to Certain
Repurchase and Reverse Repurchase Agreements, was issued in December 1994.
This interpretation is effective for 1994 financial statements. It modifies
FASB Interpretation No. 39 to permit but not require offsetting in the balance
sheet of securities under repurchase agreements and securities under resale
agreements that meet certain conditions. Net receivable positions may not be
offset against net payable positions. The Corporation has not adopted this
interpretation in 1994; however, it may be adopted in a subsequent reporting
period pending a review of its potential effect on the Corporation.
(Q) ACCOUNTING FOR CREDIT CARD SOLICITATION COSTS
The Corporation changed its accounting policy in 1992 to expense certain
credit card solicitation costs. Previously, these costs were deferred and
amortized over the estimated life of the account. The Corporation made this
change to reflect the more prevalent industry practice.
(R) CASH FLOW REPORTING
The Corporation uses the indirect method to report cash flows from operating
activities. Under this method, net income is adjusted to reconcile it to net
cash flow from operating activities. Net reporting of cash transactions has
been used when the balance sheet items consist predominantly of maturities of
three months or less, or where otherwise permitted. Other items are reported
on a gross basis. Cash flows related to sales of debt investment securities
within three months of the maturity date are classified as maturities in the
consolidated statement of cash flows. Cash and cash equivalents consist of
cash and due from banks, whether interest-bearing or not.
Cash flows from derivative financial instruments are reported net as operating
activities. Upon adopting FASB Interpretation No. 39 on January 1, 1994, a
noncash transfer of balances attributable to derivative financial instruments
on December 31, 1993 was made from other assets ($573 million), accrued income
receivable ($941 million) and other liabilities ($1.3 billion) to net
derivative product balances for purposes of reporting the Consolidated
Statement of Cash Flows.
(S) ACCOUNTING FOR LOAN IMPAIRMENT
In May 1993, the FASB issued SFAS No. 114, Accounting by Creditors for
Impairment of a Loan. This standard was recently amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosure. SFAS No. 114 addresses the accounting for loans when it is
probable that all principal and interest amounts due will not be collected in
accordance with its contractual terms (i.e. "impaired loans"). Pursuant to
SFAS No. 114, to the extent the recorded investment of an impaired loan
exceeds the present value of the loan's expected future cash flows or other
measures of value, a valuation allowance is established for the difference.
The corresponding allocation or charge will be to either the allowance for
credit losses or to the provision for credit losses, respectively, depending
on the adequacy of the overall allowance for credit losses. SFAS No. 114 also
changes the definition of In-Substance Foreclosures (ISFs), which will result
in currently reported ISFs being reclassified as nonaccrual loans. SFAS No.
118 allows for existing income recognition practices to continue.
The Corporation has adopted SFAS No. 114 and SFAS No. 118 as of January 1,
1995. It is expected that the adoption of these standards will not have a
material effect on the Corporation's net income. The allowance for credit
losses allocated to impaired loans is estimated at $26 million.
The January 1, 1995, aggregate recorded investment of loans that will be
reclassified from ISFs to nonaccrual loans is approximately $15 million. In
general, the Corporation will retain its existing income recognition practices
as described in Note 1(f) on page 47.
50
<PAGE> 14
N O T E 2 -- EARNINGS PER SHARE
The Corporation presents earnings per share on both a primary and a fully
diluted basis. Primary earnings per share were computed by dividing net
income, after deducting dividends on preferred stock, by the average number of
common and common-equivalent shares outstanding during the period.
Common-equivalent shares consist of shares issuable under the Employee Stock
Purchase and Savings Plan and outstanding stock options. Fully diluted shares
also include the common shares that would result from the conversion of
convertible preferred stock.
To compute fully diluted earnings per share, net income was reduced by
preferred stock dividend requirements, except those related to convertible
stock.
The net income, preferred stock dividends and shares used to compute primary
and fully diluted earnings per share are presented in the following table.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
(In millions) 1994 1993 1992
____________________________________________________________________________________________________
<S> <C> <C> <C>
PRIMARY
Net income............................ $689.7 $804.5 $93.5
Preferred stock dividends (1)......... 52.2 57.0 44.6
------ ------ -----
Net income attributable to common
stockholders' equity................. $637.5 $747.5 $48.9
====== ====== =====
Average number of common and
common-equivalent shares............. 90.5 85.2 76.5
FULLY DILUTED
Net income............................ $689.7 $804.5 N/M
Preferred stock dividends, excluding
convertible Series A and B, where
applicable (1)....................... 40.7 43.7 N/M
------ ------ -----
Fully diluted net income.............. $649.0 $760.8 N/M
====== ====== =====
Average number of shares, assuming
full dilution........................ 94.2 90.3 N/M
____________________________________________________________________________________________________
(1) 1994 preferred dividends include a 3% premium, totaling $4.5 million, paid on the redemption of
the Corporation's Cumulative Preferred Stock, Series D, par value $150 million.
N/M - Not meaningful.
</TABLE>
For 1992, the calculation of fully diluted earnings per share would have
produced an anti-dilutive result and, therefore, is not shown in the preceding
table.
N O T E 3 -- BUSINESS ACQUISITIONS
In November 1993, the Corporation and Lake Shore Bancorp., Inc. (Lake Shore)
signed a definitive agreement providing for the merger of Lake Shore into the
Corporation. Lake Shore, with approximately $1.2 billion in assets and
capital of approximately $123 million as of July 8, 1994, had seven locations
in the Chicago metropolitan area. It was the holding company for Lake Shore
National Bank, Chicago, Illinois, and Bank of Hinsdale, Hinsdale, Illinois.
51
<PAGE> 15
The combination was consummated on July 8, 1994. Consideration tendered for
Lake Shore shares and stock options was approximately $323 million, which
consisted of approximately 6.4 million common shares and share equivalents of
the Corporation. The agreement provided that each share or share equivalent
of Lake Shore common stock be exchanged for the Corporation's common stock
valued at $31.08. The exchange ratio was based on the average closing price
of the Corporation's common stock during a 20-day trading period beginning on
June 7, 1994, and ending on July 5, 1994, with a minimum price of $37 and a
maximum of $53 per share. The average closing price of the Corporation's
common stock during the 20-day trading period was $50.406 per share.
The combination was accounted for on a pooling-of-interest basis; however,
because the transaction was not considered significant from an accounting
perspective, the Corporation did not restate either 1994 or prior-year
financial data.
N O T E 4 -- BUSINESS SEGMENTS
An analysis of the Corporation's results on a line-of-business basis is shown
below.
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________________
BUSINESS SEGMENTS
_______________________________________________________________________________________________________________________
Consumer Corporate Other First Chicago
Banking Banking Activities (1) Corporation
(Dollars in millions, __________________ __________________ __________________ ________________
except where noted) 1994 1993 1994 1993 1994 1993 1994 1993
_______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income ..................... $ 331 $ 258 $ 208 $ 291 $151 $255 $ 690 $ 804
Return on equity ............... 36% 35% 9% 15% N/M N/M 17% 24%
Average assets (presecuritized)
(in billions) ................ $16.0 $14.4 $52.3 $45.5 $1.4 $1.8 $69.7 $61.7
Average common equity
(in billions) ................ 0.9 0.7 2.1 1.7 0.8 0.7 3.8 3.1
_______________________________________________________________________________________________________________________
</TABLE>
(1) Includes results from the accelerated asset disposition portfolio, the
venture capital group and other special corporate items.
N/M-Not meaningful.
Financial results are aligned by customer segment-Consumer and Corporate-and by
major businesses within these categories. The results are derived from the
internal profitability reporting system and reflect full allocation of all
institutional and overhead items. This system uses a detailed funds transfer
methodology and a common equity allocation based on risk elements. Consumer
Banking results are presented before the securitization of credit card
receivables ("presecuritized") to facilitate analysis of trends.
The following table further details results for other corporate activities that
are not specifically allocated to a business segment.
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________________
Venture Capital Other
(Dollars in millions, Activities Activities (1)
except where noted) _______________________________ _______________________________
_______________________________________________________________________________________________________________________
1994 1993 1992 1994 1993 1992
_______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Net interest
income-tax-
equivalent basis............. $ (37) $(30) $ (37) $ 24 $ 20 $ 11
Combined credit provisions.... - - (1) - - 625
Noninterest income............ 189 371 179 89 58 -
Noninterest expense........... 1 4 12 46 18 92
Net income(loss).............. 95 204 80 56 51 (235)
Return on equity.............. 26% 37% 14% N/M N/M N/M
Average assets (in billions).. $1.3 $1.3 $1.3 $0.1 $0.5 $ 0.3
Average loans (in billions)... - - - - $0.5 $ 0.4
Average common equity
(in billions)............... $0.3 $0.5 $0.5 $0.5 $0.2 $ 0.3
_______________________________________________________________________________________________________________________
(1) Includes disposition portfolio activities since initiated in September 1992, other special
corporate items, and the cumulative effect of changes in accounting principles.
N/M - Not meaningful.
The Corporation is primarily engaged in the banking business, and with the continuing
globalization of financial markets, the distinction between international and domestic
activities has become less important. The following table shows approximate
consolidated financial data for the three years ended December 31, 1994, attributable
to domestic and foreign operations by geographic area in accordance with current
regulatory reporting requirements.
</TABLE>
52
<PAGE> 16
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________
Income
(loss)
Before Net
Income Income Total
(IN MILLIONS) Revenues(1) Expenses(2) Taxes (Loss) Assets
______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
1994
Domestic operations................................ $4,445 $3,411 $1,034 $676 $52,815
Foreign operations
Europe-Middle East-Africa........................ 387 376 11 6 8,084
Asia-Pacific..................................... 122 135 (13) (12) 3,826
Other............................................ 141 110 31 20 1,175
------ ------ ------ ---- -------
Total foreign operations......................... 650 621 29 14 13,085
------ ------ ------ ---- -------
Consolidated....................................... $5,095 $4,032 $1,063 $690 $65,900
====== ====== ====== ==== =======
______________________________________________________________________________________________________________
1993
Domestic operations................................ $4,130 $2,966 $1,164 $712 $44,301
Foreign operations
Europe-Middle East-Africa........................ 399 348 51 32 3,937
Asia-Pacific..................................... 149 156 (7) (5) 2,921
Other............................................ 148 56 92 65 1,401
------ ------ ------ ---- -------
Total foreign operations......................... 696 560 136 92 8,259
------ ------ ------ ---- -------
Consolidated....................................... $4,826 $3,526 $1,300 $804 $52,560
====== ====== ====== ==== =======
______________________________________________________________________________________________________________
1992
Domestic operations................................ $3,620 $3,963 $(343) $ (12) $40,163
Foreign operations
Europe-Middle East-Africa........................ 439 387 52 41 4,496
Asia-Pacific..................................... 160 149 11 7 2,887
Other............................................ 139 59 80 58 1,735
------ ------ ----- ---- -------
Total foreign operations......................... 738 595 143 106 9,118
------ ------ ----- ---- -------
Consolidated...................................... $4,358 $4,558 $(200) $ 94 $49,281
====== ====== ===== ==== =======
______________________________________________________________________________________________________________
(1) Includes interest income and noninterest income.
(2) Includes interest expense, provision for credit losses and noninterest expense.
</TABLE>
The 1992 results from domestic operations include $611.3 million of provisions
for assets held for accelerated disposition and $208.0 million related to the
cumulative effect of changes in accounting principles.
Results from foreign operations include provisions for credit losses of
$(52) million in 1994, $13 million in 1993 and $(3) million in 1992.
Brazilian bonds received as part of a debt restructuring, which were treated
as loan loss recoveries, and other recoveries related to foreign loans were
the primary reasons for the negative provision in 1994.
Because many of the resources employed by the Corporation are common to both
its foreign and domestic activities, it is difficult to segregate assets,
related revenues and expenses into their foreign and domestic components. The
amounts in the preceding table are estimated on the basis of internally
developed assignment and allocation procedures, which to some extent are
subjective. The principal internal allocations used to prepare this
information are described in the following text.
The allocation of corporate overhead expense is based on allocations
appropriate to individual activities. Expenses incurred for the benefit of
another geographic area, including certain domestic administrative expenses,
are allocated to the area benefited.
Total assets and revenues reflect the allocation of loans and related interest
income among geographic areas based on the domicile of the customer. Deposit
placements and related revenues are allocated geographically based on the
domicile of the depository institution.
Differences between contractual spreads and actual funding results are
reflected in the earnings of the areas providing the funding. Distribution of
certain fee income among geographic areas is reflected on the basis of
services rendered. Capital, with the exception of capital at foreign
subsidiaries, has been allocated to domestic operations.
53
<PAGE> 17
N O T E 5 - - INVESTMENT SECURITIES
Investment securities in the consolidated balance sheet at December 31, 1994
and 1993, are summarized as follows.
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________
Unrealized Unrealized Fair
DECEMBER 31, 1994 (In millions) Book Value Cost Basis Gains Losses Value
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
U.S. government and federal agency
Held to maturity.................... $ 276 $ 276 $ - $ 8 $ 268
Available for sale.................. 465 472 - 7 465
------ ------ ---- ---- ------
Total........................ 741 748 - 15 733
States and political subdivisions
Held to maturity.................... 176 176 7 2 181
Available for sale.................. - - - - -
------ ------ ---- ---- ------
Total........................ 176 176 7 2 181
Other bonds, notes and debentures
Held to maturity.................... 4 4 - - 4
Available for sale.................. 51 51 - - 51
------ ------ ---- ---- ------
Total........................ 55 55 - - 55
Equity securities (1)
Venture capital..................... 1,406 974 525 93 1,406
Available for sale (2).............. 214 213 1 - 214
------ ------ ---- ---- ------
Total ....................... 1,620 1,187 526 93 1,620
Total investment securities.. $2,592 $2,166 $533 $110 $2,589
====== ====== ==== ==== ======
<CAPTION>
________________________________________________________________________________________________________________
Unrealized Unrealized Fair
December 31, 1993 (In millions) Book Value Cost Basis Gains Losses Value
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
U.S. government and federal agency
Held to maturity..................... $ 245 $ 245 $ 2 $ 1 $ 246
Available for sale................... 243 243 - - 243
------ ------ ---- ---- ------
Total......................... 488 488 2 1 489
States and political subdivisions
Held to maturity..................... 162 162 7 - 169
Available for sale................... - - - - -
------ ------ ---- ---- ------
Total......................... 162 162 7 - 169
Other bonds, notes and debentures
Held to maturity.................... 4 4 - - 4
Available for sale.................. 15 15 - - 15
------ ----- ---- ---- ------
Total........................ 19 19 - - 19
Equity securities (1)
Venture capital...................... 1,465 955 627 117 1,465
Available for sale (2)............... 122 121 1 - 122
------ ------ ---- ---- ------
Total........................ 1,587 1,076 628 117 1,587
Total investment securities.. $2,256 $1,745 $637 $118 $2,264
====== ====== ==== ==== ======
________________________________________________________________________________________________________________
(1) The fair values of certain securities for which market quotations were not available
were estimated. In addition, the fair values reflect liquidity and other market-related factors.
(2) Includes Federal Reserve stock.
</TABLE>
Gross proceeds from the sale of available for sale investment securities were
$245 million for the year ended December 31, 1994, reflecting gross realized
gains of $6.5 million and gross realized losses of $5.3 million.
Gross proceeds from the sale of debt investment securities were $0.2 million
and $366 million for the two years ended December 31, 1993 and 1992,
respectively.
54
<PAGE> 18
For 1993 and 1992, gross debt investment securities gains were $1.5 million
and $8.6 million, respectively, and gross debt investment securities losses
were $1.2 million and $17 thousand, respectively. The applicable income taxes
were $0.1 million and $3.2 million, respectively.
The pretax change in net unrealized gain (loss) on available for sale
securities included in other adjustments in stockholders' equity was
$(7.5) million in 1994.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
As of December 31, 1994, debt investment securities - held to maturity and available for sale - had the
following maturity characteristics.
____________________________________________________________________________________________________________________________________
Held to Maturity Available for Sale
----------------------- ------------------------
Cost Fair Cost Fair
(In millions) Basis Value Basis Value
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND FEDERAL AGENCY
Maturing within one year.................... $ 84 $ 83 $369 $368
Maturing after one but within five years.... 191 184 97 92
Maturing after five but within ten years.... - - 4 3
Maturing after ten years.................... 1 1 2 2
---- ---- ---- ----
$276 $268 $472 $465
==== ==== ==== ====
____________________________________________________________________________________________________________________________________
STATES AND POLITICAL SUBDIVISIONS
Maturing within one year.................... $ 20 $ 21 $ - $ -
Maturing after one but within five years.... 74 78 - -
Maturing after five but within ten years.... 51 52 - -
Maturing after ten years.................... 31 30 - -
---- ---- ---- ----
$176 $181 $ - $ -
==== ==== ==== ====
____________________________________________________________________________________________________________________________________
OTHER BONDS, NOTES AND DEBENTURES
Maturing within one year.................... $ 1 $ 1 $ 2 $ 2
Maturing after one but within five years.... 1 1 2 2
Maturing after five but within ten years.... 1 1 - -
Maturing after ten years.................... 1 1 47 47
---- ---- ---- ----
$ 4 $ 4 $ 51 $ 51
==== ==== ==== ====
____________________________________________________________________________________________________________________________________
</TABLE>
55
<PAGE> 19
N O T E 6 -- LOANS
Following is a breakdown of loans included in the consolidated balance sheet
as of December 31, 1994 and 1993.
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________
(In millions) 1994 1993
_____________________________________________________________________________________________________
<S> <C> <C>
Commercial Risk
Domestic
Commercial................................. $ 7,806 $ 6,007
Real estate
Construction............................. 256 315
Other.................................... 2,240 2,094
Financial institutions..................... 1,027 1,292
Other...................................... 2,869 2,746
Foreign...................................... 1,832 1,975
------- -------
Subtotal............................. 16,030 14,429
_____________________________________________________________________________________________________
Consumer Risk
Credit cards................................. 6,337 5,778
Secured by real estate
Mortgage................................... 1,581 1,469
Home equity lines.......................... 832 780
Other........................................ 1,167 647
------- -------
Subtotal............................. 9,917 8,674
------- -------
Total................................ $25,947 $23,103
======= =======
_____________________________________________________________________________________________________
</TABLE>
The amount of interest shortfall (the difference between contractual interest
due and interest actually recorded) related to nonperforming loans at year-end
was $6 million in 1994 and $14 million in 1993.
Credit card receivables are available for sale through the Corporation's
credit card securitization program. Since these receivables are sold at face
value, their sale would have no impact on the Corporation's financial results.
The Corporation has loans outstanding to certain of its directors and
executive officers and to partnerships or companies in which a director or
executive officer has at least a 10% beneficial interest. At December 31,
1994 and 1993, $180 million and $295 million, respectively, of such loans to
related parties were outstanding. An analysis of the activity during 1994
with respect to such loans includes additions of $123 million and reductions
of $238 million.
56
<PAGE> 20
N O T E 7 -- ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses for the three years ended
December 31, 1994, were as follows.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
(In millions) 1994 1993 1992
____________________________________________________________________________________________________
<S> <C> <C> <C>
Balance, beginning of year.............. $ 683 $ 624 $ $759
Additions (deductions)
Charge-offs........................... (242) (279) (461)
Recoveries............................ 91 97 88
----- ----- -----
Net charge-offs....................... (151) (182) (373)
Provision for credit losses........... 224 270 425
Provision for loans held for
accelerated disposition............. - - 491
Charge-offs of loans upon transfer to
accelerated disposition portfolio.... - - (636)
Other:
Mergers and acquisitions.............. 16 - -
Transfers related to securitized
receivables......................... (49) (29) (42)
----- ----- -----
Balance, end of year.................... $ 723 $ 683 $ 624
===== ===== =====
____________________________________________________________________________________________________
</TABLE>
N O T E 8 -- PLEDGED AND RESTRICTED ASSETS
Assets carried at $16.5 billion in the consolidated balance sheet at
December 31, 1994, were pledged as collateral for borrowings, to secure
government and trust deposits, and for other purposes as required by law.
Based on the types and amounts of deposits received, banks must maintain
noninterest-bearing cash balances in accordance with Federal Reserve Bank
reserve requirements. The average noninterest-bearing cash balance maintained
to meet reserve requirements was $598 million in 1994 and $574 million in
1993.
N O T E 9 -- LEASE COMMITMENTS
The Corporation has entered into a number of operating and capitalized lease
agreements for premises and equipment. The minimum annual rental commitments
under these leases are shown below.
<TABLE>
<CAPTION>
________________________________________________________
(In millions)
________________________________________________________
<S> <C>
1995........................... $ 61
1996........................... 57
1997........................... 55
1998........................... 50
1999........................... 49
2000 and beyond................ 304
----
Total................ $576
====
________________________________________________________
</TABLE>
Occupancy expense has been reduced by rental income from premises leased to
others in the amount of $27.1 million in 1994, $28.1 million in 1993 and
$25.0 million in 1992.
57
<PAGE> 21
N O T E 10 -- LONG-TERM DEBT
Long-term debt consists of borrowings having an original maturity of seven
years or more. Long-term debt at December 31, 1994 and 1993, was as follows.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
(In millions) 1994 1993
____________________________________________________________________________________________________
<S> <C> <C>
8-1/2% notes due 1998.......................... $ 100 $ 99
Subordinated 9% notes due 1999................. 199 199
Subordinated 9-7/8% notes due 2000............. 99 99
Subordinated 9-1/5% notes due 2001............. 5 5
Subordinated 9-1/4% notes due 2001............. 100 100
Subordinated 10-1/4% notes due 2001............ 100 100
Subordinated 11-1/4% notes due 2001............ 96 96
Subordinated 8-7/8% notes due 2002............. 100 100
Subordinated 8-1/4% notes due 2002............. 100 100
Subordinated 7-5/8% notes due 2003............. 199 199
Subordinated 6-7/8% notes due 2003............. 200 200
Subordinated floating rate notes due 2003...... 149 149
Subordinated 6-3/8% notes due 2009............. 198 -
Equity commitment notes
Subordinated 9-7/8% notes due 1999........... 200 200
Equity contract notes
Subordinated floating rate capital notes
due 1996................................... 125 125
Other long-term debt........................... 301 294
------ ------
Total................................ $2,271 $2,065
====== ======
____________________________________________________________________________________________________
</TABLE>
8-1/2% NOTES
These notes are direct, unsecured obligations of the Corporation and are not
subordinated to any other indebtedness of the Corporation. They may not be
redeemed prior to their stated maturity.
SUBORDINATED NOTES
These notes are direct obligations of the Corporation and are subordinated to
other indebtedness of the Corporation. They may not be redeemed prior to
their stated maturity. They have fixed interest rates that range from 6-3/8%
to 11-1/4% and maturities that range from 1999 to 2009. The floating rate
notes due in 2003 have an interest rate priced at the greater of 4-1/4% or the
three-month London interbank offered rate plus 1/8%. During 1993,
$3.4 million of the 11-1/4% subordinated notes were repurchased at a premium
in open market transactions. A charge of $419,000 related to these
transactions was included in other noninterest income.
EQUITY COMMITMENT NOTES
The subordinated notes maturing in 1999 are direct obligations of the
Corporation and may not be redeemed prior to their stated maturity. Such
notes are subordinated to other indebtedness of the Corporation.
The agreements under which these notes were issued require the Corporation,
prior to maturity, to issue common stock, perpetual preferred stock or other
forms of equity approved by the Federal Reserve Board in an amount equal to
the original aggregate principal amount of the notes. As of December 31,
1994, the Corporation had issued all of the equity securities required by the
agreements.
EQUITY CONTRACT NOTES
The subordinated floating rate capital notes maturing in 1996 are a direct
obligation of the Corporation and are subordinated to other indebtedness of
the Corporation. The interest rate on these notes is reset quarterly at 3/16%
over the average offered rate quoted in the London interbank market for three-
month Eurodollar deposits. The effective interest rate on this issue as of
December 31, 1994, was 6.625%.
58
<PAGE> 22
OTHER LONG-TERM DEBT
Other long-term debt of $301 million includes various notes with maturities
ranging from 1995 to 2026 and interest rates at December 31, 1994, ranging
from 5.5% to 13%. Of this amount, $276 million relates to the sale and
leaseback of certain bank properties. The effective interest rate related to
this transaction is 8.7%, with expected maturity in 2018.
Original issue discount and deferred issuance costs are amortized over the
terms of the related notes.
N O T E 11 -- PREFERRED STOCK
The Corporation currently is authorized to issue 15,000,000 shares of
preferred stock, without par value. The Board of Directors is authorized to
fix the particular designations, preferences, rights, qualifications and
restrictions for each series of preferred stock issued. All preferred shares
rank prior to common shares both as to dividends and liquidation, but have no
general voting rights. The dividend rate on each of the cumulative adjustable
rate series is based on stated value and adjusted quarterly, based on a
formula that considers the interest rates for selected short-and long-term
U.S. Treasury securities prevailing at the time the rate is set. The minimum,
maximum and current dividend rates, as of December 31, 1994, are presented in
the following table.
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________
Stated Annual Dividend Rate Earliest Redemption
Preferred Shares Value Per ________________________________ Redemption Price
Stock Series Outstanding Share Maximum Minimum Current Date (1)
___________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative Adjustable Rate:
Series A........ 2,410,000 $ 50.00 15.00% 7.00% 7.00% (2) $ 50.00
Series B........ 1,191,000 100.00 12.00 6.00 6.00 (2) 100.00
Series C........ 713,800 100.00 12.50 6.50 6.50 (2) 100.00
Cumulative Fixed Rate:
Series E (3).... 160,000 625.00 8.45 8.45 8.45 11/16/97 (4) 625.00
Cumulative Convertible Fixed Rate:
Series B (5).... 40,000 5,000.00 5.75 5.75 5.75 04/01/97 (6) 5,172.50
___________________________________________________________________________________________________________________
(1) Plus accrued and unpaid dividends.
(2) Currently redeemable.
(3) Represented by 4,000,000 depositary shares, with a corresponding annual dividend rate of $2.11 each and
a $25 stated value.
(4) The preferred shares are redeemable on or after November 16, 1997, at $625 per share (equivalent to
$25 per depositary share).
(5) Represented by 4,000,000 depositary shares, with a corresponding annual dividend rate of $2.875 each
and a $50 stated value.
(6) The preferred shares may be converted into shares of the Corporation's common stock at the option of
the stockholders at any time at the conversion price of $53.625 per common share, subject to
adjustment under certain conditions. Shares are redeemable beginning April 1, 1997, at the option of
the Corporation, at a price of $5,172.50 ($51.725 per depositary share), with the redemption price
decreasing annually until the shares are redeemable on or after April 1, 2003, at their stated value
of $5,000 per share ($50 per depositary share).
</TABLE>
All shares of the Corporation's 10% Cumulative Preferred Stock, Series D, were
called for redemption on July 1, 1994. The redemption price of $25.75 per
share plus accrued and unpaid dividends incorporates a 3% premium, totaling
$4.5 million.
All shares of the Corporation's Cumulative Convertible Preferred Stock,
Series A, were called for redemption on September 2, 1993. Each Series A
share was convertible into 1.391 shares of the Corporation's common stock at
the option of the stockholder, and approximately 2,100,000 shares of the stock
were converted into approximately 3,000,000 shares of common stock. Resultant
fractional shares were paid in cash. On September 2, 1993, the Corporation
redeemed the remaining shares of the Cumulative Convertible Preferred,
Series A at the redemption price of $51.50 per share plus accrued and unpaid
dividends.
59
<PAGE> 23
In December 1988, the Corporation paid a dividend of one Preferred Share
Purchase Right (a Right) for each outstanding share of common stock of the
Corporation. Similar Rights are issued by the Corporation with each share of
the Corporation's common stock issued after December 2, 1988, subject to
adjustment. Until a person or group acquires beneficial ownership of, or
begins a tender or exchange offer for, 20% or more of the Corporation's common
stock, the Rights will not be exercisable and will be transferred upon the
transfer of shares of the Corporation's common stock. Upon the occurrence of
certain events, each Right entitles the holder to purchase one one-hundredth
of a share of the Corporation's Series A Junior Participating Preferred Stock,
without par value, at a price of $130.
Under certain other circumstances, the holder of a Right may have the right to
receive upon payment of the Right's $130 exercise price 1) common stock of a
company acquiring control of the Corporation that has a market value of two
times the exercise price of the Right, or 2) common stock of the Corporation
having a market value of two times the exercise price of the Right.
The Rights, which expire December 2, 1998, are redeemable in whole, but not in
part, at the Corporation's option prior to the time they are exercisable, for
a price of $.01 per Right.
N O T E 12 -- INCOME TAXES
The components of total applicable income taxes (benefits) reported in the
consolidated income statement for the years ended December 31, 1994, 1993 and
1992, are as follows.
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________
(In millions) 1994 1993 1992
_____________________________________________________________________________________________________
<S> <C> <C> <C>
Current tax expense (benefit)
Federal.............................. $202.1 $177.3 $ (1.9)
Foreign.............................. 7.4 29.1 20.5
State................................ 45.8 42.6 4.9
------ ------ -------
Total........................ 255.3 249.0 23.5
Deferred tax expense (benefit)
Federal.............................. 115.8 230.0 (101.3)
State................................ 2.2 16.6 (7.8)
------ ------ -------
Total........................ 118.0 246.6 (109.1)
------ ------ -------
Applicable income taxes (benefit)..... $373.3 $495.6 $ (85.6)
====== ====== =======
_____________________________________________________________________________________________________
</TABLE>
The preceding table excludes the tax expense (benefit) recorded directly in
stockholders' equity of $0.7 million, $(4.7) million and $(0.4) million in
1994, 1993 and 1992, respectively. The table also excludes $122.6 million of
1992 taxes related to the cumulative effect of changes in accounting
principles.
A net deferred tax liability is included in other liabilities in the
consolidated balance sheet as a result of temporary differences between the
carrying amounts of assets and liabilities in the financial statements and
their related tax bases. The components of the net deferred tax liability as
of December 31, 1994 and 1993, are as follows.
60
<PAGE> 24
<TABLE>
<CAPTION>
________________________________________________________________________________________________________
(In millions) 1994 1993
________________________________________________________________________________________________________
<S> <C> <C>
DEFERRED TAX LIABILITIES
Deferred income on lease financing..................... $ 762.9 $ 745.3
Appreciation of venture capital investments............ 219.0 181.9
Prepaid pension asset.................................. 135.1 133.1
Other.................................................. 145.2 145.6
-------- --------
Gross deferred tax liabilities......................... 1,262.2 1,205.9
-------- --------
DEFERRED TAX ASSETS
Allowance for credit losses............................ 286.9 292.5
Securitization of credit card receivables.............. 86.0 65.5
Alternative minimum tax credit carryforward............ - 115.9
Other.................................................. 250.2 255.9
-------- --------
Gross deferred tax assets.............................. 623.1 729.8
Valuation allowance.................................... - -
-------- --------
Gross deferred tax assets, net of valuation allowance.. 623.1 729.8
-------- --------
Net deferred tax liability............................. $ 639.1 $ 476.1
======== ========
________________________________________________________________________________________________________
The reasons for the differences between applicable income taxes and the
amounts computed at the applicable regular federal tax rates of 35% in 1994,
35% in 1993 and 34% in 1992 were as follows.
____________________________________________________________________________________________________
(In millions) 1994 1993 1992
____________________________________________________________________________________________________
Taxes at statutory federal income tax
rate................................. $372.1 $455.0 $(68.0)
Increase (decrease) in taxes resulting
from
Tax-exempt income (net)............ (10.3) (12.0) (13.8)
State income taxes, net of federal
income taxes..................... 31.6 31.8 (1.9)
Goodwill........................... 2.8 7.5 3.4
Other.............................. (22.9) 13.3 (5.3)
------ ------ ------
Applicable income taxes (benefit)...... $373.3 $495.6 $(85.6)
====== ====== ======
____________________________________________________________________________________________________
</TABLE>
The Corporation had no alternative minimum tax credit carryforward for tax
purposes at December 31, 1994. The Corporation had an alternative minimum tax
credit carryforward for tax purposes of $109.2 million at December 31, 1993,
and $41.3 million at December 31, 1992.
The Corporation had a foreign tax credit carryforward of $42.9 million at
December 31, 1992, that was fully utilized in 1993. The Corporation also had a
federal tax return net-operating loss carryforward of $644.4 million at
December 31, 1992, which was also fully utilized in 1993.
N O T E 13 -- EMPLOYEE BENEFIT AND INCENTIVE PLANS
(A) PENSION PLANS
Net periodic pension credit was $7.3 million in 1994, $18 million in 1993 and
$31.5 million in 1992.
61
<PAGE> 25
The assumptions used in determining the projected benefit obligation and the
net periodic pension credit, as appropriate, are shown below.
<TABLE>
<CAPTION>
__________________________________________________________________________________________________
1994 1993 1992
__________________________________________________________________________________________________
<S> <C> <C> <C>
Discount rate.............................. 9.0% 7.5% 8.5%
Rate of increase in future salary levels... 5.0 4.5 5.0
Expected long-term rate of return.......... 9.5 9.5 9.5
__________________________________________________________________________________________________
</TABLE>
The following table reconciles the plans' funded status with the amounts
recorded in the Corporation's consolidated balance sheet.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
December 31 (In millions) 1994 1993
____________________________________________________________________________________________________
<S> <C> <C>
Projected benefit obligation:
Vested benefits................................ $(419.0) $(430.6)
Nonvested benefits............................. (54.1) (60.9)
------- -------
Accumulated benefit obligation................... (473.1) (491.5)
Effect of projected future compensation levels... (91.1) (99.3)
------- -------
Projected benefit obligation..................... (564.2) (590.8)
Plans' assets at fair value(1)................... 931.0 968.4
------- -------
Plans' assets in excess of projected benefit
obligation..................................... 366.8 377.6
Unrecognized net gain due to experience different
from assumptions............................... (31.1) (37.4)
Unrecognized net transition asset(2)............. (32.5) (37.2)
Unrecognized prior service cost.................. 87.0 74.6
------- -------
Prepaid pension cost............................. $ 390.2 $ 377.6
======= =======
____________________________________________________________________________________________________
(1) Includes shares of the Corporation's common stock with a market value of $20.1 million in 1994
and $17.9 million in 1993.
(2) The unrecognized net transition asset will be amortized over approximately 6.5 years.
The components of the net periodic pension credit for each of the last three
years are as follows.
</TABLE>
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
(In millions) 1994 1993 1992
____________________________________________________________________________________________________
<S> <C> <C> <C>
Service costs--benefits earned during
period............................. $ 29.2 $ 22.3 $ 20.9
Interest cost on projected benefit
obligation......................... 49.6 43.8 41.5
Return on plan assets................ (0.6) (109.6) (80.1)
Net amortization, deferral and other. (85.5) 25.5 (13.8)
------ ------ ------
Net periodic pension credit.......... $ (7.3) $(18.0) $(31.5)
====== ====== ======
____________________________________________________________________________________________________
</TABLE>
62
<PAGE> 26
(B) SAVINGS INCENTIVE PLAN
The Corporation and its subsidiaries maintain the Savings Incentive Plan, a
qualified 401(k) program. The plan is available to all U.S.-based salaried
employees of The First National Bank of Chicago and certain other subsidiaries
of the Corporation. Participation is completely voluntary, and participants
may contribute from 1% to 6% of their salary on a pretax basis, and an
additional 1% to 10% of salary on an after- tax basis. Beginning in 1994, the
Corporation's contribution to the plan was determined as 100% of the first
$750 of pretax contributions made by participants and 50% of any pretax
contributions in excess of $750. The plan was amended in 1993 to allow the
Board of Directors to make a supplemental profit-based contribution to the
plan. For 1994, that contribution was $250 for each eligible salaried
employee and $125 for each eligible hourly employee. All participants are
100% vested in their account balances and are able to direct the investment of
their savings into several investment options.
Expense under this plan, included in noninterest expense as employee benefits
expense, was $21.4 million in 1994, $19.6 million in 1993 and $13.0 million in
1992.
(C) EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
The Employee Stock Purchase and Savings Plan allows eligible employees to
authorize payroll deductions for deposit in interest-bearing savings accounts
for up to two years. Employees then have the option to either withdraw their
savings balance in cash or purchase shares of the Corporation's common stock
at a price fixed under the plan. The Corporation recognizes no expense in
connection with such stock purchases. The plan authorizes a maximum of
6,000,000 shares, of which 4,407,130 shares have been issued.
During 1994, 743,885 shares of common stock were purchased by 4,143 employees
under the 1992 offering and subsequent quarterly offerings for newly eligible
employees, at prices ranging from $32.54 to $45.84 per share. Eligible
employees also were offered an opportunity to enroll in a new offering in
August 1994 at a stock purchase price of $47.98. Employees participating in
the plan numbered 7,539 as of December 31, 1994. Projected contributions and
interest represent a potential future purchase of approximately 887,829 shares
of common stock.
(D) OTHER INCENTIVE PLANS
The Corporation maintains various cash incentive, stock incentive and stock
option plans.
Cash incentive plans, including certain specialized business unit incentives,
are based on attainment of certain financial goals and a combination of
business unit and corporate objectives.
The 1983 Strategic Stock Option Plan and the Strategic Stock Incentive Plan
were both terminated in 1991; however, options and shares from those programs
are still outstanding and are included, where appropriate, in the discussion
below.
The Stock Incentive Plan allows the Corporation to grant stock options,
restricted shares or other stock-based awards to eligible employees.
Restricted shares granted to key officers require them to continue employment
from one to seven years beginning on the original grant date before they can
sell those shares. The market value of the restricted shares as of the date
of grant is amortized to salaries expense over the restriction period. In
1994, the Board approved a performance-based restricted stock program under
the terms of the Stock Incentive Plan. The shares issued under this program
become unrestricted only if performance criteria are met. The ultimate
expense attributable to this program will be based on the market value of the
shares on the date they become unrestricted. As of December 31, 1994, the
Stock Incentive Plan had 1,224,781 restricted shares outstanding. The maximum
number of shares of the Corporation's common stock that may be granted
annually pursuant to the Stock Incentive Plan is 2% of the shares outstanding;
however, any portion of the 2% limit not granted in a previous year may be
awarded prospectively.
63
<PAGE> 27
In 1994, the Board approved a new "restorative" stock option program under the
terms of the Stock Incentive Plan. Under the program, optionees are granted a
"restorative" stock option when: 1) they exercise an option by exchanging
shares owned for at least six months to pay both the purchase price and
related tax withholding obligation, and 2) the current market price of First
Chicago common stock is at least 25% higher than the original stock option
exercise price. The restorative stock option provides optionees with a
replacement stock option for the number of shares exchanged, has a purchase
price set at the market price on date of grant, becomes exercisable six months
from date of grant, and expires at the end of the term set for the original
stock option.
The following table summarizes 1994 activity and the December 31, 1994 status
of the Stock Incentive Plan and the 1983 Stock Option Plan, inclusive of
restorative stock options granted.
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________________
Outstanding Options Exercisable Options
------------------------- ------------------------
Option Option
(Shares in thousands) Shares Price Shares Price
_______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.................... 4,739 $18-1/2 - $49-1/8 3,228 $18-1/2 - $43-5/8
Granted....................................... 2,361 $41-3/4 - $49-7/16 - -
Became exercisable............................ - - 979 $24 - $49-1/8
Exercised..................................... 1,464 $18-1/2 - $36-13/16 1,464 $18-1/2 - $36-13/16
Expired or canceled........................... 9 $24 - $31-7/8 9 $24 - $31-7/8
Forefeited (unvested)......................... 51 $27-11/16 - $47-7/16 - -
_______________________________________________________________________________________________________________
BALANCE, DECEMBER 31, 1994.................. 5,576 $18-7/8 - $49-7/16 2,734 $18-7/8 - $49-7/16
_______________________________________________________________________________________________________________
</TABLE>
64
<PAGE> 28
<TABLE>
<CAPTION>
N O T E 14 -- FIRST CHICAGO CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS
____________________________________________________________________________________________________________________________________
CONDENSED BALANCE SHEET
____________________________________________________________________________________________________________________________________
December 31 (In millions) 1994 1993
____________________________________________________________________________________________________________________________________
<S> <C> <C>
ASSETS
Cash and due from banks
Bank subsidiaries--noninterest-bearing......................................... $ 2 $ 21
Bank subsidiaries--interest-bearing............................................ 161 156
Other interest-bearing......................................................... 396 348
Investment securities............................................................ 75 14
Loans............................................................................ - 1
Investment in and advances to subsidiaries
Bank subsidiaries.............................................................. 5,829 5,278
Nonbank subsidiaries........................................................... 1,857 1,728
Other assets..................................................................... 106 124
------ ------
Total assets........................................................... $8,426 $7,670
====== ======
____________________________________________________________________________________________________________________________________
LIABILITIES
Commercial paper and other notes payable
Nonbank subsidiaries........................................................... $ 83 $ 29
Other.......................................................................... 1,492 1,378
Long-term debt................................................................... 1,993 1,796
Other liabilities................................................................ 325 203
------ ------
Total liabilities...................................................... 3,893 3,406
____________________________________________________________________________________________________________________________________
STOCKHOLDERS' EQUITY............................................................. 4,533 4,264
------ ------
Total liabilities and stockholders' equity............................. $8,426 $7,670
====== ======
____________________________________________________________________________________________________________________________________
CONDENSED INCOME STATEMENT
<CAPTION>
____________________________________________________________________________________________________________________________________
For the Year (In millions) 1994 1993 1992
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
OPERATING INCOME
Dividends
Bank subsidiaries.............................................. $259.5 $129.0 $ 89.7
Nonbank subsidiaries........................................... 106.7 68.9 197.2
Interest income
Bank subsidiaries.............................................. 113.3 110.8 104.2
Nonbank subsidiaries........................................... 59.1 76.7 96.4
Other.......................................................... 28.1 13.9 15.8
Other income (loss).............................................. 37.9 (2.4) 1.9
------ ------ -------
Total.................................................. 604.6 396.9 505.2
____________________________________________________________________________________________________________________________________
OPERATING EXPENSE
Interest expense
Nonbank subsidiaries........................................... 1.3 3.8 5.6
Other.......................................................... 246.9 233.7 250.0
Other expense.................................................... 6.9 6.4 23.7
------ ------ -------
Total.................................................. 255.1 243.9 279.3
____________________________________________________________________________________________________________________________________
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARIES....................................... 349.5 153.0 225.9
Applicable income tax benefit.................................. (11.4) (18.6) (22.8)
____________________________________________________________________________________________________________________________________
INCOME BEFORE EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARIES....................................... 360.9 171.6 248.7
Equity in undistributed net income (loss) of subsidiaries before
cumulative effect of changes in accounting principles
Bank subsidiaries............................................ 311.0 471.7 (230.0)
Nonbank subsidiaries......................................... 17.8 161.2 (133.2)
------ ------ -------
Income (loss) before cumulative effect of changes in
accounting principles.......................................... 689.7 804.5 (114.5)
Equity in cumulative effect of changes in accounting principles.. - - 208.0
------ ------ -------
NET INCOME....................................................... $689.7 $804.5 $ 93.5
====== ====== =======
____________________________________________________________________________________________________________________________________
The Parent Company Only Statement of Changes in Stockholders' Equity is the same as the Consolidated
Statement of Changes in Stockholders' Equity (see page 44).
</TABLE>
65
<PAGE> 29
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
CONDENSED STATEMENT OF CASH FLOWS
____________________________________________________________________________________________________________________________________
For the Year (In millions) 1994 1993 1992
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................... $ 690 $ 804 $ 94
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income (loss) of subsidiaries before cumulative effect
of changes in accounting principles................................. (695) (831) 76
Equity in cumulative effect of changes in accounting principles...... - - (208)
Net decrease in net derivative product balances...................... 3 - -
(Increase) decrease in accrued income receivable..................... (3) 7 (1)
(Decrease) in accrued interest payable............................... (2) (3) (4)
Dividends received from subsidiaries................................. 366 195 288
Net decrease in other assets......................................... 14 31 15
Other noncash adjustments............................................ 7 (26) (5)
------- ------- -------
Total adjustments.................................................... (310) (627) 161
------- ------- -------
Net cash provided by operating activities................................ 380 177 255
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on loans to subsidiaries............................. 1,262 2,410 4,179
Loans made to subsidiaries............................................... (1,355) (2,172) (4,443)
Capital investments in subsidiaries...................................... (141) (161) (571)
Purchase of investment securities--available for sale.................... (214) (13) (24)
Proceeds from maturities of investment securities--available for sale.... 42 8 22
Proceeds from sales of investment securities--available for sale......... 107 2 2
------- ------- -------
Net cash provided by (used in) investing activities...................... (299) 74 (835)
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in commercial paper.............................. (34) 5 (67)
Proceeds from other funds borrowed....................................... 785 20 533
Repayment of other funds borrowed........................................ (422) (374) (560)
Proceeds from issuance of long-term debt................................. 204 557 234
Repayment of long-term debt.............................................. (10) (344) (248)
Net increase (decrease) in other liabilities............................. (29) 48 (23)
Dividends paid........................................................... (211) (158) (145)
Proceeds from issuance of common stock................................... 12 41 375
Proceeds from reissuance of treasury stock............................... 39 4 6
Purchase of treasury stock............................................... (231) (13) (1)
Proceeds from issuance of preferred stock................................ - 196 96
Payment for redemption of preferred stock................................ (150) (1) -
------- ------- -------
Net cash provided by (used in) financing activities...................... (47) (19) 200
____________________________________________________________________________________________________________________________________
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... 34 232 (380)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................... 525 293 673
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................. $ 559 $ 525 $ 293
======= ======= =======
____________________________________________________________________________________________________________________________________
</TABLE>
Dividends that may be paid by national bank subsidiaries are subject to two
statutory limitations. Under the first, dividends cannot exceed the level of
"undivided profits then on hand" less the amount of bad debts, as defined, in
excess of the allowance for credit losses. In addition, a national bank
cannot declare a dividend, without regulatory approval, in an amount in excess
of its net profits, as defined, for the current year combined with the
retained net profits for the preceding two years.
Based on these statutory requirements, the Corporation's bank subsidiaries
could, in the aggregate, have declared additional dividends of up to
approximately $664 million without regulatory approval at December 31, 1994.
The payment of dividends by any bank may also be affected by other factors,
such as the maintenance of adequate capital. As of December 31, 1994, all of
the Corporation's banking subsidiaries significantly exceeded the regulatory
guidelines for "well-capitalized" status.
66
<PAGE> 30
Federal banking law also restricts each bank subsidiary from extending credit
to First Chicago Corporation as the parent bank holding company (the Parent
Company) in excess of 10% of the subsidiary's capital stock and surplus, as
defined. Any such extensions of credit are subject to strict collateral
requirements.
In connection with issuances of commercial paper, the Corporation has
agreements providing future credit availability (back-up lines of credit) with
various banks. The agreements with nonaffiliated banks aggregated
$100 million at December 31, 1994, and 1993. The Corporation also had
agreements for back-up lines of credit with The First National Bank of Chicago
aggregating $100 million at December 31, 1994 and $150 million at December 31,
1993. In 1994, the Corporation had agreements to pay between 0.125% and
0.150% in annual commitment fees on any unused lines. The back-up lines of
credit, together with overnight money market loans, short-term investments and
other sources of liquid assets, exceeded the amount of commercial paper issued
at December 31, 1994.
The Parent Company paid interest of $267 million in 1994, $262 million in 1993
and $272 million in 1992. The Parent Company made income tax payments to its
subsidiaries that exceeded its total income tax payments by $19 million in
1994 and $20 million in 1992. The Parent Company received income tax payments
from its subsidiaries that exceeded its total income tax payments
by $82 million in 1993.
N O T E 15 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation is a party to financial
instruments containing credit and/or market risks that are not required to be
reflected in a balance sheet. These financial instruments include credit-
related as well as certain derivative and cash instruments. The Corporation
maintains risk management policies that monitor and limit exposure to credit,
liquidity and market risks.
(A) CREDIT RISK
The following disclosures represent the Corporation's credit exposure,
assuming that every counterparty to financial instruments with off-balance-
sheet credit risk fails to perform completely according to the terms of the
contracts, and that the collateral and other security, if any, proves to be of
no value to the Corporation.
(B) MARKET RISK
This note does not address the amount of market losses the Corporation would
incur if future changes in market prices make financial instruments with off-
balance-sheet market risk less valuable or more onerous. The measurement of
market risk associated with financial instruments is meaningful only when all
related and offsetting on- and off-balance-sheet transactions are aggregated,
and the resulting net positions are identified.
(C) COLLATERAL AND OTHER SECURITY ARRANGEMENTS
The credit risk of both on- and off-balance-sheet financial instruments varies
based on many factors, including the value of collateral held and other
security arrangements. To mitigate credit risk, the Corporation generally
determines the need for specific covenant, guarantee and collateral
requirements on a case-by-case basis, depending on the nature of the financial
instrument and the customer's creditworthiness. The Corporation may also
receive comfort letters and oral assurances. The amount and type of
collateral held to reduce credit risk varies but may include real estate,
machinery, equipment, inventory and accounts receivable, as well as cash on
deposit, stocks, bonds and other marketable securities that are generally held
in the Corporation's possession or at another appropriate custodian or
depository. This collateral is valued and inspected on a regular basis to
ensure both its existence and adequacy. The Corporation requests additional
collateral when appropriate.
67
<PAGE> 31
(D) CREDIT-RELATED FINANCIAL INSTRUMENTS
The table below summarizes the Corporation's credit-related financial
instruments, including both commitments to extend credit and letters of
credit.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
Commitments and Letters of Credit
December 31 (In billions) 1994 1993
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Unused loan commitments.................................... $31.3 $28.4
Unused credit card lines................................... 61.4 46.3
Unused home equity lines................................... 0.8 0.7
Commercial letters of credit............................... 0.8 0.7
Standby letters of credit and foreign office guarantees.... 4.1 4.7
____________________________________________________________________________________________________________________________________
</TABLE>
Since many of the Corporation's unused commitments are expected to expire
unused or be only partially used, the total amount of unused commitments in
the preceding table does not necessarily represent future cash requirements.
Loan commitments are agreements to make or acquire a loan or lease as long as
the agreed-upon terms (e.g., expiry, covenants or notice) are met. The
Corporation's commitments to purchase or extend loans help its customers meet
their liquidity needs. Credit card lines allow customers to use a credit card
to buy goods or services and to obtain cash advances. However, the
Corporation has the right to change or terminate any terms or conditions of
the credit card account. Extensions of credit under home equity lines are
secured by residential real estate.
Commercial letters of credit are issued or confirmed by the Corporation to
ensure payment of its customers' payables or receivables in short-term
international trade transactions. Generally, drafts will be drawn when the
underlying transaction is consummated as intended. However, the short-term
nature of this instrument serves to mitigate the Corporation's risk associated
with these contracts.
Standby letters of credit and foreign office guarantees are issued in
connection with agreements made by the Corporation's customers to
counterparties. If the customer fails to comply with the agreement, the
counterparty may enforce the standby letter of credit or foreign office
guarantee as a remedy. Credit risk arises from the possibility that the
customer may not be able to repay the Corporation for standby letters of
credit or foreign office guarantees drawn upon. At December 31, 1994 and 1993,
the Corporation had issued standby letters of credit and foreign office
guarantees for the following purposes.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
Standby Letters of Credit and Foreign Office Guarantees
December 31 (In millions) 1994 1993
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Commercial paper........................... $ 360 $ 815
Tax-exempt securities...................... 1,108 1,130
Bid or performance guarantees.............. 663 534
Commodity/margin support................... 504 570
Insurance-related.......................... 796 765
Other...................................... 681 857
------ ------
Total...................................... 4,112 4,671
Less: Cash collateral deposits............ 108 109
Participations to other financial
institutions........................ 400 359
------ ------
Total, net................................. $3,604 $4,203
====== ======
____________________________________________________________________________________________________________________________________
</TABLE>
68
<PAGE> 32
At December 31, 1994, standby letters of credit and guarantees issued to back
commercial paper and tax-exempt securities had a weighted-average original
maturity of approximately six years and a weighted-average remaining maturity
of approximately two years. All other standby letters of credit generally
expire within three years.
(E) DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation enters into a variety of derivative financial instruments in
its trading, asset and liability management, and venture capital activities.
These instruments offer customers protection from rising or falling interest
rates, exchange rates, commodity prices and equity prices. They can either
reduce or increase the Corporation's exposure to such changing rates or
prices.
The Corporation's objectives and strategies for using derivative financial
instruments for structural interest rate risk management, foreign exchange
risk management, and venture capital activities are discussed on pages 27 to
30 of its 1994 Annual Report, along with various numerical analyses, which are
not included as part of these audited financial statements.
The Corporation's balance sheet exposure for derivative financial instruments
includes the amount of recognized gains in the market valuation of those
contracts. Those amounts fluctuate as a function of maturity, interest rates,
foreign exchange rates, commodity prices and equity prices.
The credit risk associated with exchange-traded derivative financial
instruments is limited to the relevant clearinghouse. Options written do not
expose the Corporation to credit risk, except to the extent of the underlying
risk in a financial instrument that the Corporation may be obligated to
acquire under certain written put options. Caps and floors written do not
expose the Corporation to credit risk. The table on page 36, which is not
included as part of these audited financial statements, presents a
reconciliation between the Corporation's gross credit exposure and its balance
sheet exposure for derivative financial instruments as of December 31, 1994.
Gross balance sheet exposure as of December 31, 1993, was $3.6 billion for
interest rate contracts and $2.6 billion for foreign exchange contracts.
These amounts are overstated because they do not reflect the offsetting of
losses with the same counterparties based on legally enforceable termination
and netting rights.
On some derivative financial instruments, the Corporation may have additional
risk. This is due to the underlying risk in the financial instruments that
the Corporation is or may be obligated to acquire, and/or is due to settlement
exposure, i.e. the risk that the Corporation will deliver under a contract but
the customer will fail to deliver the countervailing amount. The Corporation
believes its credit and settlement procedures minimize these risks.
Not all derivative financial instruments have off-balance-sheet market risk.
Market risk associated with options purchased and caps and floors purchased is
recorded in the balance sheet.
The tables below report the Corporation's gross notional principal or
contractual amounts of derivative financial instruments as of December 31,
1994 and December 31, 1993. These instruments include swaps, forwards,
futures, options, caps, floors, forward rate agreements and other conditional
and exchange contracts. The amounts do not represent the market or credit
risk associated with these contracts but rather give an indication of the
volume of the transactions. The amounts exceed the credit risk associated
with these contracts and do not reflect the netting of offsetting
transactions.
<TABLE>
<CAPTION>
________________________________________________________________________________
Asset and
DECEMBER 31, 1994 Liability Venture
(In billions) Trading Management Capital Total
________________________________________________________________________________
<S> <C> <C> <C> <C>
Foreign exchange
contracts............ $291.7 $1.2 $ - $292.9
Interest rate
contracts............ 317.6 8.5 - 326.1
Commodity contracts.... 0.1 - - 0.1
Equity contracts....... 2.7 - 0.3 3.0
------ ---- ----- ------
Total............. $612.1 $9.7 $ 0.3 $622.1
====== ==== ===== ======
________________________________________________________________________________
________________________________________________________________________________
<CAPTION>
Asset and
DECEMBER 31, 1993 Liability Venture
(In billions) Trading Management Capital Total
________________________________________________________________________________
<S> <C> <C> <C> <C>
Foreign exchange
contracts............ $219.4 $1.1 $ - $220.5
Interest rate
contracts............ 202.0 8.5 - 210.5
Commodity contracts.... 0.2 - - 0.2
Equity contracts....... 0.1 - 0.1 0.2
------ ---- ----- ------
Total............. $421.7 $9.6 $ 0.1 $431.4
====== ==== ===== ======
________________________________________________________________________________
</TABLE>
Interest rate forward and futures contracts represent commitments to either
purchase or sell a financial instrument at a specified future date for a
specified price, and may be settled in cash or through delivery.
An interest rate swap is an agreement in which two parties agree to exchange,
at specified intervals, interest payment streams calculated on an agreed-upon
notional principal amount with at least one stream based on a specified
floating rate index. Certain agreements are combined interest rate and
foreign currency swap transactions.
69
<PAGE> 33
Interest rate options are contracts that grant the purchaser, for a premium
payment, the right to either purchase or sell a financial instrument at a
specified price within a specified period of time or on a specified date from
the writer of the option.
Interest rate caps and floors are contracts with notional principal amounts
that require the seller, in exchange for a fee, to make payments to the
purchaser if a specified market interest rate exceeds the fixed cap rate or
falls below the fixed floor rate on specified future dates.
Forward rate agreements are contracts with notional principal amounts that
settle in cash at a specified future date based on the differential between a
specified market interest rate and a fixed interest rate.
Foreign exchange contracts represent spot, forward, futures and option
contracts to exchange currencies.
Commodity price contracts represent swap, futures, cap, floor and option
contracts that derive their value from underlying commodity prices.
Equity price contracts represent futures, cap, floor and option contracts that
derive their value from underlying equity prices.
(f) CASH FINANCIAL INSTRUMENTS
Securities sold not yet purchased are obligations to deliver securities sold
but not yet purchased. The face amount of such securities totaled
$1.036 billion at December 31, 1994, and $776 million at December 31, 1993.
The fair value of these obligations is reflected in the balance sheet in other
funds borrowed. The fair value of such securities totaled $972 million at
December 31, 1994, and $757 million at December 31, 1993.
N O T E 16 -- CONCENTRATIONS OF CREDIT RISK
The Corporation's credit policies and processes emphasize diversification of
risk among industries, geographic areas and borrowers. The following table
shows the credit risk associated with products described elsewhere in the
financial statements and footnotes, broken out by concentrations across all
financial instruments. The amounts do not consider the value of collateral
held. Concentrations of credit risk in excess of the Corporation's
stockholders' equity for each year-end are presented below.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
December 31 (In billions) 1994 1993
____________________________________________________________________________________________________________________________________
<S> <C> <C>
Consumer................................... $73.4 $56.8
U.S. government............................ 14.0 9.6
Japanese banks............................. 6.0 5.8
____________________________________________________________________________________________________________________________________
</TABLE>
Consumer risk results principally from credit cards. Other major components
include home mortgage, home equity and other installment credit. U.S.
government risk consists primarily of U.S. government securities and balances
due from the Federal Reserve. Credit exposure to Japanese banks is primarily
short-term deposit placements. Geographic concentrations of credit risk are
presented below.
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
December 31 (Dollars in billions) 1994 1993
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S................................. $138 87% $118 87%
Foreign............................. 21 13 17 13
____________________________________________________________________________________________________________________________________
</TABLE>
70
<PAGE> 34
N O T E 17 -- ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
This disclosure focuses primarily on the estimated fair values of the
Corporation's financial instruments. It does not attempt to estimate or
represent an estimate of the Corporation's fair value as a whole. The only
fair value disclosure provided in addition to those made for the
Corporation's financial instruments pertains to credit card securitizations;
this disclosure is provided because the interest rate risk exposure related to
such securitizations is reduced by financial instruments. The Corporation
does not plan to dispose of, either through sale or settlement, the majority
of its financial instruments at these estimated fair values. The fair values
disclosed represent point-in-time estimates that may change in subsequent
reporting periods due to market conditions or other factors.
In general, a financial instrument's fair value is the amount at which it
could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale. Specific fair value measurement
methodologies used for each financial instrument category are discussed
beginning on page 72.
The following table summarizes the carrying amounts and estimated fair values
of financial instruments as of December 31, 1994 and 1993.
<TABLE>
<CAPTION>
__________________________________________________________________________________________________________________________________
1994 1993
________________________ _______________________
CARRYING ESTIMATED Carrying Estimated
(In millions) AMOUNT FAIR VALUE Amount Fair Value
__________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
ASSETS
Cash and short-term financial instruments................ $25,633 $25,633 $18,736 $18,736
Trading account assets................................... 4,967 4,967 4,536 4,536
Investment securities.................................... 2,592 2,589 2,256 2,264
Total loans, net......................................... 25,224 25,275 22,420 22,673
Other financial instruments.............................. 1,024 1,024 960 960
Currency options purchased............................... - - 536 536
Derivative product assets:
Trading purposes (1)................................... 4,351 4,351 - -
Other than trading purposes............................ 38 29 - -
Total derivative product assets..................... 4,389 4,380 - -
Off-balance-sheet derivative financial instruments, net.. - - 380 586
LIABILITIES
Deposits:
No stated maturity and foreign time.................... 26,517 26,517 23,261 23,261
Stated maturity - domestic time only................... 5,149 5,065 4,925 4,984
Total deposits...................................... 31,666 31,582 28,186 28,245
Securities sold not yet purchased........................ 972 972 757 757
Other short-term financial intruments.................... 13,699 13,699 8,936 8,936
Other funds borrowed..................................... 6,546 6,532 5,086 5,129
Long-term debt........................................... 2,271 2,232 2,065 2,296
Currency options written................................. - - 501 501
Derivative product liabilities:
Trading purposes (1)................................... 4,073 4,073 - -
Other than trading purposes............................ 24 277 - -
Total derivative product liabilities................ 4,097 4,350 - -
Off-balance-sheet exposure--nonfinancial instruments:
Credit card securitizations, net....................... 265 (60) 242 191
__________________________________________________________________________________________________________________________________
(1) The estimated average fair values of derivative financial instruments used in trading activities during
1994 were $5.2 billion classified as assets and $4.8 billion classified as liabilities.
</TABLE>
71
<PAGE> 35
<TABLE>
<S><C>
(A) FINANCIAL INSTRUMENTS WHERE CARRYING VALUE APPROXIMATES FAIR VALUE
A financial instrument's carrying value approximates its fair value in cases where
the financial instrument is either short-term in nature, has no stated maturity, is
payable on demand, or is carried at fair value. Additionally, the carrying value of
financial instruments that reprice frequently, such as floating rate loans or debt,
represents fair value provided there has been no significant change in credit
quality or there is no embedded financial instrument with significant value. The
following financial instruments use their carrying value to approximate fair value:
o Cash and short-term investments - includes cash and due from banks - -
noninterest-bearing, due from banks - - interest-bearing, and federal funds
sold and securities under resale agreements
o Trading account assets
o Other financial instruments - includes assets held for accelerated
disposition, accrued interest receivable, and customers' acceptance
liability
o Currency options purchased
o Derivative product assets and liabilities - held for trading purposes
o Demand, savings and foreign office deposits
o Securities sold not yet purchased
o Other short-term financial instruments - includes federal funds purchased
and securities under repurchase agreements, commercial paper and
acceptances outstanding
o Currency options written
o Commitments to extend credit and letters of credit
The estimated fair values of trading account securities and securities sold not yet
purchased were generally based on quoted market prices or dealer quotes. The
estimated fair values of derivative product assets and liabilities were based on
quoted market prices or pricing and valuation models on a present value basis using
current market information.
The carrying amount of commitments to extend credit and letters of credit is equal
to their related fee receivable and/or fees collected but not yet earned. The
carrying value of commercial real estate loans held for accelerated disposition is
based on their estimated liquidation value.
(B) INVESTMENT SECURITIES
The estimated fair values of debt investment securities were generally based on
quoted market prices or dealer quotes. See Notes 1 and 5 for information on methods
for estimating the fair value of equity investment securities, including those held
by venture capital subsidiaries.
(C) LOANS
The discounted cash flow method was used to estimate the fair value of commercial
and consumer loans, except for consumer mortgage loans that had fixed rates, medium-
or long-term maturity, and good credit quality. Discount rates were selected
corresponding to the nature of the loan from either the commercial or consumer
interest rates offered or estimated market interest rates that reflect the credit
rate and interest rate risk inherent in the loans. Contractual cash flows were used
as the estimate of cash flows.
Commercial loans that have significantly deteriorated in credit quality were
separately valued. Estimated fair values were based on a combination of quoted
market prices for distressed debt and troubled-country debtor loans, a discounted
cash flow method based on anticipated cash flows and risk-adjusted interest rates,
and estimated fair values of loans with similar credit quality characteristics.
The estimated fair value of credit card receivables is face value since the
receivables are sold at their face amount. The estimated fair values of consumer
mortgage loans were based on committed sales prices and a valuation model using
current market information.
The estimated fair value of leases, which are classified as loans, is their carrying
amount since a fair value estimate is not a required disclosure.
</TABLE>
72
<PAGE> 36
<TABLE>
<S><C>
(D) DEPOSITS WITH STATED MATURITIES
The discounted cash flow method was used to estimate the fair value of domestic
medium- and long-term fixed rate time deposits. Cash flows were estimated based on
underlying terms. The Corporation's current applicable retail or wholesale interest
rates that would be offered for similar deposits with the same remaining maturities
were used as discount rates. The carrying value of foreign medium- and long-term
fixed rate time deposits was used to approximate fair value, and is included in
deposits with no stated maturity since amounts involved were not material.
(E) OTHER FUNDS BORROWED AND LONG-TERM DEBT
Commercial paper is included in other short-term financial instruments while
securities sold not yet purchased is separately reported since it is a trading
activity (see (a) above for fair value measurement methodology).
The discounted cash flow method was used to estimate the fair value of fixed rate
medium-term other funds borrowed and long-term debt. Cash flows were based on the
contractual terms. The current applicable bank or corporate senior or subordinated
interest rates that would be offered for similar debt instruments with the same
remaining maturities were used as the discount rates.
The discounted cash flow method also was used to estimate the fair value of floating
rate long-term debt. Estimated fair value was calculated by adjusting the carrying
value for the change in value attributable to the difference between the current
market and contractual fixed spreads to be added to the floating base rate upon each
rate setting and adding the value of an embedded interest rate floor, if any. The
current interest rates that would be offered on the Corporation's subordinated fixed
rate debt were used as discount rates. An option pricing model, using current
market information, was used to calculate the value of any embedded interest rate
floors.
(F) DERIVATIVE PRODUCT ASSETS AND LIABILITIES--OTHER THAN TRADING PURPOSES
The estimated fair values of derivative product assets and liabilities used for risk
management purposes, primarily interest rate swaps used by the Corporation to manage
its interest rate exposure, were based on quoted market prices or pricing and
valuation models on a present value basis using current market information.
(G) CREDIT CARD SECURITIZATIONS (OFF-BALANCE-SHEET EXPOSURE)
Floating and fixed rate credit card receivables sold as securities to investors
through a separate trust are not financial instruments of the Corporation.
However, the Corporation uses financial instruments (see (f) above) to reduce
interest rate risk exposure attributable to these securitizations. Interest rate
risk exposure exists with respect to the amount of anticipated excess servicing fee
income, which fluctuates with interest rate movements. Accordingly, the carrying
value and the interest rate effect on estimated servicing fee income are disclosed.
The carrying value represents the reserve for credit losses related to securitized
credit card receivables and net deferred income. The interest rate effect on excess
servicing fee income represents the difference between the par value and the quoted
market price of the securitized credit card receivables held by investors.
Certain limitations are inherent to the above methodologies. As a result, disclosed
fair values may not be the amount realized in a current transaction between willing
parties. Specifically, quoted market prices may not be realized because the
financial instrument is traded in a market that lacks liquidity; or a fair value
derived using a discounted cash flow approach may not be the amount realized because
of the subjectivity involved in selecting underlying assumptions, such as projecting
cash flows or selecting a discount rate. The fair value amount also may not be
realized because it ignores transaction costs and does not include potential tax
effects. Additionally, estimated fair values of certain financial instruments
ignore intangible value associated with the financial instrument; for example,
significant unrecognized value exists that is attributable to the Corporation's
credit card relationships and core deposits.
N O T E 18 -- CONTINGENCIES
The Corporation and certain of its subsidiaries are defendants in various lawsuits,
including certain class actions, arising out of normal corporate activities, and the
Corporation has received certain tax deficiency assessments. Since the Corporation and
certain of its subsidiaries, which are regulated by one or more federal and
state regulatory authorities, also are the subject of numerous examinations and
reviews by such authorities, the Corporation is and will, from time to time,
normally be engaged in various disagreements with regulators, related primarily to
banking matters. In the opinion of management and the Corporation's general
counsel, the ultimate resolution of the matters referred to in this note will not
have a material effect on the Corporation's consolidated financial statements.
</TABLE>
73
<PAGE> 37
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
March 31 December 31 March 31
____________________________________________________________________________________________________________________________________
(Dollars in millions) 1995 1994 1994
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
ASSETS
Cash and due from banks--noninterest-bearing........................................... $ 3,328 $ 4,265 $ 3,621
Due from banks--interest-bearing....................................................... 9,120 8,066 7,926
Federal funds sold and securities under resale agreements.............................. 13,532 13,302 10,475
Trading account assets................................................................. 6,098 4,967 4,748
Derivative product assets.............................................................. 8,590 4,389 5,047
Investment securities (fair values--$2,501, $2,589, and $2,255, respectively).......... 2,499 2,592 2,253
Loans (net of unearned income--$304, $297, and $297, respectively)..................... 27,018 25,947 23,782
Allowance for credit losses............................................................ (754) (723) (710)
Premises and equipment................................................................. 668 665 612
Accrued income receivable.............................................................. 498 485 377
Customers' acceptance liability........................................................ 504 526 502
Other assets........................................................................... 1,277 1,419 1,210
------- ------- -------
Total assets................................................................. $72,378 $65,900 $59,843
======= ======= =======
____________________________________________________________________________________________________________________________________
LIABILITIES
Deposits
Demand............................................................................... $ 6,791 $ 7,647 $ 7,114
Savings.............................................................................. 7,564 7,448 7,633
Time................................................................................. 5,794 5,149 4,445
Foreign offices...................................................................... 12,042 11,422 9,641
------- ------- -------
Total deposits............................................................... 32,191 31,666 28,833
Federal funds purchased and securities under repurchase agreements..................... 14,595 13,026 9,266
Other funds borrowed................................................................... 8,135 7,665 8,284
Long-term debt......................................................................... 2,272 2,271 2,265
Acceptances outstanding................................................................ 504 526 502
Derivative product liabilities......................................................... 8,198 4,097 4,574
Other liabilities...................................................................... 1,815 2,116 1,711
------- ------- -------
Total liabilities............................................................. 67,710 61,367 55,435
____________________________________________________________________________________________________________________________________
STOCKHOLDERS' EQUITY
Preferred stock........................................................................ 611 611 761
Common stock--$5 par value............................................................. 466 466 434
Number of shares authorized--150,000,000
Number of shares issued--93,264,330; 93,148,134; and 86,788,368, respectively
Number of shares outstanding--89,837,793; 89,859,798; and 86,440,453, respectively
Surplus................................................................................ 1,715 1,712 1,725
Retained earnings...................................................................... 2,041 1,905 1,504
Other adjustments...................................................................... (2) (4) (1)
------- ------- -------
Total........................................................................ 4,831 4,690 4,423
Less treasury stock at cost--3,426,537; 3,288,336; and 347,915 shares, respectively.... 163 157 15
------- ------- -------
Stockholders' equity......................................................... 4,668 4,533 4,408
------- ------- -------
Total liabilities and stockholders' equity................................... $72,378 $65,900 $59,843
======= ======= =======
____________________________________________________________________________________________________________________________________
</TABLE>
1
<PAGE> 38
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
March 31 March 31 December 31
Three Months Ended (In millions, except per share amounts) 1995 1994 1994
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................................... $ 604.9 $437.6 $512.4
Interest on bank balances................................................ 131.6 75.0 106.4
Interest on federal funds sold and securities under resale agreements.... 240.8 91.0 215.2
Interest on trading account assets....................................... 88.7 59.1 85.9
Interest on investment securities (including dividends).................. 21.0 15.9 19.5
-------- ------ ------
Total.......................................................... 1,087.0 678.6 939.4
____________________________________________________________________________________________________________________________________
INTEREST EXPENSE
Interest on deposits..................................................... 294.0 153.9 238.8
Interest on federal funds purchased and securities under repurchase
agreements............................................................. 236.1 81.8 184.8
Interest on other funds borrowed......................................... 137.4 71.4 138.2
Interest on long-term debt............................................... 45.9 40.9 44.4
-------- ------ ------
Total.......................................................... 713.4 348.0 606.2
____________________________________________________________________________________________________________________________________
NET INTEREST INCOME...................................................... 373.6 330.6 333.2
Provision for credit losses.............................................. 65.0 50.0 76.0
-------- ------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.................... 308.6 280.6 257.2
____________________________________________________________________________________________________________________________________
NONINTEREST INCOME
Combined trading profits (losses)........................................ 50.4 (24.7) 12.1
Equity securities gains.................................................. 54.9 134.2 70.5
Investment securities gains.............................................. - 0.5 2.3
-------- ------ ------
Market-driven revenue.................................................. 105.3 110.0 84.9
Credit card fee revenue.................................................. 191.2 182.3 234.8
Service charges and commissions.......................................... 107.9 101.3 103.6
Fiduciary and investment management fees................................. 51.6 52.4 48.9
Other income............................................................. 14.1 55.9 16.6
-------- ------ ------
Total.......................................................... 470.1 501.9 488.8
____________________________________________________________________________________________________________________________________
NONINTEREST EXPENSE
Salaries and employee benefits........................................... 231.8 207.4 223.5
Occupancy expense of premises, net....................................... 36.4 34.8 34.8
Equipment rentals, depreciation and maintenance.......................... 31.4 53.3 36.7
Other expense............................................................ 178.5 189.0 187.1
-------- ------ ------
Total.......................................................... 478.1 484.5 482.1
____________________________________________________________________________________________________________________________________
INCOME BEFORE INCOME TAXES............................................... 300.6 298.0 263.9
Applicable income taxes.................................................. 105.5 104.2 90.5
-------- ------ ------
NET INCOME............................................................... $ 195.1 $193.8 $173.4
-------- ------ ------
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY................... $ 185.1 $180.0 $163.3
======== ====== ======
____________________________________________________________________________________________________________________________________
EARNINGS PER SHARE
NET INCOME-PRIMARY.................................................... $2.03 $2.05 $1.76
NET INCOME-FULLY DILUTED.............................................. $1.98 $2.00 $1.72
____________________________________________________________________________________________________________________________________
</TABLE>
2
<PAGE> 39
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES TO STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
____________________________________________________________________________________
Three Months Ended March 31 (In millions) 1995 1994
____________________________________________________________________________________
<S> <C> <C>
Stockholders' Equity
Balance, beginning of period................... $4,533 $4,264
Net income................................... 195 194
Issuance of common stock..................... 8 3
Issuance of treasury stock................... 8 5
Treasury stock purchases..................... (19) (9)
Other........................................ 2 (1)
------ ------
4,727 4,456
Cash dividends declared on preferred stock... (10) (14)
Cash dividends declared on common stock...... (49) (34)
------ ------
1995 1994
________________________________________________
Rate per common share for period $0.55 $0.40
________________________________________________
Balance, end of period......................... $4,668 $4,408
====== ======
____________________________________________________________________________________
</TABLE>
3
<PAGE> 40
FIRST CHICAGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________________
Three Months Ended March 31 (In millions) 1995 1994
____________________________________________________________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................................................... $ 195 $ 194
Adjustments to reconcile net income to net cash (used in) operating activities
Depreciation and amortization............................................................... 41 45
Provision for credit losses................................................................. 65 50
Equity securities gains..................................................................... (55) (134)
Net (increase) in net derivative product balances........................................... (96) (254)
Net (increase) in trading account assets.................................................... (1,131) (212)
Net (increase) decrease in accrued income receivable........................................ (13) 30
Net (increase) decrease in other assets..................................................... (26) 114
Other noncash adjustments................................................................... 67 162
-------- --------
Total adjustments........................................................................... (1,148) (199)
Net cash (used in) operating activities........................................................ (953) (5)
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) in federal funds sold and securities under resale agreements.................... (230) (1,692)
Purchase of investment securities--available for sale.......................................... (288) (449)
Purchase of debt investment securities--held to maturity....................................... (31) (53)
Purchase of venture capital investments........................................................ (45) (23)
Proceeds from maturities of debt securities--available for sale................................ 156 474
Proceeds from maturities of debt securities--held to maturity.................................. 43 19
Proceeds from sales of debt securities--available for sale..................................... 23 -
Proceeds from sales of equity securities--available for sale................................... 221 1
Proceeds from sales of venture capital investments............................................. 78 176
Net (increase) in credit card receivables...................................................... (181) (8)
Net (increase) in loans of bank subsidiaries................................................... (951) (734)
Loans made to customers and purchased from others by nonbank subsidiaries...................... ( 24) (26)
Principal collected on and proceeds from sale of loans by nonbank subsidiaries................. 14 25
Loan recoveries................................................................................ 20 31
Purchases of premises and equipment............................................................ (36) (53)
Proceeds from sales of premises and equipment.................................................. 7 25
-------- --------
Net cash (used in) investing activities........................................................ (1,224) (2,287)
____________________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) in demand and savings deposits.................................................. (748) (978)
Net increase (decrease) in time deposits....................................................... 646 (480)
Net increase in deposits in foreign offices.................................................... 511 2,125
Net increase in federal funds purchased and securities under repurchase agreements............. 1,569 1,011
Proceeds from other funds borrowed............................................................. 59,201 18,720
Repayment of other funds borrowed.............................................................. (58,725) (16,443)
Proceeds from issuance of long-term debt....................................................... 1 199
Repayment of long-term debt.................................................................... - (2)
Net (decrease) in other liabilities............................................................ (221) (192)
Dividends paid................................................................................. (60) (49)
Proceeds from issuance of common stock......................................................... 6 3
Payment for purchase of treasury stock......................................................... (19) (9)
Proceeds from reissuance of treasury stock..................................................... 7 5
-------- --------
Net cash provided by financing activities...................................................... 2,168 3,910
____________________________________________________________________________________________________________________________________
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS................................... 126 (24)
____________________________________________________________________________________________________________________________________
NET INCREASE IN CASH AND CASH EQUIVALENTS...................................................... 117 1,594
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................................... 12,331 9,953
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................................................... $ 12,448 $ 11,547
======== ========
____________________________________________________________________________________________________________________________________
</TABLE>
See Note 6.
4
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Although the interim amounts are unaudited, they do reflect all adjustments
that, in the opinion of management, are necessary for a fair presentation of
the results of operations for the interim periods. All such adjustments are
of a normal, recurring nature. Because the results from commercial banking
operations are so closely related and responsive to changes in economic
conditions, fiscal policy and monetary policy, and because the results for the
venture capital and trading portfolios are largely market-driven, the results
for any interim period are not necessarily indicative of the results that can
be expected for the entire year.
Note 2
The Corporation presents earnings per share on both a primary and a fully
diluted basis. Primary earnings per share were computed by dividing net
income, after deducting dividends on preferred stock, by the average number of
common and common-equivalent shares outstanding during the period.
Common-equivalent shares consist of shares issuable under the Employee Stock
Purchase and Savings Plan and outstanding stock options. Fully diluted shares
also include the common shares that would result from the conversion of
convertible preferred stock.
To compute fully diluted earnings per share, net income was reduced by
preferred stock dividend requirements, except those related to convertible
stock.
The net income, preferred stock dividends and shares used to compute primary
and fully diluted earnings per share are presented in the following table.
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________
Three Months
Ended
March 31
(In millions)
1995 1994
___________________________________________________________________________________________________________
<S> <C> <C>
PRIMARY
Net income.......................................... $195.1 $193.8
Preferred stock dividends........................... 10.0 13.8
------ ------
Net income attributable to common
stockholders' equity.............................. $185.1 $180.0
====== ======
Average number of common and
common-equivalent shares.......................... 91.0 87.7
==== ====
FULLY DILUTED
Net income.......................................... $195.1 $193.8
Preferred stock dividends, excluding
convertible Series B.............................. 7.2 10.9
------ ------
Fully diluted net income............................ $187.9 $182.9
====== ======
Average number of shares,
assuming full dilution............................ 94.8 91.6
==== ====
</TABLE>
Note 3
At March 31, 1995, credit card receivables aggregated $6.5 billion. These
receivables are available for sale at face value through credit card
securitization programs.
5
<PAGE> 42
Note 4
The accelerated asset disposition portfolio was established in September 1992.
Nonperforming assets in this portfolio totaled $31 million at March 31, 1995,
compared with $37 million at year-end 1994 and $67 million a year ago.
Note 5
Effective January 1, 1995, the Corporation adopted Financial Accounting
Standards Board (FASB) Statement (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures." SFAS No. 114
addresses the accounting for a loan when it is probable that all principal and
interest amounts due will not be collected in accordance with its contractual
terms. The Corporation generally identifies nonperforming loans as "impaired
loans." Certain loans, such as loans carried at the lower-of-cost or market
or small-balance homogeneous loans (e.g., credit card, installment credit),
are exempt from SFAS No. 114 provisions.
On a quarterly basis, the Corporation identifies impaired loans and the extent
to which such loans are impaired. Impairment is recognized to the extent the
recorded investment of an impaired loan or pool of loans exceeds the
calculated present value. For non-collateral dependent loans, the calculated
present value is measured using a discounted cash flow approach. Loans having
a significant recorded investment are measured on an individual basis while
loans not having a significant recorded investment are grouped and measured on
a pool basis. Collateral dependent loans, primarily real estate, are
separately measured for impairment by determining the fair value of the
collateral less estimated costs to sell.
The allocated reserve associated with impaired loans is considered in
management's determination of the Corporation's allowance for credit losses.
The adoption of this accounting standard did not have a significant effect on
the Corporation's net income or its allowance for credit losses.
At March 31, 1995, the recorded investment in loans considered impaired under
SFAS No. 114 was $109 million, which required a related allowance for credit
losses of $20 million.
The Corporation retained its prior method of recognizing interest and applying
cash payments received with respect to impaired loans. The average recorded
investment in impaired loans for the quarter ended March 31, 1995, was
approximately $109 million. The Corporation recognized interest income of
$1 million associated with impaired loans.
In accordance with SFAS No. 114, a loan is classified as an in-substance
foreclosure when the Corporation has effectively taken possession of the
collateral. Loans of $15 million, which no longer qualify as in-substance
foreclosures, were reclassified from other assets to loans as of January 1,
1995. Prior reporting periods were not restated since the amounts involved
were not material.
Note 6
For purposes of the Statement of Cash Flows, cash and cash equivalents consist
of cash and due from banks--noninterest-bearing and interest-bearing.
Loans of $0.9 million and $7 million were transferred to other real estate in
the first three months of 1995 and 1994, respectively.
Loans of $15 million were reclassified from other assets to loans as of
January 1, 1995 as a result of the Corporation's adoption of SFAS No. 114.
See Note 5 above for further information.
6
<PAGE> 43
Note 7
The ratio of income to fixed charges for the three months ended March 31,
1995, excluding interest on deposits was 1.7x, and including interest on
deposits was 1.4x. The ratio has been computed on the basis of the total
enterprise (as defined by the Securities and Exchange Commission) by dividing
income before fixed charges and income taxes by fixed charges. Fixed charges
consist of interest expense on all long-and short-term borrowings, excluding
or including interest on deposits.
Note 8
The Corporation and certain of its subsidiaries are defendants in various
lawsuits, including certain class actions, arising out of normal corporate
activities, and the Corporation has received certain tax deficiency
assessments. Since the Corporation and certain of its subsidiaries, which are
regulated by one or more federal and state regulatory authorities, also are
the subject of numerous examinations and reviews by such authorities, the
Corporation is and will be, from time to time, normally engaged in various
disagreements with regulators, primarily related to banking matters. In the
opinion of management and the Corporation's general counsel, the ultimate
resolution of the matters referred to in this note will not have a material
effect on the Corporation's consolidated financial statements.
7
<PAGE> 44
FIRST CHICAGO NBD CORPORATION
PRO FORMA FINANCIAL INFORMATION
NBD Bancorp, Inc. (the Corporation or NBD) and First Chicago Corporation (First
Chicago) have entered into an Agreement and Plan of Merger dated as of July 11,
1995 (the Merger Agreement) pursuant to which First Chigago will merge with
and into NBD Bancorp, Inc. The name of the combined companies will be First
Chicago NBD Corporation (FCNBD).
It is anticipated that the Merger will be accounted for as a pooling of
interests and will be consummated by early 1996, pending approvals of the
stockholders of the Corporation and First Chicago, regulatory approvals, and
other customary conditions of closing.
Pursuant to the Merger Agreement, each share of common stock of NBD will remain
outstanding after the Merger and represent one share of FCNBD. At the
effective time of the Merger, 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.
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 identical to those of the existing First Chicago preferred
stock.
In connection with the execution of the Merger Agreement, NBD granted First
Chicago an option to purchase, under certain circumstances, up to 19.9 percent
of NBD's outstanding shares of common stock. First Chicago also granted NBD an
option to purchase, under certain circumstances, up to 19.9 percent of First
Chicago's outstanding shares of common stock.
The following pro forma financial information giving effect to the Merger,
accounted for as a pooling of interests, includes: (i) the unaudited pro forma
condensed combined balance sheet as of March 31, 1995, and (ii) the unaudited
pro forma condensed combined statements of income for each of the three years
in the period ended December 31, 1994, and for the three-month periods ended
March 31, 1995 and 1994. The pro forma condensed combined financial statements
should be read in conjunction with the historical consolidated financial
statements and notes thereto of the Corporation and First Chicago.
Effective January 7, 1995, NBD consummated its acquisition of the $910 million
asset AmeriFed Financial Corp. ("AmeriFed") of Joliet, Illinois, which was
accounted for as a purchase. Accordingly, the historical financial information
for NBD as of and for the three months ended March 31, 1995, include the
operations of AmeriFed. On July 1, 1995, NBD acquired $760 million asset
Deerbank Corporation ("Deerbank") of Deerfield, Illinois, which was also
accounted for as a purchase. With respect to the following pro forma condensed
combined financial statements, the historical financial information for NBD was
not restated to otherwise include amounts for AmeriFed and Deerbank as such
acquisitions are not considered material.
1
<PAGE> 45
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1995
(UNAUDITED)
The following pro forma condensed combined balance sheet as of March 31, 1995,
is presented to show the impact on the Corporation's historical financial
condition of the merger with First Chicago. The Merger has been reflected
under the pooling-of-interests method of accounting.
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
CORPORATION FIRST CHICAGO --------------------- PRO FORMA
(AS REPORTED) (AS REPORTED) DEBIT CREDIT FCNBD
------------- -------------- --------- ---------- ---------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and Due From Banks -
Non Interest Bearing..................... $ 2,789 $ 3,328 $ $ $ 6,117
Due From Banks - Interest Bearing........ 654 9,120 9,774
Federal Funds Sold and Securities
Under Resale Agreements............... 122 13,532 13,654
Trading Account Assets................... 125 6,098 6,223
Derivative Product Assets................ 65 8,590 8,655
Investment Securities.................... 11,592 2,499 14,091
Loans.................................... 30,726 27,018 57,744
Allowance for Credit Losses (458) (754) (1,212)
Other Assets............................. 2,141 2,947 5,088
------- ------- ------- ------- --------
Total Assets......................... $47,756 $72,378 $ - $ - $120,134
======= ======= ======= ======= ========
LIABILITIES
Deposits:
Demand ................................ $ 6,637 $ 6,791 $ $ $ 13,428
Savings................................ 12,445 7,564 20,009
Time .................................. 9,566 5,794 15,360
Foreign Office......................... 2,913 12,042 14,955
------- ------- ------- ------- --------
Total Deposits....................... 31,561 32,191 - - 63,752
Short-Term Borrowings.................. 8,929 22,730 31,659
Long-Term Debt......................... 2,703 2,272 4,975
Derivative Product Liabilities......... 76 8,198 8,274
Other Liabilities...................... 982 2,319 146 3,447
------- ------- ------- ------- --------
Total Liabilities.................... 44,251 67,710 - 146 112,107
------- ------- ------- ------- --------
STOCKHOLDERS' EQUITY
Preferred Stock........................ - 611 611
Common Stock........................... 161 466 466 163 324
Surplus................................ 534 1,715 1,715 1,855 2,389
Retained Earnings...................... 2,990 2,041 142 4,885
4
Other.................................. (91) (2) (93)
------- ------- ------- ------- --------
Total................................ 3,594 4,831 2,327 2,018 8,116
Less: Treasury Stock................... 89 163 163 89
------- ------- ------- ------- --------
Total Stockhoholders' Equity......... 3,505 4,668 2,164 2,018 8,027
------- ------- ------- ------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........... $47,756 $72,378 $ 2,164 $ 2,164 $120,134
======= ======= ======= ======= ========
</TABLE>
See accompanying notes to pro forma financial information.
2
<PAGE> 46
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
The following unaudited pro forma condensed combined statement of income is
presented to show the impact on the Corporation's historical results of
operations of the merger with First Chicago. Such statements assume that the
companies had been combined for each period presented.
FIRST CHICAGO NBD CORPORATION
Pro Forma Condensed Combined Statement of Income
(in millions, except per share data)
<TABLE>
<CAPTION> For Three Months
For Year Ended December 31, Ended March 31,
----------------------------- --------------------
INTEREST INCOME 1994 1993 1992 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest and fees on loans............ $4,000.1 $3,611.5 $3,934.0 $1,252.1 $ 899.7
Interest on federal funds sold and
securities under resale agreements.. 623.9 349.6 290.7 244.9 91.9
Interest on trading account assets.... 284.4 227.3 268.1 90.5 60.0
Interest on investment securities..... 832.5 724.2 811.3 228.7 180.2
Other interest income................. 394.4 334.3 409.3 142.9 82.0
-------------------------------- ----------------------
Total.......................... 6,135.3 5,246.9 5,713.4 1,959.1 1,313.8
INTEREST EXPENSE
Interest on deposits................. 1,652.7 1,472.0 2,082.4 586.6 337.4
Interest on short-term borrowings.... 1,230.0 760.1 752.8 489.2 198.6
Interest on long-term debt........... 296.9 230.9 185.4 89.0 65.9
-------------------------------- ----------------------
Total......................... 3,179.6 2,463.0 3,020.6 1,164.8 601.9
NET INTEREST INCOME.................. 2,955.7 2,783.9 2,692.8 794.3 711.9
Provision for credit losses.......... 276.0 389.7 653.5 85.1 65.5
Provision for loans held for
accelerated disposition............ - - 491.0 - -
-------------------------------- ----------------------
Net Interest Income After Combined
Credit Provisions.................. 2,679.7 2,394.2 1,548.3 709.2 646.4
NON INTEREST INCOME
Equity securities gains.............. 228.6 480.2 204.6 54.9 134.2
Investment securities gains (losses). (1.3) 9.6 10.2 1.4 0.9
Credit card fee revenue.............. 870.7 730.3 553.4 200.7 190.6
Other non-interest income............ 1,322.2 1,567.7 1,249.2 348.8 314.9
-------------------------------- ----------------------
Total......................... 2,420.2 2,787.8 2,017.4 605.8 640.6
NON INTEREST EXPENSE
Salaries and employee benefits....... 1,589.6 1,557.7 1,424.2 409.1 384.2
Occupancy and equipment expense...... 501.6 460.3 489.2 121.4 140.1
Other expense........................ 1,131.7 1,162.0 1,380.0 271.1 282.5
-------------------------------- ----------------------
Total......................... 3,222.9 3,180.0 3,293.4 801.6 806.8
INCOME BEFORE INCOME TAXES........... 1,877.0 2,002.0 272.3 513.4 480.2
Applicable income taxes.............. 640.0 715.7 48.8 177.4 163.5
-------------------------------- ----------------------
INCOME FROM CONTINUING OPERATIONS.... $1,237.0 1,286.3 $ 223.5 $ 336.0 $ 316.7
-------------------------------- ----------------------
COMMON SHARE DATA
Income from continuing operations:
Primary.............................. $3.67 $3.90 $0.60 $1.01 $0.95
Fully diluted........................ $3.62 $3.78 $0.60 $0.99 $0.93
Weighed average shares:
Primary.............................. 322.7 315.4 299.2 324.1 319.9
Fully diluted........................ 330.8 331.3 N/M 331.2 332.2
</TABLE>
N/M-Not meaningful
See accompanying notes to pro forma financial information.
3
<PAGE> 47
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Corporation First Chicago Pro Forma
(as reported) (as reported) FCNBD
________________________________________________________________________________________________________
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.................... $2,102.9 $1,897.2 $4,000.1
Interest on federal funds sold and
securities under resale agreements.......... 8.7 615.2 623.9
Interest on trading account assets............ 6.7 277.7 284.4
Interest on investment securities............. 764.3 68.2 832.5
Other interest income......................... 32.7 361.7 394.4
________________________________________________________________________________________________________
Total................................ 2,915.3 3,220.0 6,135.3
INTEREST EXPENSE
Interest on deposits......................... 873.2 779.5 1,652.7
Interest on short-term borrowings............ 290.6 939.4 1,230.0
Interest on long-term debt................... 126.8 170.1 296.9
________________________________________________________________________________________________________
Total................................. 1,290.6 1,889.0 3,179.6
NET INTEREST INCOME.......................... 1,624.7 1,331.0 2,955.7
Provision for credit losses.................. 52.0 224.0 276.0
________________________________________________________________________________________________________
Net Interest Income After
Provision for Credit Losses................ 1,572.7 1,107.0 2,679.7
NON INTEREST INCOME
Equity securities gains...................... - 228.6 228.6
Investment securities gains (losses)......... (2.5) 1.2 (1.3)
Credit card fee revenue...................... 38.6 832.1 870.7
Other non-interest income.................... 509.5 812.7 1,322.2
________________________________________________________________________________________________________
Total................................ 545.6 1,874.6 2,420.2
NON INTEREST EXPENSE
Salaries and employee benefits............... 720.7 868.9 1,589.6
Occupancy and equipment expense.............. 206.9 294.7 501.6
Other expense................................ 376.7 755.0 1,131.7
________________________________________________________________________________________________________
Total................................ 1,304.3 1,918.6 3,222.9
INCOME BEFORE INCOME TAXES................... 814.0 1,063.0 1,877.0
Applicable income taxes...................... 266.7 373.3 640.0
________________________________________________________________________________________________________
INCOME FROM CONTINUING OPERATIONS............ $ 547.3 $ 689.7 $1,237.0
________________________________________________________________________________________________________
COMMON SHARE DATA
Income from continuing operations
Primary...................................... $3.45 $7.04 $3.67
Fully diluted................................ $3.43 $6.88 $3.62
Weighed average shares
Primary...................................... 158.8 90.5 322.7
Fully diluted................................ 160.1 94.2 330.8
</TABLE>
See accompanying notes to pro forma financial information.
4
<PAGE> 48
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITIED)
<TABLE>
<CAPTION>
Corporation First Chicago Pro Forma
(as reported) (as reported) FCNBD
________________________________________________________________________________________________________
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans.................... $1,924.1 $1,687.4 $3,611.5
Interest on federal funds sold and
securities under resale agreements.......... 4.8 344.8 349.6
Interest on trading account assets............ 5.4 221.9 227.3
Interest on investment securities............. 652.2 72.0 724.2
Other interest income......................... 36.3 298.0 334.3
________________________________________________________________________________________________________
Total................................. 2,622.8 2,624.1 5,246.9
INTEREST EXPENSE
Interest on deposits......................... 827.9 644.1 1,472.0
Interest on short-term borrowings............ 156.2 603.9 760.1
Interest on long-term debt................... 80.6 150.3 230.9
________________________________________________________________________________________________________
Total................................ 1,064.7 1,398.3 2,463.0
NET INTEREST INCOME.......................... 1,558.1 1,225.8 2,783.9
Provision for credit losses.................. 119.7 270.0 389.7
________________________________________________________________________________________________________
Net Interest Income After
Provision for Credit Losses................ 1,438.4 955.8 2,394.2
NON INTEREST INCOME
Equity securities gains...................... - 480.2 480.2
Investment securities gains.................. 9.3 0.3 9.6
Credit card fee revenue...................... 36.1 694.2 730.3
Other non-interest income.................... 540.0 1,027.7 1,567.7
________________________________________________________________________________________________________
Total................................ 585.4 2,202.4 2,787.8
NON INTEREST EXPENSE
Salaries and employee benefits............... 703.8 853.9 1,557.7
Occupancy and equipment expense.............. 202.3 258.0 460.3
Other expense................................ 415.8 746.2 1,162.0
________________________________________________________________________________________________________
Total................................ 1,321.9 1,858.1 3,180.0
INCOME BEFORE INCOME TAXES................... 701.9 1,300.1 2,002.0
Applicable income taxes...................... 220.1 495.6 715.7
________________________________________________________________________________________________________
INCOME FROM CONTINUING OPERATIONS............ $ 481.8 $ 804.5 $1,286.3
________________________________________________________________________________________________________
COMMON SHARE DATA
Income from continuing operations
Primary...................................... $2.98 $8.78 $3.90
Fully diluted................................ $2.93 $8.43 $3.78
Weighed average shares
Primary...................................... 161.3 85.2 315.4
Fully diluted................................ 167.9 90.3 331.3
</TABLE>
See accompanying notes to pro forma financial information.
5
<PAGE> 49
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Corporation First Chicago Pro Forma
(as reported) (as reported) FCNBD
_________________________________________________________________________________________________________
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.................... $2,039.6 $1,894.4 $3,934.0
Interest on federal funds sold and
securities under resale agreements.......... 5.9 284.8 290.7
Interest on trading account assets............ 9.1 259.0 268.1
Interest on investment securities............. 737.9 73.4 811.3
Other interest income......................... 51.3 358.0 409.3
_________________________________________________________________________________________________________
Total................................ 2,843.8 2,869.6 5,713.4
INTEREST EXPENSE
Interest on deposits......................... 1,108.7 973.7 2,082.4
Interest on short-term borrowings............ 166.8 586.0 752.8
Interest on long-term debt................... 58.5 126.9 185.4
_________________________________________________________________________________________________________
Total................................. 1,334.0 1,686.6 3,020.6
NET INTEREST INCOME.......................... 1,509.8 1,183.0 2,692.8
Provision for credit losses.................. 228.5 425.0 653.5
Provision for loans held for
accelerated disposition.................... - 491.0 491.0
_________________________________________________________________________________________________________
Net Interest Income After Combined
Credit Provisions.......................... 1,281.3 267.0 1,548.3
NON INTEREST INCOME
Equity securities gains...................... - 204.6 204.6
Investment securities gains.................. 1.6 8.6 10.2
Credit card fee revenue...................... 37.3 516.1 553.4
Other non-interest income.................... 490.3 758.9 1,249.2
_________________________________________________________________________________________________________
Total................................ 529.2 1,488.2 2,017.4
NON INTEREST EXPENSE
Salaries and employee benefits............... 676.2 748.0 1,424.2
Occupancy and equipment expense.............. 192.0 297.2 489.2
Other expense................................ 469.9 910.1 1,380.0
_________________________________________________________________________________________________________
Total................................ 1,338.1 1,955.3 3,293.4
INCOME (LOSS) BEFORE INCOME TAXES............ 472.4 (200.1) 272.3
Applicable income taxes (benefits)........... 134.4 (85.6) 48.8
_________________________________________________________________________________________________________
INCOME FROM CONTINUING OPERATIONS............ $ 338.0 $ (114.5) $ 223.5
_________________________________________________________________________________________________________
COMMON SHARE DATA
Income from continuing operations
Primary...................................... $2.11 $(2.08) $0.60
Fully diluted................................ $2.06 $(2.08) $0.60
Weighed average shares
Primary...................................... 160.7 76.5 299.2
Fully diluted................................ 168.9 N/M N/M
</TABLE>
N/M-Not meaningful.
See accompanying notes to pro forma financial information.
6
<PAGE> 50
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Corporation First Chicago Pro Forma
(as reported) (as reported) FCNBD
__________________________________________________________________________________________________________
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.................... $ 647.2 $ 604.9 $1,252.1
Interest on federal funds sold and
securities under resale agreements.......... 4.1 240.8 244.9
Interest on trading account assets............ 1.8 88.7 90.5
Interest on investment securities............. 207.7 21.0 228.7
Other interest income......................... 11.3 131.6 142.9
__________________________________________________________________________________________________________
Total................................. 872.1 1,087.0 1,959.1
INTEREST EXPENSE
Interest on deposits......................... 292.6 294.0 586.6
Interest on short-term borrowings............ 115.7 373.5 489.2
Interest on long-term debt................... 43.1 45.9 89.0
__________________________________________________________________________________________________________
Total................................ 451.4 713.4 1,164.8
NET INTEREST INCOME.......................... 420.7 373.6 794.3
Provision for credit losses.................. 20.1 65.0 85.1
__________________________________________________________________________________________________________
Net Interest Income After
Provision for Credit Losses................ 400.6 308.6 709.2
NON INTEREST INCOME
Equity securities gains...................... - 54.9 54.9
Investment securities gains.................. 1.4 - 1.4
Credit card fee revenue...................... 9.5 191.2 200.7
Other non-interest income.................... 124.8 224.0 348.8
__________________________________________________________________________________________________________
Total................................ 135.7 470.1 605.8
NON INTEREST EXPENSE
Salaries and employee benefits............... 177.3 231.8 409.1
Occupancy and equipment expense.............. 53.6 67.8 121.4
Other expense................................ 92.6 178.5 271.1
__________________________________________________________________________________________________________
Total................................ 323.5 478.1 801.6
INCOME BEFORE INCOME TAXES................... 212.8 300.6 513.4
Applicable income taxes...................... 71.9 105.5 177.4
__________________________________________________________________________________________________________
INCOME FROM CONTINUING OPERATIONS............ $ 140.9 $ 195.1 $ 336.0
__________________________________________________________________________________________________________
COMMON SHARE DATA
Income from continuing operations
Primary...................................... $0.88 $2.03 $1.01
Fully diluted................................ $0.88 $1.98 $0.99
Weighed average shares
Primary...................................... 159.5 91.0 324.1
Fully diluted................................ 159.6 94.8 331.2
</TABLE>
See accompanying notes to pro forma financial information.
7
<PAGE> 51
FIRST CHICAGO NBD CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Corporation First Chicago Pro Forma
(as reported) (as reported) FCNBD
<S> <C> <C> <C>
_________________________________________________________________________________________________________
INTEREST INCOME
Interest and fees on loans.................... $ 462.1 $ 437.6 $ 899.7
Interest on federal funds sold and
securities under resale agreements.......... 0.9 91.0 91.9
Interest on trading account assets............ 0.9 59.1 60.0
Interest on investment securities............. 164.3 15.9 180.2
Other interest income......................... 7.0 75.0 82.0
_________________________________________________________________________________________________________
Total................................. 635.2 678.6 1,313.8
INTEREST EXPENSE
Interest on deposits......................... 183.5 153.9 337.4
Interest on short-term borrowings............ 45.4 153.2 198.6
Interest on long-term debt................... 25.0 40.9 65.9
_________________________________________________________________________________________________________
Total................................. 253.9 348.0 601.9
NET INTEREST INCOME.......................... 381.3 330.6 711.9
Provision for credit losses.................. 15.5 50.0 65.5
_________________________________________________________________________________________________________
Net Interest Income After
Provision for Credit Losses................ 365.8 280.6 646.4
NON INTEREST INCOME
Equity securities gains...................... - 134.2 134.2
Investment securities gains.................. 0.4 0.5 0.9
Credit card fee revenue...................... 8.3 182.3 190.6
Other non-interest income.................... 130.0 184.9 314.9
_________________________________________________________________________________________________________
Total................................ 138.7 501.9 640.6
_________________________________________________________________________________________________________
NON INTEREST EXPENSE
Salaries and employee benefits............... 176.8 207.4 384.2
Occupancy and equipment expense.............. 52.0 88.1 140.1
Other expense................................ 93.5 189.0 282.5
_________________________________________________________________________________________________________
Total................................ 322.3 484.5 806.8
INCOME BEFORE INCOME TAXES................... 182.2 298.0 480.2
Applicable income taxes...................... 59.3 104.2 163.5
_________________________________________________________________________________________________________
INCOME FROM CONTINUING OPERATIONS............ $ 122.9 $ 193.8 $ 316.7
_________________________________________________________________________________________________________
COMMON SHARE DATA
Income from continuing operations
Primary...................................... $0.77 $2.05 $0.95
Fully diluted................................ $0.75 $2.00 $0.93
Weighed average shares
Primary...................................... 161.1 87.7 319.9
Fully diluted................................ 166.4 91.6 332.2
</TABLE>
See accompanying notes to pro forma financial information.
8
<PAGE> 52
FIRST CHICAGO NBD CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
a) The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the Merger been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of the results of operations
in future periods or the future financial position of the combined
entities. It is anticipated that the Merger will be consummated in the
first quarter of 1996.
b) The Corporation is still in the process of reviewing its accounting
policies in light of those employed by First Chicago. As a result of this
review, it might be necessary to restate either the Corporation's or First
Chicago's financial statements to conform to those accounting policies
that are most appropriate. No restatements of prior periods have been
included in the pro forma condensed combined financial statements. Any
restatements, if appropriate, will be made upon the completion of this
review process.
c) Certain reclassifications have been included in the unaudited pro forma
condensed combined balance sheet and statements of income to conform
statement presentations. Transactions conducted in the ordinary course of
business between the two companies are immaterial, and accordingly, have not
been eliminated.
d) Pro forma adjustments to common shares and surplus at March 31, 1995,
reflect the Merger accounted for as a pooling of interests, through the
exchange of 162.6 million shares of FCNBD common stock (using the common
exchange ratio of 1.81) for the 89.8 million outstanding shares of First
Chicago. Retained earnings and dividends payable have been adjusted by
approximately $4 million, reflecting the pro forma number of shares at the
Corporation's current dividend rate.
<TABLE>
<S> <C> <C>
The pro forma entries are displayed below (in millions):
Dr. Common stock (First Chicago) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 466
Dr. Common surplus (First Chicago) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,715
Cr. Treasury stock (First Chicago) . . . . . . . . . . . . . . . . . . . $ 163
Cr. Common stock (FCNBD) . . . . . . . . . . . . . . . . . . . . . . . . 163
Cr. Common surplus (FCNBD) . . . . . . . . . . . . . . . . . . . . . . . 1,855
Dr. Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4
Cr. Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4
</TABLE>
e) The pro forma financial information presented does not give effect to the
Corporation's and First Chicago's plan to repurchase in the aggregate
approximately $300 million worth of the Corporation's and First Chicago's
common stock prior to the consummation of the Merger.
f) Income per share data has been computed based on the combined historical
income from continuing operations applicable to common stockholders of the
Corporation and First Chicago using the historical weighted average number
of outstanding shares of the Corporation's common stock, and the
9
<PAGE> 53
historical weighted average number of outstanding shares of First Chicago's
common stock adjusted to equivalent shares of FCNBD's common stock, as of the
earliest period presented.
g) The pro forma condensed combined financial statements do not include the
anticipated cost savings in connection with the Merger. It is estimated,
however, that approximately $200 million in pre-tax annualized cost savings
($126 million after-tax) will be realized by the combined company in 1997.
Reductions resulting from elimination of the overlap in Chicago-area retail
branch expense constitute the largest component. Product synergies in the
large corporate and middle markets, and staff and functional areas, also
provide additional expense reduction opportunities.
h) The Corporation and First Chicago are still in the process of reviewing
their combined investment securities portfolio to determine the
classification of such securities as either available-for-sale or
held-to-maturity in connection with the combined companies' existing
interest rate risk position. As a result of this review, certain
reclassifications of FCNBD's investment securities might take place. No
adjustments have been made to existing securities classifications in the
pro forma condensed combined balance sheet. Any such reclassifications
will be accounted for in accordance with the Financial Accounting
Standards Board's Statement No. 115.
i) A liability of $225 million has been recorded in the unaudited pro forma
condensed combined balance sheet to reflect management's current estimate of
merger and restructuring related charges in connection with the Merger.
This resulted in a $142 million after-tax charge to retained earnings in the
unaudited pro forma condensed combined balance sheet.
The pro forma entries are displayed below (in millions):
<TABLE>
<S> <C> <C>
Dr. Retained earnings . . . . . . . . . . . . . . . . . . . . . . $142
Dr. Other liabilities-taxes payable . . . . . . . . . . . . . . . 83
Cr. Other liabities-reserve . . . . . . . . . . . . . . . $225
</TABLE>
It is anticipated that substantially all of these charges will be paid within
12 months subsequent to the Merger. This charge has been excluded from the
pro forma condensed combined income statement due to its nonrecurring nature.
The following table provides details of the estimated pre-tax charges (in
millions).
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Personnel $ 150
Facilities and Equipment 45
Other Merger expenses 30
-----
$ 225
=====
</TABLE>
10
<PAGE> 54
EXHIBIT INDEX
(23) Consent of Arthur Andersen LLP
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NBD Bancorp, Inc:
As independent public accountants, we hereby consent to the incorporation
of our report dated January 17, 1995, on the consolidated financial statements
of First Chicago Corporation included in this Current Report on Form 8-K dated
July 21, 1995, into NBD Bancorp, Inc.'s previously filed:
<TABLE>
<CAPTION>
REGISTRATION
FORM STATEMENT NO.
<S> <C> <C>
S-8 33-21036 NBD Bancorp, Inc. Performance Incentive Plan
S-8 33-17494 NBD Bancorp, Inc. Employees'
(Post-Effective Savings and Investment Plan
Amendment No. 1) (Investment Plus)
S-8 33-48773 FNW Stock Incentive Plan
S-8 33-46906 NBD Indiana, Inc. Employee Stock
(Post-Effective Option Plan
Amendment No. 1
Form S-4)
S-8 33-50300 NBD Indiana, Inc. Incentive Stock
(Post-Effective Option Plan
Amendment No. 1
to Form S-4)
S-8 33-53928 NBD Indiana, Inc. 1990 Stock Incentive Plan
S-3 33-60788 NBD Bancorp, Inc. 7 1/2% Preferred Purchase Units
Due 2023
</TABLE>
/s/ Arthur Andersen LLP
Chicago, Illinois,
July 21, 1995
