<PAGE> 1
SECURITIES
AND EXCHANGE
COMMISSION
FORM 10-K
Washington, D.C. 20549
- --------------------------------------------------------------------------------
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required] for the
fiscal year ended DECEMBER 31, 1994
/ / Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 [No Fee Required]
Commission File Number 1-7127
- --------------------------------------------------------------------------------
NBD
BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 38-1984850 611 WOODWARD AVENUE,
(State or other jurisdiction (IRS Employer DETROIT, MICHIGAN 48226
of incorporation or Identification No.) (Address of principal
organization) executive offices)
</TABLE>
(313) 225-1000
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the
Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------------------------------------- ------------------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange, Inc.
7 1/2% Preferred Purchase Units New York Stock Exchange, Inc.
7 1/4% Subordinated Debentures Due 2004 New York Stock Exchange, Inc.
8.10% Subordinated Notes Due 2002 New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / /
As of February 21, 1995, 160,099,984 shares of common stock of the Registrant
were outstanding (exclusive of treasury shares). The aggregate market value of
the shares of common stock as of such date (based on the closing price on the
New York Stock Exchange) held by non-affiliates was approximately
$5,023,000,000.
Documents incorporated by reference: Part III: Items 10-13 -- Part of definitive
1995 Proxy Statement of the Registrant to be filed pursuant to Regulation 14A.
- --------------------------------------------------------------------------------
<PAGE> 2
NBD
BANCORP, INC.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
PART I
Item 1. Business............................................................................ 1
Item 2. Properties.......................................................................... 4
Item 3. Legal Proceedings................................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders................................. 5
Executive Officers of the Registrant................................................ 5
PART II
Item 5. Market for the Corporation's Common Equity and Related Shareholder Matters.......... 6
Item 6. Selected Financial Data............................................................. 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 8
Item 8. Financial Statements and Supplementary Data......................................... 38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.......................................................................... 73
PART III
Item 10. Directors and Executive Officers of the Registrant.................................. 74
Item 11. Executive Compensation.............................................................. 74
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 74
Item 13. Certain Relationships and Related Transactions...................................... 74
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................... 75
Signatures......................................................................................... 77
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
- ----------------
INTRODUCTION
- ------------
NBD Bancorp, Inc. (the Corporation) is a bank holding company incorporated
under the laws of the State of Delaware on July 14, 1972. Through bank
subsidiaries in Michigan, Illinois, Indiana, Ohio and Florida, the Corporation
provides domestic retail banking, worldwide commercial banking, cash management,
trust and investment management services. The Corporation also engages in
mortgage lending and servicing, insurance, leasing, community development,
discount brokerage and data processing activities through its bank-related
subsidiaries to the extent permitted by the Bank Holding Company Act of 1956, as
amended. The Corporation and its subsidiaries employ approximately 17,800
persons on a full-time equivalent basis. At December 31, 1994, the Corporation
and its subsidiaries had total assets of $47.1 billion, total deposits of $33.2
billion and shareholders' equity of $3.3 billion. Based on rankings by total
assets as of December 31, 1994, the Corporation was the 18th largest bank
holding company in the United States.
Detailed financial information about the Corporation is presented under
Part II later in this Form 10-K and is incorporated by reference herein.
SUBSIDIARIES
- ------------
NBD BANK (MICHIGAN)
The principal subsidiary of the Corporation is NBD Bank, headquartered in
Detroit, Michigan, which remains the largest single contributor to the
Corporation's earnings. NBD Bank accounted for approximately 67 percent of the
consolidated assets and 71 percent of the consolidated net income of the
Corporation in 1994.
NBD Bank was originally organized under the National Bank Act in 1933 under
the name "National Bank of Detroit," changed its name in 1990 to "NBD Bank,
National Association," and as of year-end 1994 became "NBD Bank" when it
converted its charter to that of a state member bank under the laws of the State
of Michigan. It was the largest bank in the State of Michigan and among the 20
largest commercial banks in the United States based on total deposits as of
year-end 1994. At December 31, 1994, it operated 320 banking offices located
throughout the lower peninsula of Michigan. The Bank maintains correspondent
relationships with banks and savings associations throughout the country,
including many of the largest commercial banking organizations in the United
States.
International banking activities of NBD Bank include operations in the
Euro-Currency markets, the extension of lines of credit, export and import
financing, making credit facilities available to foreign firms and subsidiaries
of United States corporations, foreign exchange transactions and issuance of
letters of credit. This international business is conducted (a) through the
International Division in the main office in Detroit, (b) through full-service
branch offices located in London, Frankfurt, Tokyo and Hong Kong as well as
Adelaide, Melbourne and Sydney, Australia, (c) through an off-shore banking
facility in Nassau, Bahamas, (d) through a wholly-owned Edge Act subsidiary, the
International Bank of Detroit (IBD), (e) through a wholly-owned Canadian banking
subsidiary, NBD Bank, Canada, and (f) through an International Banking Facility.
IBD is authorized, subject to government regulations, to make both equity
investments and loans overseas. These overseas facilities are supplemented by a
network of correspondent banks in more than 100 foreign countries.
NBD Bank's activities in foreign exchange markets are conducted primarily
to service the needs of its customers. Foreign exchange risks are controlled
through detailed counterparty limits for purchases, sales and one-day risk at
liquidation, preapproved position limits, and closely supervised and controlled
maturity gaps.
OTHER SIGNIFICANT SUBSIDIARIES
In recent years, the Corporation has expanded significantly through
selective acquisitions, primarily in its Midwest market, as well as through
steady internal growth. On January 7, 1995, the Corporation entered into an
agreement to acquire Deerbank Corporation of Deerfield, Illinois, a one-thrift
holding company with assets of approximately $800 million. The Corporation
anticipates the acquisition will close, and the thrift subsidiary will be merged
into the Corporation's Illinois bank subsidiary, mid-year 1995. On January 9,
1995, the Corporation acquired AmeriFed Financial Corp. of Joliet, Illinois, a
one-thrift holding company with assets of approximately $900 million, and merged
that thrift subsidiary into the Corporation's Illinois bank subsidiary. In 1992,
the Corporation acquired three bank holding companies in Indiana, and during
1993 merged the 12 Indiana bank
1
<PAGE> 4
subsidiaries of those acquired companies into a single bank. That subsidiary had
deposits of approximately $8.1 billion at December 31, 1994, making it the
largest bank in Indiana. Between 1987 and 1991, the Corporation acquired four
bank holding companies in Illinois, and in December 1992 merged 17 of the
Illinois bank subsidiaries of those acquired companies into a single bank. That
subsidiary had deposits of approximately $4.0 billion at December 31, 1994,
making it the seventh largest bank in Illinois. The Corporation has also
expanded through acquisitions from federal agencies. During 1990, it acquired
from the Resolution Trust Corporation approximately $1.1 billion in deposits and
selected assets of three thrifts located in Michigan, Ohio and Florida. The
Corporation will continue to regularly explore opportunities for additional
acquisitions of financial institutions and related businesses. Such acquisitions
may be made by the exchange of the Corporation's stock, through cash purchases,
or with other consideration.
The foregoing acquisitions have enhanced the Corporation's geographic
diversity outside of the State of Michigan, particularly in the States of
Indiana and Illinois where operations are conducted through second-tier bank
holding companies. At December 31, 1994, NBD Indiana, Inc. had consolidated
total assets of $10.5 billion, while NBD Illinois, Inc. had consolidated total
assets of $5.4 billion.
Additional details of the operations of the Corporation's subsidiaries are
set forth under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Organizational Performance" later in this
Form 10-K and are incorporated by reference herein.
LINES OF BUSINESS
- -----------------
The three primary lines of business from which the Corporation derives most
of its income are corporate banking, retail banking and trust services. A
commitment to the development and use of advanced technology has been a key to
growth and cost control in all three of these areas.
CORPORATE BANKING
Services to industry, commerce and government include the maintenance of
demand and time deposit accounts and the granting of various types of loans,
including loans under lines of credit and revolving credits, term loans, real
estate mortgage loans and other specialized loans. In addition, the
Corporation's subsidiaries provide financial advisory services and numerous
other banking services to its customers. These subsidiaries serve the
requirements of large and small industrial and commercial enterprises throughout
the Midwest. The Corporation and its subsidiaries also have important banking
relationships with many major corporations throughout the country.
RETAIL BANKING
The retail banking business consists of traditional consumer deposit and
loan services, mortgage banking, electronic banking services and safe deposit
facilities. Services to individuals include demand, savings and time accounts,
charge cards and other open-end credit products, and a variety of installment
and mortgage loans. The Corporation has achieved significant growth in this line
of business in recent years and has expanded product offerings to include auto
leasing, student loans, manufactured housing loans, marine loans, home equity
loans and private label credit cards. The Corporation also makes a variety of
non-deposit investments, including mutual funds and annuities, available in its
branch offices either directly or through a third party marketer (when advisable
under applicable state laws) under the name Charterpoint Investment Centers.
TRUST SERVICES
The Corporation's subsidiaries furnish a wide range of trust services to
individuals, corporations, municipalities and charitable organizations. In terms
of total trust assets administered, the trust operation of NBD Bank is one of
the largest among commercial banks in the United States. NBD Bank and the
Corporation's other bank subsidiaries act as trustee of personal, corporate,
pension, profit-sharing and other employee-benefit trusts, provide investment
advisory and custody services, act as executor, administrator, personal
representative and trustee of estates, and act as registrar, fiscal and paying
agent for corporations. NBD Bank also serves as investment advisor to The
Woodward Funds, a mutual fund family of fourteen funds covering a wide variety
of investment objectives. As of December 31, 1994, The Woodward Funds ranked as
the tenth largest bank-managed fund family in the country, with approximately
$6.0 billion in assets.
2
<PAGE> 5
TECHNOLOGY
The Corporation has made a strong commitment to the development and use of
advanced technology across its various lines of business in order to produce
low-cost, high-quality products and generate fees. This technological
sophistication enables the Corporation and its subsidiaries to realize economies
of scale, especially in its newly acquired operations, and to enhance staff
productivity. Prominent technological involvements include the operation, under
contract with MasterCard, of the computerized transaction routing switch for
CIRRUS, a national shared network of automated teller machines (ATMs); and the
operation of a similar routing switch for Magic Line, Inc., a regional shared
network of ATMs in which the Corporation has an ownership interest. In addition,
the Corporation and its subsidiaries are actively involved in technology-based
cash management services for the wholesale and middle market, merchant and
issuer credit card processing, telephone bill payment services and telephone
banking centers.
COMPETITION
- -----------
Active competition exists in all principal areas where the Corporation, its
bank subsidiaries, and its bank-related subsidiaries are presently engaged, not
only with other commercial banks, but also with savings associations, securities
brokers, mutual funds, credit unions, finance companies, mortgage bankers,
leasing companies, insurance companies and other domestic and foreign financial
institutions and various non-financial intermediaries.
GOVERNMENT AND MONETARY POLICIES
- --------------------------------
The operations of financial institutions may be affected by legislative
changes and by the policies of various regulatory authorities. In particular,
bank holding companies and their subsidiaries are affected by the credit
policies of the Board of Governors of the Federal Reserve System (the Federal
Reserve Board) through its regulation of the national supply of bank credit.
Among the instruments of monetary policy used by the Federal Reserve Board to
implement its objectives are open market operations in U.S. Government
securities, changes in the discount rate on bank borrowings and changes in
reserve requirements on bank deposits.
REGULATION AND SUPERVISION
- --------------------------
Bank holding companies, banks and financial institutions generally are
highly regulated, with numerous federal and state laws and regulations governing
their activities. As a bank holding company, the Corporation is subject to
regulation under the Bank Holding Company Act of 1956, as amended (the Act) and
is subject to examination and supervision by the Federal Reserve Board. Under
the Act the Corporation is prohibited, with certain exceptions, from acquiring
or retaining direct or indirect ownership or control of voting shares of any
company that is not a bank or bank holding company, and from engaging in
activities other than those of banking or of managing or controlling banks,
other than subsidiary companies and activities that the Federal Reserve Board
determines to be so closely related to the business of banking as to be a proper
incident thereto. The acquisition of direct or indirect ownership or control of
a bank or bank holding company by the Corporation is also subject to certain
restrictions under the Act and applicable state laws.
Various federal and state laws govern the operations of the Corporation's
bank subsidiaries. The national bank subsidiaries of the Corporation are
supervised and regulated by the Office of the Comptroller of the Currency under
the National Bank Act. Since national banks are also members of the Federal
Reserve System and their deposits are insured by the Federal Deposit Insurance
Corporation (FDIC), they are also subject to the applicable provisions of the
Federal Reserve Act and the Federal Deposit Insurance Act and, in certain
respects, to state laws applicable to financial institutions. NBD Bank and the
other state-chartered bank subsidiaries of the Corporation are, in general,
subject to the same or similar restrictions and regulations, but with more
extensive regulation and examination by state banking departments, the Federal
Reserve Board for Federal Reserve member banks, and the FDIC. NBD Bank, Federal
Savings Bank (Florida) is under the regulatory authority of the Office of Thrift
Supervision, Department of Treasury.
The Corporation is a legal entity separate and distinct from its affiliate
banks and its non-banking subsidiaries. Accordingly, the right of the
Corporation, and thus the right of the Corporation's creditors and shareholders,
to participate in any distribution of the assets or earnings of any affiliate
bank or other subsidiary is necessarily subject to the prior claims of creditors
of such affiliate bank or subsidiary. The principal source of the Corporation's
revenues is dividends and fees from its affiliates. There are legal limitations
on the extent to which
3
<PAGE> 6
the Corporation's subsidiary banks can lend or otherwise supply funds to the
Corporation or certain of its affiliates. Federal law prevents the Corporation
from borrowing from its subsidiary banks unless the loans are secured by
specified obligations and, with respect to the Corporation or any single
non-bank affiliate, such secured loans by any subsidiary bank are generally
limited to 10 percent of the subsidiary bank's capital and surplus and, with
respect to the Corporation and all of its non-bank affiliates, to an aggregate
of 20 percent of the subsidiary bank's capital and surplus. In addition, payment
of dividends to the Corporation by subsidiary banks is subject to various state
and federal regulatory limitations. Net assets of the Corporation's subsidiary
banks totaled $3,544.0 million at December 31, 1994, of which approximately
$2,575.0 million was not available for dividends or loans. In 1995, the
Corporation's bank subsidiaries may distribute to the Corporation (in addition
to their 1995 net income) approximately $602.0 million in dividends without the
prior approval of bank regulatory agencies. In addition, federal bank regulatory
agencies have the authority to prohibit the banking organizations they supervise
from engaging in what, in the bank regulator's opinion, constitutes an unsafe or
unsound practice in conducting its business. Depending upon the financial
condition of a bank, the payment of dividends could be deemed to constitute such
an unsafe or unsound practice.
Recent banking legislation, including particularly the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), has
broadened the regulatory powers of the federal bank regulatory agencies. Among
other things, FIRREA contains a "cross-guarantee" provision which could result
in insured depository institutions owned by the Corporation being assessed for
losses incurred by the FDIC in connection with assistance provided to, or the
failure of, any other insured depository institution owned by the Corporation.
In addition, under Federal Reserve Board policy, the Corporation is expected to
act as a source of financial strength to each subsidiary bank and to commit
resources to support such subsidiary bank. As a result of such policies, the
Corporation could be required to commit resources to its subsidiary banks in
circumstances where it might not do so absent such policies.
FDICIA revises sections of the Federal Deposit Insurance Act affecting bank
regulation, deposit insurance and provisions for funding of the Bank Insurance
Fund (BIF) administered by the FDIC. FDICIA also revises bank regulatory
structures embodied in several other federal banking statutes, strengthens the
bank regulators' authority to intervene in cases of deterioration of a bank's
capital level, places limits on real estate lending and imposes detailed audit
requirements. Among the significant revisions that could have an impact on each
of the Corporation and its banking subsidiaries is the authority granted the
FDIC to impose special assessments on insured depository institutions to repay
FDIC borrowings from the United States Treasury or other sources and to
establish semiannual assessment rates on BIF-member banks so as to maintain the
BIF at the designated reserve ratio defined in FDICIA. FDICIA also provides for
implementation of a system of risk-based premiums for deposit insurance. Under a
risk-based insurance assessment system that became effective January 1, 1994,
the FDIC places each insured bank in a risk category based on the bank's level
of capital and other relevant information (such as supervisory evaluations).
Proposals to change the laws and regulations governing banks, companies
that control banks, and other financial institutions are frequently raised in
Congress, in the state legislatures and before the various bank regulatory
agencies. For example, legislation enacted in 1994 permits nationwide interstate
bank acquisitions and branching, generally phased in over the next several
years, and requires bank regulatory agencies to reduce the regulatory burden
applicable to banks and their holding companies. The impact, positive or
negative, such legislation or other statutory or regulatory changes might have
on the Corporation's business is difficult to determine.
The bank-related subsidiaries of the Corporation are also supervised and
examined by the Federal Reserve Board as well as other applicable regulatory
agencies. For example, the Corporation's discount brokerage subsidiaries are
subject to supervision and regulation by the Securities and Exchange Commission
(SEC), the National Association of Securities Dealers, Inc. and state securities
regulators. Other bank-related subsidiaries are subject to other extensive laws
and regulations of both the federal government and the various states in which
they are authorized to do business.
ITEM 2. PROPERTIES
- ------------------
The executive offices of the Corporation are located in the main office of
NBD Bank, a 14-story building in the central financial and business district of
Detroit. This building, which has two additional floors below the street level,
is owned by NBD Bank and occupied exclusively by NBD Bank, the Corporation and
other direct and indirect subsidiaries of the Corporation. The Corporation also
owns a 14-story, 300,000 square foot office
4
<PAGE> 7
building in Troy, Michigan, and a 380,000 square foot Technology Center in Van
Buren Township, Wayne County, Michigan, near Detroit Metropolitan Airport.
During 1993, NBD Bank acquired approximately 143 acres of land in Farmington
Hills, Michigan for possible future facility needs.
As of December 31, 1994, the Corporation's subsidiaries operated 854
offices within the United States of which 516 are owned by such subsidiaries and
338 are leased. Foreign offices in London, Frankfurt, Tokyo, Hong Kong, Canada
and Australia are located in leased premises. Historic rental expense and
anticipated rental payments are set forth under "Item 8. Financial Statements
and Supplementary Data -- Note 6. Premises and Equipment" and are incorporated
by reference herein.
All of these properties are considered by management to be suitable and
adequate for the purpose intended.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
The Corporation is a defendant in various legal proceedings arising in the
normal course of business. In the opinion of management, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Corporation's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The executive officers of the Corporation as of February 1, 1995, are as
follows:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME POSITION SINCE AGE
- ---------------------------- -------------------------------------------------------- --------- ---
<S> <C> <C> <C>
Verne G. Istock............. Chairman and Chief Executive Officer.................... 1982 54
Thomas H. Jeffs II.......... President and Chief Operating Officer................... 1982 56
Frederick M. Adams, Jr. .... Executive Vice President................................ 1990 50
Gordon S. Crimmins.......... Executive Vice President................................ 1992 60
Robert A. DeAlexandris...... Executive Vice President................................ 1989 54
Philip S. Jones............. Executive Vice President, Treasurer and
Chief Financial Officer................................. 1989 52
James R. Lancaster.......... Executive Vice President................................ 1992 63
Thomas J. McDowell.......... Executive Vice President................................ 1995 56
Susan S. Moody.............. Executive Vice President................................ 1995 41
Donald M. Nowicki........... Executive Vice President................................ 1994 63
Andrew J. Paine, Jr. ....... Executive Vice President................................ 1992 57
Gerald K. Hanson............ Senior Vice President and Comptroller................... 1981 63
</TABLE>
Officers of the Corporation are elected in the spring of each year at the
annual organizational meeting of the Board of Directors to serve for the ensuing
year and until their successors are elected and qualified.
All of the executive officers of the Corporation named above have held
various positions with NBD Bank or its affiliates or their predecessors for more
than five years.
There is no family relationship between any of the executive officers, nor
is there any arrangement or understanding between any such officer and any other
person pursuant to which the officer was elected.
5
<PAGE> 8
PART II
ITEM 5. MARKET FOR THE CORPORATION'S COMMON EQUITY AND RELATED
- ---------------------------------------------------------------
SHAREHOLDER MATTERS
-------------------
The 155,908,672 shares of common stock of the Corporation outstanding at
December 31, 1994, had a market value of $4.3 billion and were held by
approximately 26,000 individual and institutional recordholders located
throughout the United States and several foreign countries.
On March 15, 1994, the Corporation called for redemption the $199,985,000
of 7 1/4% Convertible Subordinated Debentures at a redemption price of $1,050.75
per $1,000 of principal outstanding. A nominal amount of debentures was
converted into the Corporation's common stock before the redemption date at the
conversion price of $30.40 per share.
Since April 1986, NBD Bancorp, Inc. common stock has been included in the
Standard & Poor's 500 index. The index is composed of 400 industrials, 40
utilities, 40 financial firms and 20 transportation companies.
The following table lists the high and low prices of the Corporation's
common stock, which trades on the New York Stock Exchange (ticker symbol --
NBD), as well as the quarterly dividends declared per share, in each of the last
three years.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK DIVIDENDS
--------------- DECLARED
HIGH LOW PER SHARE
----- ----- ------------
<S> <C> <C> <C>
1992
First Quarter...................................... $31 5/8 $28 1/8 $ 0.25
Second Quarter..................................... 29 5/8 26 3/4 0.25
Third Quarter...................................... 30 1/2 28 1/8 0.27
Fourth Quarter..................................... 33 1/8 27 0.27
------
$ 1.04
======
1993
First Quarter...................................... $36 3/8 $31 3/8 $ 0.27
Second Quarter..................................... 36 1/4 29 5/8 0.27
Third Quarter...................................... 34 3/8 31 3/8 0.27
Fourth Quarter..................................... 34 5/8 28 5/8 0.27
------
$ 1.08
======
1994
First Quarter...................................... $30 3/4 $27 1/4 $ 0.30
Second Quarter..................................... 32 27 3/8 0.30
Third Quarter...................................... 33 28 3/8 0.30
Fourth Quarter..................................... 31 26 3/4 0.33
------
$ 1.23
======
</TABLE>
6
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
The following selected financial data should be read in conjunction with
the Corporation's consolidated financial statements and the accompanying notes
presented elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS:
Interest Income........................ $ 2,915,394 $ 2,622,820 $ 2,843,797 $ 3,138,893 $ 3,320,312
Interest Expense....................... (1,290,626) (1,064,713) (1,334,026) (1,800,759) (2,077,923)
----------- ----------- ----------- ----------- -----------
Net Interest Income.................... 1,624,768 1,558,107 1,509,771 1,338,134 1,242,389
Provision for Possible Credit Losses... (52,032) (119,674) (228,480) (166,212) (151,086)
Non-Interest Income.................... 545,566 585,383 529,208 473,027 412,339
Non-Interest Expenses.................. (1,304,270) (1,321,840) (1,338,119) (1,161,127) (1,055,774)
----------- ----------- ----------- ----------- -----------
Income before Income Taxes............. 814,032 701,976 472,380 483,822 447,868
Income Tax Expense..................... (266,753) (220,135) (134,361) (122,288) (99,319)
----------- ----------- ----------- ----------- -----------
Income before Extraordinary Item and
Cumulative Effect of Accounting
Change............................... 547,279 481,841 338,019 361,534 348,549
Extraordinary Item (Redemption
of Debt)............................. (7,730) -- -- -- --
Cumulative Effect of Accounting
Change............................... (7,885) 3,950 (37,885) -- --
----------- ----------- ----------- ----------- -----------
Net Income............................. $ 531,664 $ 485,791 $ 300,134 $ 361,534 $ 348,549
=========== =========== =========== =========== ===========
Net Income Per Share (on average shares
outstanding):
Income before Extraordinary Item and
Cumulative Effect of Accounting
Change............................... $ 3.45 $ 2.98 $ 2.11 $ 2.27 $ 2.19
Extraordinary Item (Redemption
of Debt)............................. (0.05) -- -- -- --
Cumulative Effect of Accounting
Change............................... (0.05) 0.03 (0.24) -- --
----------- ----------- ----------- ----------- -----------
Net Income............................. $ 3.35 $ 3.01 $ 1.87 $ 2.27 $ 2.19
=========== =========== =========== =========== ===========
COMMON STOCK DATA:
Dividends Declared Per Share........... $ 1.23 $ 1.08 $ 1.04 $ 0.95 $ 0.91
Book Value Per Share (Period-end)...... $ 21.11 $ 20.21 $ 18.34 $ 17.26 $ 15.98
BALANCE SHEET DATA (PERIOD-END):
Shareholders' Equity................... $ 3,291,543 $ 3,248,599 $ 2,940,893 $ 2,716,137 $ 2,533,339
Long-Term Debt......................... $ 2,504,348 $ 1,434,947 $ 975,381 $ 533,571 $ 325,216
Total Assets........................... $47,111,133 $40,775,905 $40,937,190 $38,760,388 $36,879,336
CAPITAL RATIOS (PERIOD-END):
Tier 1 Capital Ratio (Minimum -- 4%)... 8.44% 9.13% 8.48% 8.19% 8.26%
Total Capital Ratio (Minimum -- 8%).... 12.50% 13.61% 12.01% 10.68% 10.16%
Tier 1 Leverage Ratio (Minimum --
3%).................................. 6.77% 7.33% 6.46% 6.24% 6.30%
</TABLE>
7
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion and analysis covers the significant factors
affecting the Corporation's consolidated balance sheet and income statement from
1992 to 1994. It provides shareholders with more comprehensive information on
the operating results and financial position than can be obtained from
examination of the financial statements alone. To establish a framework for this
discussion, the major components of the Corporation's operating results for
1994, 1993 and 1992 are summarized in the following table and then discussed in
greater detail on subsequent pages.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Interest Income........................................... $1,624,768 $1,558,107 $1,509,771
Add: Taxable Equivalent Adjustment............................ 63,608 72,316 81,081
---------- ---------- ----------
Net Interest Income (taxable equivalent basis)................ 1,688,376 1,630,423 1,590,852
Less: Provision for Possible Credit Losses.................... (52,032) (119,674) (228,480)
Non-Interest Income........................................... 545,566 585,383 529,208
---------- ---------- ----------
Total Income after Provision for Possible Credit Losses... 2,181,910 2,096,132 1,891,580
---------- ---------- ----------
Compensation.................................................. 720,733 703,744 676,240
Other Non-Interest Expenses................................... 583,537 618,096 661,879
---------- ---------- ----------
Total Non-Interest Expenses............................... 1,304,270 1,321,840 1,338,119
---------- ---------- ----------
Tax Equivalent Operating Income........................ 877,640 774,292 553,461
---------- ---------- ----------
Less:
Income Tax Expense.......................................... 266,753 220,135 134,361
Taxable Equivalent Adjustment............................... 63,608 72,316 81,081
---------- ---------- ----------
Total Tax Expense (taxable equivalent basis).............. 330,361 292,451 215,442
---------- ---------- ----------
Income before Extraordinary Item and Cumulative Effect of
Accounting Change...................................... 547,279 481,841 338,019
Extraordinary Item (net of income tax effect)............. (7,730) -- --
Cumulative Effect of Accounting Change (net of income tax
effect)................................................ (7,885) 3,950 (37,885)
---------- ---------- ----------
Net Income.................................................... $ 531,664 $ 485,791 $ 300,134
========== ========== ==========
</TABLE>
NET INTEREST INCOME
In the summary of operating results shown above, the excess of interest
earned on assets, including loan fees and lease financing income, over the
interest paid for funds is designated "Net Interest Income." An adjustment to
this figure has been made that increases fully or partially tax-exempt interest
income to an amount comparable to interest subject to normal income taxes. An
offsetting adjustment of the same amount is made in the income tax section of
the earnings summary. Therefore, the final earnings figure remains the same
before and after this taxable equivalent adjustment.
Net interest income on a fully taxable equivalent (FTE) basis is the
largest source of earnings for the Corporation. It accounted for 75.6 percent of
total income before any provision for possible credit losses in 1994, 73.6
percent in 1993 and 75.0 percent in 1992. It is influenced primarily by changes
in: (1) the volume and mix of earning assets and sources of funding; (2) market
rates of interest, and (3) income tax rates. While the impact of some of these
factors can be controlled by management policies and actions, external factors
also can have a significant impact on changes in net interest income from one
period to another. Examples of such exogenous factors are: (1) Federal Reserve
Board monetary policy; (2) the strength of credit demand by customers; (3)
liquidity and maturity preferences of savings and time deposit customers, and
(4) fiscal and debt management policies of the federal government, including
changes in tax laws.
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table presents average daily balances, interest income on an
FTE basis and interest expense, as well as average rates earned and paid on the
Corporation's major asset and liability items, for the years 1994, 1993 and
1992.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------------------------------
1994 1993 1992
-------------------------------- ---------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE
INTEREST RATE INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
------- --------- ------- ----------- ---------- ------- ----------- ---------- -------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-Bearing
Deposits....... $ 651,445 $ 32,736 5.03% $ 657,010 $ 34,185 5.20% $ 759,645 $ 47,556 6.26%
Federal Funds
Sold and Resale
Agreements..... 191,954 8,688 4.53 150,985 4,820 3.19 153,818 5,921 3.85
Trading Account
Securities..... 142,231 6,856 4.82 147,113 5,492 3.73 216,880 9,268 4.27
Money Market
Investments.... -- -- -- 51,728 2,138 4.13 48,365 3,709 7.67
Investment
Securities:
U.S. Treasury.. 1,379,274 75,549 5.48 1,593,508 87,479 5.49 1,362,015 83,918 6.16
U.S. Government
Agencies..... 8,987,236 589,373 6.56 6,642,221 467,444 7.04 6,200,998 498,902 8.05
States and
Political
Subdivisions.. 1,481,411 132,559 8.95 1,541,269 132,491 8.60 1,739,332 157,007 9.03
Other.......... 346,655 18,215 5.25 476,901 21,717 4.55 1,051,712 60,188 5.72
----------- ---------- ------- ----------- ---------- ------ ----------- ---------- ------
Total Investment
Securities..... 12,194,576 815,696 6.69 10,253,899 709,131 6.92 10,354,057 800,015 7.73
----------- ---------- ------- ----------- ---------- ------ ----------- ---------- ------
Loans and Leases
(Net of Unearned):
Domestic:
Commercial... 14,407,804 1,110,969 7.71 13,696,047 960,838 7.02 13,281,779 989,671 7.45
Real Estate
Construction.. 768,391 60,773 7.91 813,461 59,112 7.27 993,448 73,054 7.35
Residential
Mortgage... 3,012,361 227,092 7.54 2,784,146 229,799 8.25 2,914,692 263,968 9.06
Consumer..... 7,147,999 614,950 8.60 6,492,505 594,229 9.15 6,125,993 613,827 10.02
Lease
Financing... 307,974 30,456 9.89 258,266 29,312 11.39 264,846 31,950 12.10
Foreign........ 1,145,894 70,786 6.18 1,069,098 66,080 6.18 1,114,760 85,939 7.71
----------- ---------- ------- ----------- ---------- ------ ----------- ---------- ------
Total Loans
and
Leases... 26,790,423 2,115,026 7.89 25,113,523 1,939,370 7.72 24,695,518 2,058,409 8.34
----------- ---------- ------- ----------- ---------- ------ ----------- ---------- ------
Total
Earning
Assets/Total
Interest
Income... 39,970,629 $2,979,002 7.45% 36,374,258 $2,695,136 7.41% 36,228,283 $2,924,878 8.07%
---------- ------- ---------- ----- --------- -----
Cash and Due
From Banks..... 2,372,237 2,359,047 2,087,194
Other Assets.... 2,025,150 1,692,889 1,716,868
Allowance for
Possible Credit
Losses......... (433,707) (433,851) (407,942)
----------- ----------- -----------
TOTAL ASSETS... $43,934,309 $39,992,343 $39,624,403
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
Interest-Bearing
Deposits:
Savings........ $ 7,794,524 $ 182,880 2.35% $ 7,251,664 $ 182,762 2.52% $ 6,278,690 $ 197,770 3.15%
Money Market
Accounts..... 5,277,710 163,212 3.09 5,917,755 166,002 2.81 6,029,589 206,392 3.42
Time........... 8,962,402 402,293 4.49 8,803,831 399,461 4.54 11,098,035 602,878 5.43
Foreign Office
Time*........ 2,698,891 124,805 4.62 1,741,225 79,650 4.57 1,614,981 101,674 6.30
----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
Total
Interest-Bearing
Deposits........ 24,733,527 873,190 3.53 23,714,475 827,875 3.49 25,021,295 1,108,714 4.43
----------- ---------- ------ ----------- ---------- ------ ----------- ---------- ------
Short-Term
Borrowings..... 6,647,405 290,624 4.37 4,994,163 156,227 3.13 4,624,260 166,756 3.61
Long-Term
Debt........... 2,060,962 126,812 6.15 1,229,564 80,611 6.56 803,950 58,556 7.28
----------- ---------- ------ ----------- ---------- ------ ---------- --------- -----
Total
Interest-Bearing
Liabilities/
Total
Interest
Expense... 33,441,894 $1,290,626 3.86% 29,938,202 $1,064,713 3.56% 30,449,505 $1,334,026 4.38%
---------- ------ --------- ------ --------- -----
Demand
Deposits....... 6,305,115 6,097,730 5,483,688
Other
Liabilities.... 881,978 836,489 815,494
Shareholders'
Equity......... 3,305,322 3,119,922 2,875,716
----------- ----------- -----------
TOTAL
LIABILITIES
AND
SHAREHOLDERS'
EQUITY... $43,934,309 $39,992,343 $39,624,403
========== ========== ==========
Interest Spread
(Average Rate
Earned Minus
Average Rate
Paid).......... 3.59% 3.85% 3.69%
====== ===== =====
Net Interest
Income (FTE)... $1,688,376 $1,630,423 $1,590,852
========= ========= =========
Net Interest
Margin (FTE)
(Net Interest
Income/Total
Earning
Assets)........ 4.22% 4.48% 4.39%
====== ===== =====
</TABLE>
- -------------------------
* Primarily $100,000 and over.
Notes: (1) Non-accrual loans are included in average balances.
(2) The FTE adjustments are computed using a combined federal and state
income tax rate of 36.4 percent in 1994 and 1993 and 35.4 percent in
1992.
(3) The combined amounts for Investment Securities Available-for-Sale and
Held-to-Maturity for 1994 are based on their respective carrying
values. Based on the amortized cost of Investment Securities
Available-for-Sale, the combined average balance for 1994 would be
$12,316,037,000 and the average rate earned would be 6.62%.
(4) Residential Mortgage includes Mortgages Held for Sale.
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Net interest income on an FTE basis increased by $58.0 million, or 3.6
percent, in 1994 following the increase of $39.6 million, or 2.5 percent, in
1993. A better understanding of the factors accounting for the year-to-year
increases in net interest income can be obtained by examining the changes in:
(1) the volume of earning assets and (2) the net interest income produced after
the related cost of funding these earning assets.
The following table allocates total interest income between the amounts
earned at the "interest spread" on assets funded with: (1) interest-bearing
liabilities and (2) non-interest-bearing liabilities (primarily demand deposits
and equity capital). The interest spread on earning assets funded by
interest-bearing liabilities is defined as the difference between the average
rate earned on total earning assets and the average rate paid on total interest-
bearing liabilities. The interest spread on assets funded with
non-interest-bearing sources of funds is simply the rate earned on total earning
assets.
The $58.0 million increase in total net interest income between 1993 and
1994 can be attributed primarily to the higher level of earning assets funded
with interest-bearing liabilities, which more than offset the reduced interest
spread (3.59 percent in 1994 versus 3.85 percent in 1993) earned on these
earning assets. The balance of the increase in net interest income can be
accounted for by the modestly higher level of earning assets that were funded
with non-interest-bearing funds at a slightly higher interest spread (7.45
percent in 1994 versus 7.41 percent in 1993).
Approximately three-quarters of the $39.6 million increase in total net
interest income between 1992 and 1993 can be attributed to an increased interest
spread (3.85 percent in 1993 versus 3.69 percent in 1992) on earning assets
funded with interest-bearing liabilities, which more than offset the lower
volume of earning assets funded by the interest-bearing liabilities. The balance
of the increase in net interest income can be accounted for by the significantly
higher level of earning assets supported by non-interest-bearing funds during
1993, notwithstanding the lower yield on earning assets (7.41 percent in 1993
versus 8.07 percent in 1992).
ANALYSIS OF NET INTEREST INCOME (FTE)
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------ ------------------------------------ ------------------------------------
AVERAGE NET AVERAGE NET AVERAGE NET
EARNING INTEREST INTEREST EARNING INTEREST INTEREST EARNING INTEREST INTEREST
ASSETS SPREAD INCOME ASSETS SPREAD INCOME ASSETS SPREAD INCOME
----------- -------- ---------- ----------- -------- ---------- ----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOURCE OF
FUNDING:
Interest-
Bearing
Liabilities... $33,441,894 3.59% $1,201,567 $29,938,202 3.85% $1,153,519 $30,449,505 3.69% $1,124,318
Non-Interest-
Bearing
Liabilities
and
Equity
Capital... 6,528,735 7.45 486,809 6,436,056 7.41 476,904 5,778,778 8.07 466,534
----------- ---------- ----------- ---------- ----------- ----------
Total.... $39,970,629 $1,688,376 $36,374,258 $1,630,423 $36,228,283 $1,590,852
=========== ========== =========== ========== =========== ==========
</TABLE>
A more detailed analysis of the effect of volume and rate changes on net
interest income between 1992, 1993 and 1994 is set forth in the following table.
For purposes of this table, changes in interest due to volume and rates
were determined as follows: (1) volume variance -- change in volume multiplied
by previous rate, (2) rate variance -- change in rate multiplied by previous
volume, and (3) rate/volume variance -- change in volume multiplied by change in
rate. The rate/volume variance was allocated entirely to volume. Net interest
income has been computed on a fully taxable equivalent basis and includes loan
fees. Average balances for non-accrual loans have been included in this table.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------
1994 OVER 1993 1993 OVER 1992
-------------------------------- -----------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- -------- -------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Interest
Income:
Interest-Bearing Deposits........ $ (331) $ (1,117) $ (1,448) $ (5,319) $ (8,052) $ (13,371)
Federal Funds Sold and Resale
Agreements..................... 1,845 2,023 3,868 (86) (1,015) (1,101)
Trading Account Securities....... (241) 1,604 1,363 (2,605) (1,171) (3,776)
Money Market Investments......... (2,138) -- (2,138) 141 (1,712) (1,571)
Investment Securities:
U. S. Treasury and Government
Agencies.................... 137,177 (27,178) 109,999 45,464 (73,361) (27,897)
States and Political
Subdivisions................ (5,326) 5,394 68 (17,037) (7,479) (24,516)
Other.......................... (6,840) 3,338 (3,502) (26,166) (12,305) (38,471)
Loans and Leases:
Domestic....................... 127,670 43,280 170,950 35,230 (134,410) (99,180)
Foreign........................ 4,706 -- 4,706 (2,803) (17,056) (19,859)
-------- -------- -------- --------- --------- ---------
Total....................... 256,522 27,344 283,866 26,819 (256,561) (229,742)
-------- -------- -------- --------- --------- ---------
Increase (Decrease) in Interest
Expense:
Domestic Office Deposits:
Savings........................ 12,446 (12,328) 118 24,548 (39,556) (15,008)
Money Market Accounts.......... (19,360) 16,570 (2,790) (3,610) (36,780) (40,390)
Time........................... 7,234 (4,402) 2,832 (104,644) (98,773) (203,417)
Foreign Office Time Deposits*.... 44,284 871 45,155 5,915 (27,939) (22,024)
Short-Term Borrowings............ 72,469 61,928 134,397 11,667 (22,196) (10,529)
Long-Term Debt................... 51,242 (5,041) 46,201 27,843 (5,788) 22,055
-------- -------- -------- --------- --------- ---------
Total....................... 168,315 57,598 225,913 (38,281) (231,032) (269,313)
-------- -------- -------- --------- --------- ---------
Increase (Decrease) in Net Interest
Income........................... $ 88,207 $(30,254) $ 57,953 $ 65,100 $ (25,529) $ 39,571
======== ======== ======== ========= ========= =========
</TABLE>
- -------------------------
* Primarily over $100,000.
PROVISION AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES
The Provision for Possible Credit Losses was reduced from $228.5 million in
1992 to $119.7 million in 1993 and then to $52.0 million in 1994. The reduced
provisions in 1993 and 1994 were made in view of the decline in nonperforming
loans and the significantly lower level of net loan charge-offs during those
years. The historically high provision in 1992 included approximately $51
million to conform acquired banks' loan evaluation policies with those of NBD
Bancorp.
Net charge-offs as a percentage of average loans and leases outstanding
declined from 0.81 of 1 percent in 1992 to 0.46 of 1 percent in 1993 and then
dropped to a 16-year low of 0.15 of 1 percent in 1994. During the past five
years, gross charge-offs totaled $972 million, while recoveries amounted to $341
million for a "recovery ratio" of approximately 35 percent. The net charge-off
ratio during the same five-year period was 0.52 of 1 percent.
In the commercial loan and lease portfolio, the largest single net
charge-off in 1994 was $3.4 million on a loan to an industrial wholesale firm.
In 1993 the largest net charge-off was $10.0 million on a loan to a retail
chain. During 1992 the largest net charge-off was a $19.2 million balance of a
loan to an air transportation company.
Net recoveries of $2.2 million were realized in the real estate
construction loan portfolio in 1994. Net charge-offs of $19.4 million were
experienced in 1993 and $22.9 million in 1992 and were spread over several
credits in each year.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Charge-offs in the residential mortgage loan portfolio were nominal in 1994
as in prior years.
Charge-off experience in the consumer loan area during 1994 was lower than
in either 1993 or 1992 and was well below the industry average in each year. The
net charge-off ratio was 0.36 of 1 percent in 1994, 0.43 of 1 percent in 1993
and 0.64 of 1 percent in 1992.
Modest net recoveries were realized in the foreign loan portfolio during
1994, while net charge-offs of $12.4 million and $14.1 million were taken in
1993 and 1992, respectively. The 1993 charge-off figure included the write-off
of the remaining $8.7 million balance of credits to individual political
entities formerly known as Yugoslavia. Results for 1992 included net charge-offs
of $10.5 million in Canada where the economy was experiencing a recession.
At December 31, 1994, the Allowance for Possible Credit Losses amounted to
$435.1 million, or 1.49 percent of total loans and leases outstanding and
approximately 242 percent of nonperforming loans.
RECONCILIATION OF ALLOWANCE FOR POSSIBLE CREDIT LOSSES
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for Possible Credit Losses:
Balance, Beginning of Year............... $ 423,030 $ 417,764 $ 377,585 $ 359,254 $ 329,850
Losses Charged-Off during Year........... (121,026) (206,101) (256,860) (211,693) (176,093)
Recoveries of Losses Previously
Charged-Off............................ 80,560 91,576 57,112 60,918 51,284
--------- --------- --------- --------- ---------
Net Loans Charged-Off.................. (40,466) (114,525) (199,748) (150,775) (124,809)
Provision Charged to Operating Expense... 52,032 119,674 228,480 166,212 151,086
Other Additions.......................... 455 117 11,447 2,894 3,127
--------- --------- --------- --------- ---------
Balance, End of Year....................... $ 435,051 $ 423,030 $ 417,764 $ 377,585 $ 359,254
========= ========= ========= ========= =========
</TABLE>
In order to comply with certain regulatory reporting requirements,
management has prepared the following table which provides the components of the
Allowance for Possible Credit Losses by loan category. This breakdown of the
Allowance reflects management's best estimate of possible credit losses based on
the loss potential associated with specific loans, subjective assessment of risk
characteristics in the portfolio and historical loss experience. This breakdown
should not be taken as an indication of future losses or that losses will occur
in these proportions.
The Corporation and its subsidiaries do not maintain specific reserves
against any loan or particular group of loans as it is management's policy to
charge off all losses as they become known. The Allowance should be considered
in its entirety as available for credit losses across the entire portfolio. It
is management's opinion that the Allowance for Possible Loan Losses at December
31, 1994, is adequate to cover future losses.
ANALYSIS OF ALLOWANCE FOR POSSIBLE CREDIT LOSSES BY CATEGORY
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------------- ----------------------------
DISTRIBUTION PERCENT DISTRIBUTION PERCENT
LOAN CATEGORY OF ALLOWANCE OF TOTAL OF ALLOWANCE OF TOTAL
- -------------------------------------------------- --------------- --------- --------------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial........................................ $ 110,205 25.3% $ 135,088 31.9%
Real Estate Construction.......................... 12,227 2.8 27,635 6.5
Residential Mortgage.............................. 488 0.1 734 0.2
Mortgages Held for Sale........................... -- -- -- --
Consumer.......................................... 43,243 10.0 40,401 9.6
Lease Financing................................... 1,724 0.4 1,363 0.3
Foreign........................................... 4,364 1.0 8,048 1.9
Unallocated Allowance............................. 262,800 60.4 209,761 49.6
--------------- --------- --------------- ---------
$ 435,051 100.0% $ 423,030 100.0%
=============== ========= =============== =========
</TABLE>
The following tables represent a summary and an analysis of the
Corporation's loan and lease data, including charge-offs and recoveries, as well
as related ratios for the five years ended December 31, 1994.
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
ANALYSIS OF LOAN AND LEASE LOSSES
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMMERCIAL LOANS:
Charge-Offs............................. $ 58,519 $109,713 $143,687 $ 93,966 $ 74,143
Recoveries.............................. 43,266 56,379 24,609 22,899 28,344
-------- -------- -------- -------- --------
NET CHARGE-OFFS......................... $ 15,253 $ 53,334 $119,078 $ 71,067 $ 45,799
-------- -------- -------- -------- --------
REAL ESTATE CONSTRUCTION LOANS:
Charge-Offs............................. $ 2,345 $ 24,652 $ 26,201 $ 25,507 $ 29,237
Recoveries.............................. 4,529 5,298 3,346 2,810 658
-------- -------- -------- -------- --------
NET CHARGE-OFFS (RECOVERIES)............ $ (2,184) $ 19,354 $ 22,855 $ 22,697 $ 28,579
-------- -------- -------- -------- --------
RESIDENTIAL MORTGAGE LOANS:
Charge-Offs............................. $ 555 $ 210 $ 642 $ 637 $ 1,131
Recoveries.............................. 59 134 126 270 539
-------- -------- -------- -------- --------
NET CHARGE-OFFS......................... $ 496 $ 76 $ 516 $ 367 $ 592
-------- -------- -------- -------- --------
CONSUMER LOANS:
Charge-Offs............................. $ 52,780 $ 54,171 $ 66,116 $ 73,290 $ 65,156
Recoveries.............................. 26,897 26,217 26,944 25,052 19,792
-------- -------- -------- -------- --------
NET CHARGE-OFFS......................... $ 25,883 $ 27,954 $ 39,172 $ 48,238 $ 45,364
-------- -------- -------- -------- --------
LEASE FINANCING:
Charge-Offs............................. $ 2,366 $ 3,064 $ 6,000 $ 12,988 $ 4,257
Recoveries.............................. 1,314 1,702 2,001 1,897 670
-------- -------- -------- -------- --------
NET CHARGE-OFFS......................... $ 1,052 $ 1,362 $ 3,999 $ 11,091 $ 3,587
-------- -------- -------- -------- --------
FOREIGN LOANS:
Charge-Offs............................. $ 4,461 $ 14,291 $ 14,214 $ 5,305 $ 2,169
Recoveries.............................. 4,495 1,846 86 7,990 1,281
-------- -------- -------- -------- --------
NET CHARGE-OFFS (RECOVERIES)............ $ (34) $ 12,445 $ 14,128 $ (2,685) $ 888
-------- -------- -------- -------- --------
TOTAL LOANS:
Charge-Offs............................. $121,026 $206,101 $256,860 $211,693 $176,093
Recoveries.............................. 80,560 91,576 57,112 60,918 51,284
-------- -------- -------- -------- --------
NET CHARGE-OFFS......................... $ 40,466 $114,525 $199,748 $150,775 $124,809
======== ======== ======== ======== ========
</TABLE>
DAILY AVERAGE LOANS AND LEASES OUTSTANDING
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Commercial.............................. $ 14,408 $ 13,696 $ 13,281 $ 12,439 $ 11,764
Real Estate Construction................ 768 813 993 1,113 1,134
Residential Mortgage.................... 3,012 2,784 2,915 2,684 2,605
Consumer................................ 7,148 6,493 6,126 5,601 5,207
Lease Financing......................... 308 258 265 278 298
Foreign................................. 1,146 1,069 1,115 1,175 1,131
-------- -------- -------- -------- --------
TOTAL.............................. $ 26,790 $ 25,113 $ 24,695 $ 23,290 $ 22,139
======== ======== ======== ======== ========
</TABLE>
ANALYSIS OF NET CHARGE-OFF RATIOS
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Charge-Offs (Recoveries) as a Percent
of Average Loans and Leases Outstanding:
Commercial.............................. 0.11% 0.39% 0.90% 0.57% 0.39%
Real Estate Construction................ (0.28) 2.38 2.30 2.04 2.52
Residential Mortgage.................... 0.02 -- 0.02 0.01 0.02
Consumer................................ 0.36 0.43 0.64 0.86 0.87
Lease Financing......................... 0.34 0.53 1.51 3.99 1.20
Foreign................................. -- 1.16 1.27 (0.23) 0.08
-------- -------- -------- -------- --------
TOTAL.............................. 0.15% 0.46% 0.81% 0.65% 0.56%
======== ======== ======== ======== ========
</TABLE>
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
SELECTED CREDIT RATIOS
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Provision for Possible Credit Losses as a Percent of
Average Loans and Leases Outstanding............... 0.19% 0.48% 0.93% 0.71% 0.68%
Recoveries as a Percent of Charge-Offs............... 66.56 44.43 22.23 28.78 29.12
Loan Loss Coverage Ratio --
Provision for Possible Credit Losses plus Income
Before Income Taxes as a Multiple of Net
Charge-Offs........................................ 21.40X 7.17x 3.51x 4.31x 4.80x
Allowance for Possible Credit Losses as a Percent of:
Net Charge-Offs.................................... 1,075.10% 369.38% 209.15% 250.43% 287.84%
Total Loans and Leases (year end).................. 1.49 1.66 1.66 1.59 1.56
Nonperforming Loans and Leases* (year end)......... 241.64 157.28 118.63 96.72 119.97
</TABLE>
- -------------------------
* Excludes $88.9 million of renegotiated Mexican government debt at December 31,
1992, 1991 and 1990. Concurrent with the implementation of SFAS No. 115,
effective December 31, 1993, this debt was reclassified from loans to
"Investment Securities Available-for-Sale."
NON-INTEREST INCOME
Non-interest income declined by $39.8 million, or 6.8 percent, in 1994,
following an increase of $56.2 million, or 10.6 percent, in 1993. The major
causes of the decrease in 1994 were: (1) a $27.7 million decrease in the profit
on mortgage sales during the year, which was the result of lower mortgage
refinancing volumes and a decision to hold more of the mortgages that were
generated in the mortgage loan portfolio; (2) a swing of $11.8 million from
securities gains in 1993 to securities losses in 1994, and (3) a reduction of
$7.5 million in the gain on the sale of Other Real Estate Owned (OREO). These
gains essentially are generated from the sale of properties previously taken in
settlement of problem loans. The lower level of gains in 1994 reflect the
reduced level of such properties owned and held for sale.
The two largest components of non-interest income, accounting for nearly 58
percent of the total in 1994, were deposit service charges and trust fees.
Service charges on deposit account business decreased by $5.4 million in 1994
following an increase of $7.0 million in 1993. The decline in 1994 was
attributable to a higher credit given for balances maintained in business
accounts as the general level of interest rates rose substantially during the
year following four years of decline. Trust fees rose by $7.8 million in 1994
following an increase of $9.7 million in the prior year. The increases reflected
volumes of business in each year, while 1993 results were favorably affected by
a rise in stock and bond prices. Other areas exhibiting particularly good growth
in 1994 were data processing fees and fees earned for the issuance of commercial
and standby letters of credit. The latter business continues to be supported by
the "double A" credit ratings from Moody's and Standard & Poor's for NBD Bank in
Detroit and NBD Bank, N.A. in Indianapolis. Revenues from retail mutual fund
sales business and securities trading and underwriting activities were each
adversely impacted by unfavorable market conditions during much of 1994.
The large variability in securities gains over the past three years can be
attributed mainly to a $7.6 million gain taken in 1993 on the sale of an equity
holding in a nonbank financial services company.
The "Other" classification contains income items which are generally small
in amount or infrequent in occurrence. Results in 1994 benefitted from $8.0
million attributable to the return on the Corporation's investment, made early
in 1994, in corporate-owned life insurance. Results in 1993 included a gain of
$9.6 million on the sale of certain credit card receivables.
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
ANALYSIS OF NON-INTEREST INCOME
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------------
1994 1993 1992 1993-94 1992-93
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposit Service Charges....................... $159,996 $165,416 $158,380 (3.3)% 4.4%
Trust Income.................................. 157,355 149,552 139,856 5.2 6.9
Credit Card Fees.............................. 38,566 36,050 37,308 7.0 (3.4)
Data Processing Fees.......................... 31,674 28,863 25,339 9.7 13.9
Letter of Credit Fees......................... 22,893 20,558 18,333 11.4 12.1
Other Domestic and International Fees......... 20,129 22,034 24,945 (8.6) (11.7)
Mortgage Loan Servicing....................... 17,848 19,397 19,373 (8.0) 0.1
Insurance Premiums and Commissions............ 15,034 16,926 16,254 (11.2) 4.1
Foreign Exchange and Translation.............. 13,496 12,568 11,741 7.4 7.0
Retail Banking Fees........................... 13,434 13,389 15,621 0.3 (14.3)
Rental Income................................. 10,435 10,177 8,715 2.5 16.8
Mutual Fund and Annuity Product Fees.......... 7,028 8,868 2,946 (20.7) 201.0
OREO Gains.................................... 6,384 13,852 293 (53.9) n/m
Securities Trading and Underwriting........... 5,631 7,671 7,827 (26.6) (2.0)
Profit on Mortgage Sales...................... 3,146 30,843 19,082 (89.8) 61.6
Securities Gains(Losses)...................... (2,469) 9,328 1,614 n/m 478.0
Other......................................... 24,986 19,891 21,581 25.6 (7.8)
-------- -------- -------- -------- --------
Total Non-Interest Income................. $545,566 $585,383 $529,208 (6.8)% 10.6%
======== ======== ======== ======= =======
</TABLE>
- -------------------------
n/m -- not meaningful
COMPENSATION EXPENSE
Total compensation expense increased by $17.0 million, or 2.4 percent, in
1994, following a $27.5 million, or 4.1 percent, increase between 1992 and 1993.
Average compensation per employee, including all benefit costs, rose by 4.9
percent in 1994, while average employment on a full-time equivalent basis
declined by 446 people, or 2.4 percent, between 1993 and 1994. Average
employment during the fourth quarter of 1994 alone was 17,792 compared with
18,231 for the full year.
The rate of increase for employee benefit costs has been reduced from 15.1
percent in 1991 and 11.9 percent in 1992 to 6.2 percent and 5.9 percent in 1993
and 1994, respectively. While health care costs remain by far the largest
individual category of benefits expense, the implementation on an annual basis
in recent years of increased employee deductibles and certain other cost-sharing
arrangements, as well as increased employee usage of health maintenance
organizations, has appreciably slowed the annual rate of increase in such costs.
We continuously monitor our various health care plans to gain better control of
these costs while still providing a comprehensive health care plan for
employees.
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
ANALYSIS OF COMPENSATION EXPENSE
<TABLE>
<CAPTION>
PERCENT INCREASE
(DECREASE)
--------------------
1994 1993 1992 1993-94 1992-93
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries........................................... $542,565 $535,472 $517,763 1.3 % 3.4%
Benefits........................................... 178,168 168,272 158,477 5.9 6.2
-------- -------- -------- ------ -----
Total Compensation Expense......................... $720,733 $703,744 $676,240 2.4 % 4.1%
======== ======== ======== ====== =====
Average Full-Time Equivalent Staff................. 18,231 18,677 18,612 (2.4)% 0.3%
======== ======== ======== ====== =====
Per Employee:
Average Salary Expense........................... $ 29,760 $ 28,670 $ 27,819 3.8 % 3.1%
Average Benefits Expense......................... 9,773 9,010 8,515 8.5 5.8
-------- -------- -------- ------ -----
Average Total Compensation....................... $ 39,533 $ 37,680 $ 36,334 4.9 % 3.7%
======== ======== ======== ====== =====
</TABLE>
As of January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits." It requires the accrual of benefits provided to former or inactive
employees after employment but prior to retirement. These benefits primarily are
related to long-term disabilities. The cumulative effect of adopting SFAS No.
112 was a charge of $12.3 million -- $7.9 million net of income taxes, or $0.05
per share, in 1994.
During 1992, the Corporation adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." This Statement requires
accrual of employee postretirement benefits during the years earned while
employed. The initial obligation for prior service amounted to $58.9 million
($37.9 million -- or $0.24 per share -- after tax effect). This future
obligation was recognized as a one-time charge at the beginning of 1992.
The Corporation's pension plans remain well funded. At December 31, 1994,
the total projected benefit obligation was $525 million, while the market value
of pension fund assets amounted to approximately $568 million. The decline in
long-term interest rates from 1990 to late 1993, and subsequent sharp increase
since then, along with relative stability of the inflation rate at a lower level
in recent years, has affected the assumptions used in determining the actuarial
present value of the projected benefit obligations. For a more detailed
description of the pension and other employee benefit plans, see Note 9 to the
Financial Statements.
OTHER NON-INTEREST EXPENSES
All other non-interest expenses declined by $34.6 million, or 5.6 percent,
in 1994, following a $32.3 million, or 5.5 percent, increase between 1992 and
1993 (excluding $76.1 million of merger-related expenses in the 1992 figure).
The largest factor accounting for the decline of $9.9 million of intangibles
amortization in 1994 was related to the reduction in amortization of purchased
mortgage servicing rights. The amount of unamortized mortgage servicing rights
at year-end 1994 was $1.9 million. Expenses associated with Other Real Estate
Owned declined by $7.4 million in 1994 due to lower write-downs on properties
which had previously been taken in settlement of loans. A $6.3 million net
reduction in stationery and supplies expense between 1994 and 1993 primarily
reflected greater buying power and increased efficiencies related to volume
purchases.
The largest individual items accounting for the increase between 1992 and
1993 were: (1) a $6.1 million increase in occupancy expense; (2) a $4.2 million
increase in amortization of intangibles due to the write-off of purchased
mortgage servicing rights during a year (1993) of substantially increased
refinancing activities, and (3) a $4.2 million rise in travel and entertainment
expenses, a large part of which was due to the additional travel-related
expenses resulting from the large-scale conversion of the Indiana banks'
operating systems to those of NBD Bancorp.
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
ANALYSIS OF NON-INTEREST EXPENSES
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------------
1994 1993 1992 1993-94 1992-93
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Occupancy...................................... $117,253 $118,063 $111,947 (0.7)% 5.5%
Equipment Rentals, Depreciation and Maintenance.... 89,590 84,280 80,063 6.3 5.3
FDIC and Other Regulatory Assessments.............. 66,663 68,766 70,145 (3.1) (2.0)
Telephone.......................................... 31,132 29,174 25,982 6.7 12.3
Purchased Services................................. 28,488 27,628 33,722 3.1 (18.1)
Professional Services.............................. 27,482 29,852 28,099 (7.9) 6.2
Amortization of Intangibles........................ 25,806 35,742 31,568 (27.8) 13.2
Operating and Other Taxes.......................... 24,637 23,629 21,747 4.3 8.7
Marketing.......................................... 21,887 22,025 20,852 (0.6) 5.6
Postage............................................ 19,841 20,658 20,074 (4.0) 2.9
Stationery and Supplies............................ 16,632 22,958 23,081 (27.6) (0.5)
Travel and Entertainment........................... 16,192 18,300 14,134 (11.5) 29.5
Public Relations................................... 12,623 11,134 8,314 13.4 33.9
Loan and Credit Charges............................ 9,081 8,782 10,298 3.4 (14.7)
Armored Carrier and Cartage........................ 8,019 8,088 6,779 (0.9) 19.3
Federal Reserve Service Charges.................... 7,527 8,411 8,145 (10.5) 3.3
Other Real Estate Owned Expense.................... 4,182 11,582 8,474 (63.9) 36.7
Other Insurance.................................... 3,616 4,196 4,443 (13.8) (5.6)
Other.............................................. 52,886 64,828 57,941 (18.4) 11.9
-------- -------- -------- -------- --------
Sub-Total........................................ $583,537 $618,096 $585,808 (5.6)% 5.5%
Merger-Related Expenses............................ -- -- 76,071 -- --
-------- -------- -------- -------- --------
Total Other Non-Interest Expenses................ $583,537 $618,096 $661,879 (5.6)% (6.6)%
======== ======== ======== ======= =======
</TABLE>
INCOME TAXES
The Corporation's income tax expense was $266.8 million in 1994, up from
$220.1 million in 1993 and $134.4 million in 1992. The increase of $46.7 million
in income tax expense in 1994 primarily can be accounted for by a $112.1 million
rise in pre-tax income between 1993 and 1994, as well as an increase in the
proportion of pre-tax income that was subject to income taxes.
The increase of $85.7 million in income tax expense in 1993 can be
attributed principally to a $229.6 million increase in pre-tax income over 1992
(which was impacted by $76.1 million of merger-related expenses) and an increase
in the statutory tax rate, as well as by the increased proportion of pre-tax
income that was subject to income taxes.
The statutory tax rate on the Corporation's taxable earnings was increased
from 34 percent in 1992 to 35 percent in 1993 and 1994. The higher tax rate
increased the income tax expense by $7.0 million in 1993, which was partially
offset by a $4.8 million tax benefit relating to a revaluation of the net
deferred tax receivable to the new tax rate. The adoption early in 1993 of SFAS
No. 109, "Accounting for Income Taxes," increased reported Net Income in that
year by nearly $4.0 million, or $0.03 per share. For a more detailed discussion
and analysis of income taxes, including the adoption of SFAS No. 109, see Note
10 to the Financial Statements.
The tax reform act of 1986 raised from 20 percent to 100 percent the
disallowance of the interest cost on funds employed to carry most tax-exempt
loans and securities acquired after August 7, 1986. As a result of continued
maturities in the tax-exempt portfolio, a greater proportion of pre-tax earnings
has been subject to federal income taxes in each of the past three years. The
effective rate increased from 28.4 percent in 1992 to 31.4 percent in 1993 and
then to 32.8 percent in 1994.
The Corporation's banks are required to maintain sizeable cash reserves at
the Federal Reserve Bank. These non-earning reserves are not required of nonbank
companies (e.g., money market mutual funds) that offer competitive deposit-type
instruments and services. When the average yield on our earning assets (7.45
percent) is applied to the average reserve maintained ($330 million) during
1994, the result is a reduction in after-tax income of $16 million, or $0.10 per
share. Inasmuch as nearly all of the earnings of the Federal Reserve System
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
are remitted to the United States Treasury, this foregone income essentially
represents an additional tax on shareholders.
CAPITAL ACCOUNTS
Shareholders' equity increased by $42.9 million in 1994, to $3.3 billion at
year-end. This increase was despite: (1) the purchase for approximately $167
million of 5.4 million shares of the Corporation's common stock, most of which
were reissued on January 9, 1995, in connection with the purchase of AmeriFed
Financial Corp. and (2) recording a fair value adjustment on Available-for-Sale
(AFS) Investment Securities of $147.3 million between year-end 1993 and 1994.
This latter recognition is required by SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which is discussed in the Note 1(c)
to the Financial Statements. The fair value adjustment is attributable to the
sharp increase in interest rates during 1994, rather than any deterioration in
the quality of the AFS portfolio.
ANALYSIS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, Beginning of Year........................................... $3,248.6 $2,940.9 $2,716.1
Net Income for the Year............................................ 531.7 485.8 300.1
Cash Dividends Declared............................................ (193.9) (173.5) (166.7)
Purchase of Common Stock........................................... (166.6) (13.4) (134.2)
Fair Value Adjustment on Available-for-Sale Securities............. (147.3) (7.0) --
Foreign Currency Translation Adjustment............................ 2.6 (1.2) (4.0)
Deferred Compensation Changes...................................... (1.1) (1.0) 31.9
Acquisitions....................................................... -- -- 168.2
Shares Issued for Conversion of Subordinated Debentures............ -- -- 13.1
Other Transactions................................................. 17.5 18.0 16.4
-------- -------- --------
Balance, End of Year................................................. $3,291.5 $3,248.6 $2,940.9
======= ======= =======
Book Value Per Common Share, End of Year............................. $ 21.11 $ 20.21 $ 18.34
Market Value Per Share, End of Year.................................. $ 27.38 $ 29.75 $ 32.75
Market Value as Percent of Book Value................................ 129.7% 147.2% 178.6%
Common Dividends Declared as a Percent of Net Income, Per Share...... 36.7% 35.9% 55.6%
Long-Term Debt as a Percent of Equity Capital Plus Allowance for
Credit Losses and Long-Term Debt, End of Year...................... 40.2% 28.1% 22.5%
Common Shareholders' Equity as a Percent of:(1)
Total Assets....................................................... 7.5% 7.8% 7.3%
Earning Assets..................................................... 8.3% 8.6% 7.9%
Loans and Leases, Net of Allowance for Possible Credit Losses, and
Unearned Income.................................................. 12.5% 12.6% 11.8%
Common Shareholders' Equity Plus Allowance for Possible Credit
Losses, as a Percent of Loans and Leases(1)........................ 14.0% 14.2% 13.3%
Assets to Common Shareholders' Equity(1)............................. 13.29X 12.82x 13.78x
times
Return on Assets(1).................................................. 1.21% 1.21% 0.76%
equals
Return on Common Shareholders' Equity(1)............................. 16.09% 15.57% 10.44%
times
Earnings Retained(2)................................................. 63.53% 64.29% 44.46%
equals
Internal Equity Capital Growth Rate.................................. 10.22% 10.01% 4.64%
</TABLE>
- -------------------------
(1) Based on daily average balances.
(2) Excludes impact of conversions of capital notes, purchases and issuance of
common stock and other adjustments to capital accounts.
Regulatory risk-adjusted capital adequacy standards became fully effective
on January 1, 1993. The principal features of the standards are as follows: (1)
required capital levels are based on the specified regulatory risk in the
various asset categories; (2) certain "off-balance sheet" items, such as standby
letters of credit and interest rate
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
swaps, require capital allocations, and (3) the definition of what constitutes
capital has been refined. Equity capital, net of certain adjustments for
intangible assets, investments in nonconsolidated subsidiaries and the fair
value adjustment for AFS securities, and certain classes of preferred stock
are considered Tier 1 capital. Total capital consists basically of Tier 1
capital plus subordinated debt, some types of preferred stock and a limited
amount of the Allowance for Possible Credit Losses.
Regulatory authorities have also established a minimum level of Tier 1
capital to total assets, a so-called "leverage" ratio, which is determined by
dividing Tier 1 Capital by total assets net of intangible assets. The standards
call for minimum Tier 1 and Total capital ratios of 4 percent and 8 percent,
respectively, and a minimum Tier 1 leverage ratio of 3 percent. As can be noted
in the following table, the Corporation's ratios have comfortably exceeded these
regulatory standards.
ANALYSIS OF REGULATORY CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1993 1992
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
TIER 1 CAPITAL:
Common Shareholders' Equity............................................... $3,292 $3,249 $2,941
Intangible Assets and Other Adjustments................................... (112) (282) (316)
------ ------ ------
Total Tier 1 Capital.................................................... $3,180 $2,967 $2,625
====== ====== ======
TOTAL CAPITAL:
Common Shareholders' Equity............................................... $3,292 $3,249 $2,941
Qualifying Allowance for Possible Credit Losses........................... 435 406 387
Qualifying Long-Term Debt................................................. 1,102 1,054 706
Intangible Assets and Other Adjustments................................... (117) (285) (316)
------ ------ ------
Total Capital........................................................... $4,712 $4,424 $3,718
====== ====== ======
RISK-BASED CAPITAL RATIOS:
Tier 1 Capital Ratio...................................................... 8.44% 9.13% 8.48%
Total Capital Ratio....................................................... 12.50% 13.61% 12.01%
TIER 1 LEVERAGE RATIO....................................................... 6.77% 7.33% 6.46%
</TABLE>
During the 1992-94 period, the Corporation strengthened its capital
position through the net increase of $350 million in subordinated debt of the
parent company, NBD Bancorp, Inc., which was the result of issuing $550 million
of such securities less the early redemption of $200 million convertible
debentures outstanding. In addition, NBD Bank (Michigan) issued $450 million of
subordinated debt to bolster its capital position. The debt that is included in
regulatory total capital at December 31, 1994, has no scheduled maturities until
the year 2002.
SOURCE OF FUNDS
Total sources of funds utilized to support the Corporation's earning assets
increased by $3,597 million, or nearly 10 percent, on a daily average basis
between 1993 and 1994. However, the mix of funds changed noticeably, with net
core deposits declining by $646 million, or 2.6 percent, and other major
categories of funding rising in aggregate by $4,243 million, or 37.0 percent.
Within the core deposit base, demand deposits, net of items in process of
collection ("float") and due from other banks, were up $139 million, or 3.1
percent, notwithstanding the more restrictive Federal Reserve monetary policy
that commenced in February of 1994. On a daily average basis, savings account
balances rose by $543 million, or 7.5 percent, to $7,795 million, although they
ended the year at a modestly lower level -- $7,680 million. The sharp increase
in competitive market rates of interest during 1994 resulted in an outflow of
money market account balances as well as other core time deposit money. In
aggregate, such balances declined by $1,328 million, or by 10.1 percent. The
Corporation's banks instituted a more competitive rate structure on time deposit
accounts early in 1994, and balances first stabilized and then increased,
particularly during the final two months of the year.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
ANALYSIS OF SOURCES OF FUNDS FOR EARNING ASSETS
<TABLE>
<CAPTION>
FULL YEAR
-------------------------------
1994 1993 1992
------- ------- -------
(DAILY AVERAGES IN MILLIONS)
<S> <C> <C> <C>
Total Earning Assets................................................... $39,971 $36,374 $36,228
======= ======= =======
Source of Funds:
Net Core Deposits:
Demand Deposits (net of items in process of collection and due from
other banks)..................................................... $ 4,638 $ 4,499 $ 4,032
Savings Deposits................................................... 7,795 7,252 6,279
Money Market Accounts.............................................. 5,278 5,918 6,030
Other Time Deposits................................................ 6,538 7,226 9,055
------- ------- -------
Total -- Net Core Deposits...................................... 24,249 24,895 25,396
------- ------- -------
Large Certificates of Deposit.......................................... 2,424 1,577 2,043
Foreign Office Time Deposits........................................... 2,699 1,741 1,615
Short-Term Borrowings.................................................. 6,648 4,994 4,624
------- ------- -------
Total -- Short-Term Interest-Bearing Funds...................... 11,771 8,312 8,282
------- ------- -------
Long-Term Debt......................................................... 2,061 1,230 804
All Other.............................................................. 1,890 1,937 1,746
------- ------- -------
Total Sources of Funds.......................................... $39,971 $36,374 $36,228
======= ======= =======
Net Interest Margin (FTE) on Earning Assets............................ 4.22% 4.48% 4.39%
======= ======= =======
</TABLE>
Reliance on short-term borrowings and large (i.e., $100,000 and over)
certificates of deposit (CDs) increased to support loan demand that gathered
strength as the year progressed. Large CDs increased by $847 million, or more
than 53 percent, while short-term (i.e., less than one year in original
maturity) borrowings rose $1,654 million, or by approximately one-third. An
analysis of domestic time deposits of $100,000 or more, as of December 31, 1994,
is shown in the following table, while a more detailed listing and discussion of
short-term borrowings is included in Note 7 to the Financial Statements.
ANALYSIS OF MATURITY DISTRIBUTION OF DOMESTIC TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
------------------------
(IN MILLIONS)
<S> <C>
Amount Maturing in:
3 Months or Less.............................................. $ 890
Over 3 to 6 Months............................................ 354
Over 6 Months to One Year..................................... 336
Over One Year................................................. 303
--------
$1,883
========
</TABLE>
The increase in foreign office time deposits primarily reflected the
increased use of Eurodollar deposits to fund domestic loan growth.
The increase in "Long-Term Debt" during the 1992-94 period is related
primarily to management's strategy of match-funding certain purchases of
investment securities, as well as to maintain the strength of the Corporation's
and subsidiary banks' risk-based capital ratios. It has also served to provide
flexibility in managing the Corporation's liquidity position.
INVESTMENT SECURITIES
Total holdings of investment securities increased by $2,031 million, or
19.5 percent, between year-ends 1993 and 1994, and ended the year at $12,423
million. On a daily average basis, they increased by $1,941 million, or 18.9
percent, to $12,195 million in 1994. Changes in the portfolio between year-end
1993 and 1994 were: (1) an increase of $2,647 million in securities of U. S.
Government Agencies; (2) a $476 million decrease
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
in holdings of U. S. Treasury securities; (3) a $129 million reduction in
private issue collateralized mortgage obligations (CMOs), and (4) a $15 million
decline in holdings of tax-exempt securities.
The large increase in U. S. Government Agency holdings resulted primarily
from two programs to acquire a total of $2,860 million of mortgage pass-through
securities issued or guaranteed by the Government National Mortgage Association
(GNMA) and the Federal National Mortgage Association (FNMA). Approximately
$1,075 million of adjustable rate GNMAs, which contain a one-year rate
adjustment feature, are being funded with short-term borrowings, and $1,500
million of fixed-rate GNMA and FNMA securities are essentially match-funded with
interest-bearing liabilities of comparable maturity. An additional $285 million
of these fixed-rate securities were being funded with short-term borrowings as
of December 31, 1994.
HOLDINGS OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
----------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1992
------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
U. S. Treasury.............................................. $ 505 $ 975 $ --
U. S. Government Agencies:
Mortgage-backed Securities................................ 2,495 730 --
Collateralized Mortgage Obligations....................... 1,420 1,658 --
Other..................................................... 24 3 --
States and Political Subdivisions........................... 76 1 --
Collateralized Mortgage Obligations......................... 111 240 --
Other....................................................... 183 177 --
------------ ------------ ------------
Total................................................ $4,814 $3,784 $ --
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES HELD-TO-MATURITY
----------------------------------------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1992
------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
U. S. Treasury.............................................. $ 520 $ 526 $ 1,719
U. S. Government Agencies:
Mortgage-backed Securities................................ 5,665 4,564 5,569
Collateralized Mortgage Obligations....................... -- -- 1,302
Other..................................................... 8 10 35
States and Political Subdivisions........................... 1,415 1,505 1,604
Collateralized Mortgage Obligations......................... -- -- 581
Other....................................................... 1 2 92
------------ ------------ ------------
Total................................................ $7,609 $6,607 $ 10,902
============ ============ ============
</TABLE>
- -------------------------
Note: Investment Securities were not categorized as "Available-for-Sale" and
"Held-to-Maturity" until December 31, 1993. All holdings were classified
as "Held-to-Maturity" at December 31, 1992.
Effective December 31, 1993, the Corporation implemented SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
requires the following: (1) debt securities that the Corporation has the
positive intent and ability to hold to maturity are to be classified as
"Investment Securities Held-to-Maturity" (HTM) and reported at amortized cost;
(2) debt and equity securities that are bought and held principally for the
purpose of selling in the near term are to be classified as "Trading Account
Securities" and reported at fair value, with unrealized gains and losses
included in earnings, and (3) debt and equity securities not classified as
"Held-to-Maturity" or "Trading Account" are to be classified as "Investment
Securities Available-for-Sale" (AFS) and reported at fair value. Fair value
adjustments are excluded from earnings and reported in a separate component of
shareholders' equity, net of tax.
At December 31, 1993, the existing portfolio of Investment Securities held
by the Corporation's banks was classified as follows: (1) Held-to-Maturity -- U.
S. Government Securities with remaining maturities of more than two years,
essentially all tax-exempt securities and fixed-rate mortgage pass-through
securities and (2) Available-for-Sale -- all other investment securities.
Securities acquired after December 31, 1993, have been classified as HTM or AFS
on an individual basis at the time of acquisition.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
As of December 31, 1994, the aggregate fair value of the Investment
Securities Held-to-Maturity was $227 million (before tax effect), or 3.0
percent, below the carrying value shown on the Consolidated Balance Sheet. The
"Fair Value Adjustment on Available-for-Sale Securities" component of
shareholders' equity shows a negative balance of approximately $154 million as
of December 31, 1994, compared to $7 million at year-end 1993. The $147 million
increase was the result of the sharp increase in interest rates during 1994,
which reduced the market value of previously acquired fixed-rate securities. It
should be noted, however, that a sizeable portion of the mortgage-backed
securities portfolio has been funded by fixed-rate liabilities of comparable
maturity. The current value of this relatively low-cost financing is not
reflected in the financial statements.
The maturity distribution and yields, on a fully taxable equivalent basis,
of the major components of the investment securities portfolio at December 31,
1994, are shown below. The maturity distribution of mortgage-backed securities
and collateralized mortgage obligations is based on average expected maturities,
which differ from contractual maturities, because borrowers have the right to
prepay the underlying mortgages. Actual yields and maturities may differ from
expected yields and maturities because the rate of prepayment, which is
influenced by changes in the level of interest rates, as well as other economic
conditions, cannot be forecasted with certainty.
INVESTMENT SECURITIES -- YIELDS AND MATURITIES
AS OF DECEMBER 31, 1994:
<TABLE>
<CAPTION>
MATURITY
----------------------------------------------------------------------------------------------------
WITHIN 1 YEAR 1-2 YEARS 2-5 YEARS 5-10 YEARS AFTER 10 YEARS
---------------- ---------------- ---------------- ---------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U. S. Treasury............ $500 6.97% $ 5 5.51% $ -- --% $ -- --% $ -- --%
U. S. Government Agencies:
Mortgage-backed
Securities............. -- -- -- -- 58 5.61 229 6.03 2,208 5.68
Collateralized Mortgage
Obligations............ 229 3.56 347 4.65 328 6.03 423 6.73 93 6.95
Other.................... 23 6.90 -- -- 1 8.13 -- -- -- --
States and Political
Subdivisions*............ 76 6.37 -- -- -- -- -- -- -- --
Collateralized Mortgage
Obligations.............. 7 6.22 4 6.96 83 6.53 17 6.85 -- --
Other**................... 47 6.04 7 8.88 11 7.64 1 7.17 117 5.52
----- ----- ----- ----- ----- ----- ----- ----- ------ -----
Total.................... $882 5.98% $363 4.77% $ 481 6.11% $ 670 6.49% $2,418 5.72%
===== ===== ===== ====== ===== ===== ===== ===== ======= =====
HELD-TO-MATURITY:
U. S. Treasury............ $ -- --% $388 6.20% $ 132 6.04% $ -- --% $ -- --%
U. S. Government Agencies:
Mortgage-backed
Securities............. 1 11.30 36 7.45 1,440 7.71 4,176 7.51 12 10.27
Other.................... -- -- -- -- -- -- 8 6.25 -- --
States and Political
Subdivisions*............ 161 10.79 129 10.46 434 10.87 362 9.98 329 9.42
Other..................... 1 8.72 -- -- -- -- -- -- -- --
----- ----- ----- ----- ------ ----- ------ ---- ------ -----
Total.................... $163 10.78% $553 7.28% $2,006 8.28% $4,546 7.70% $ 341 9.45%
===== ===== ===== ===== ====== ===== ====== ==== ====== =====
<CAPTION>
WEIGHTED
AVERAGE
TOTAL MATURITY
----------------- ------------
AMOUNT YIELD (YRS/MOS.)
------ ----- ------------
<S> <C> <C> <C>
AVAILABLE-FOR-SALE:
U. S. Treasury............ $ 505 6.96% 0/11
U. S. Government Agencies:
Mortgage-backed
Securities............. 2,495 5.71 12/11
Collateralized Mortgage
Obligations............ 1,420 5.56 4/6
Other.................... 24 6.95 1/0
States and Political
Subdivisions*............ 76 6.37 0/8
Collateralized Mortgage
Obligations.............. 111 6.57 4/3
Other**................... 183 5.92 13/4
------ -----
Total................... $4,814 5.84%
======= =====
HELD-TO-MATURITY:
U. S. Treasury............ $ 520 6.16% 1/11
U. S. Government Agencies:
Mortgage-backed
Securities............. 5,665 7.57 5/11
Other.................... 8 6.25 9/0
States and Political
Subdivisions*............ 1,415 10.26 6/9
Other..................... 1 8.72 0/8
------ ------
Total.................... $7,609 7.97%
====== ======
</TABLE>
- -------------------------
* Fully taxable equivalent yield is based on a combined federal and state
income tax rate of 36.4%.
** Equity securities of $69 million with a yield of 5.01% are included in the
After 10 Years category.
Note: Yields are based on amortized cost of securities.
Included in the $1,491 million of tax-exempt securities at December 31,
1994, were $453 million of obligations of the State of Michigan and its
political subdivisions. Except for the securities issued or guaranteed by the
State of Michigan and its political subdivisions, no investment in securities of
a single issue of non-U. S. Government-guaranteed securities exceeded 10 percent
of shareholders' equity at December 31, 1994 or 1993.
LOANS AND LEASE FINANCING
Total loans and leases outstanding rose by $3,679 million, or 14.4 percent,
between year-ends 1993 and 1994, and ended the year at $29,230 million. On a
daily average basis, they increased by $1,677 million, or 6.7 percent, to
$26,790 million in 1994. The largest category of loans within the total
portfolio is comprised of
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
commercial and lease financing, which on a combined basis increased by $1,809
million, or 12.8 percent, from $14,080 million at the end of 1993 to $15,889
million at December 31, 1994. On a daily average basis, they rose by $761
million, or 5.2 percent, between 1993 and 1994. Loan growth in 1994 was fostered
by the overall strength of the U. S. economy in general and by the particularly
good business conditions in our primary Midwestern markets.
The following two tables summarize year-end totals for the major sectors of
the Corporation's total loan portfolio over the last five years. The only
noticeable change in the composition of the portfolio during the 1990-94 period
has been a decline in the real estate construction category and a concomitant
increase in consumer loans.
ANALYSIS OF LOAN AND LEASE PORTFOLIO
OUTSTANDINGS:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial..................................... $15,526 $13,795 $13,588 $12,638 $11,901
Real Estate Construction....................... 818 789 891 1,143 1,132
Residential Mortgage........................... 3,352 2,561 2,648 2,421 2,841
Mortgages Held for Sale........................ 30 256 290 271 73
Consumer....................................... 7,668 6,758 6,402 5,751 5,531
Lease Financing................................ 363 285 258 276 310
------- ------- ------- ------- -------
Sub-Total................................. 27,757 24,444 24,077 22,500 21,788
Foreign.......................................... 1,473 1,107 1,067 1,274 1,179
------- ------- ------- ------- -------
Total..................................... $29,230 $25,551 $25,144 $23,774 $22,967
======= ======= ======= ======= =======
</TABLE>
PERCENT DISTRIBUTION:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial..................................... 53.1% 54.0% 54.1% 53.1% 51.8%
Real Estate Construction....................... 2.8 3.1 3.5 4.8 4.9
Residential Mortgage........................... 11.5 10.0 10.5 10.2 12.4
Mortgages Held for Sale........................ 0.1 1.0 1.2 1.1 0.3
Consumer....................................... 26.2 26.5 25.5 24.2 24.1
Lease Financing................................ 1.3 1.1 1.0 1.2 1.4
------- ------- ------- ------- -------
Sub-Total................................. 95.0 95.7 95.8 94.6 94.9
Foreign.......................................... 5.0 4.3 4.2 5.4 5.1
------- ------- ------- ------- -------
Total..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= =======
</TABLE>
Manufacturing industries represent the largest single concentration within
the business loan totals -- just over 30 percent at December 31, 1994. It is
estimated that approximately 10 percent of total commercial loans, and 29
percent of loans to manufacturing firms are "automotive related." The largest
commercial loan outstanding at year-end 1994 was $57.5 million to a major
residential home builder, and the largest loan to a manufacturing firm was $47.0
million.
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
As can be seen in the following tables, the Corporation's domestic business
loans at December 31, 1994, were well diversified geographically, as well as by
type of borrower.
<TABLE>
<CAPTION>
By $
Geographic Distribution Loans
- ------------------------------------------ ----------
<S> <C>
Southeastern Michigan..................... 26.5%
Indiana................................... 18.9
Outstate Michigan......................... 15.6
Illinois.................................. 13.2
Ohio...................................... 5.9
New York.................................. 2.0
California................................ 1.8
Texas..................................... 1.5
Pennsylvania.............................. 1.4
Wisconsin................................. 1.3
All Other................................. 11.9
-----
100.0%
=====
By $
Industry Concentration Loans
- ------------------------------------------ ----------
All Manufacturing......................... 30.4%
Real Estate -- Holding Cos./Trust......... 13.4
Wholesale Trade........................... 9.5
Personal.................................. 6.7
Entertainment/Food/Beverage/Communication. 5.9
Services/Professional/Business/Leasing.... 4.5
Transportation Services................... 4.4
Retail Consumer Goods..................... 3.7
Real Estate............................... 3.5
Bank/Financial Institutions/Brokers....... 2.9
Agriculture/Forest/Mining................. 2.9
Government/Education...................... 2.6
Holding Companies......................... 2.5
Medical/Health Services................... 1.9
Primary Metals............................ 1.8
All Other................................. 3.4
-----
100.0%
</TABLE> =====
At December 31, 1994, total commercial real estate loans amounted to $4,480
million. The components of the total portfolio consisted of: (1) construction
loans -- $817 million; (2) investment property loans -- $1,591 million, and (3)
owner occupied loans -- $2,072 million.
Nearly 89 percent of the construction loans were located in the Midwest,
with 48 percent in Michigan and approximately 24 percent and 11 percent located
in Indiana and Illinois, respectively. The largest construction loan outstanding
was $20.3 million. A total of $15.7 million, or 2 percent of the total
portfolio, was classified as nonperforming, the largest of which was $5.0
million. One year earlier, the comparable figures were $45.7 million (5.8
percent of the total) and $6.4 million, respectively. Net recoveries of $2.2
million were realized in the construction loan portfolio in 1994, in contrast to
net charge-offs of $19.4 million in 1993.
Almost 96 percent of the investment property loans were sited in the
Midwest, with about 40 percent in Michigan, 31 percent in Indiana and 20 percent
in Illinois. The largest loan outstanding at year-end 1994 was for $16.1
million. At December 31, 1994, $45.4 million, or 2.9 percent of the total, was
classified as nonperforming, the largest of which amounted to $8.0 million. One
year earlier, $49.6 million was classified as nonperforming, or 3.2 percent of
the portfolio. Net charge-offs of investment property loans amounted to $15.6
million in 1994, down from $18.8 million in 1993.
Approximately 97 percent of the loans on owner occupied commercial real
estate were located in the Midwest, with more than 47 percent in Michigan,
nearly 25 percent in Indiana, and 20 percent in Illinois.
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
A more detailed analysis of the outstanding commercial real estate loans at
year-end 1994 is shown in the following table. The geographic distribution of
total commitments to lend and loans outstanding is comparable.
<TABLE>
<CAPTION>
INVESTMENT OWNER
CONSTRUCTION PROPERTY OCCUPIED
LOANS LOANS LOANS TOTAL
--------------------------- --------------------- --------------------------- ----------------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------------- ---------- ---------- --------- ----------- ---------- ------------- -------------
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GEOGRAPHIC
DISTRIBUTION:
Michigan......... $392 48.0% $ 640 40.2% $ 980 47.3% $2,012 44.9%
Indiana.......... 193 23.6 498 31.3 511 24.7 1,202 26.8
Illinois......... 91 11.1 319 20.1 416 20.1 826 18.5
Other Midwest.... 51 6.3 69 4.3 99 4.8 219 4.9
All Other........ 90 11.0 65 4.1 66 3.1 221 4.9
---- ------ ------ ----- ------ ----- ------ -----
$817 100.0% $1,591 100.0% $2,072 100.0% $4,480 100.0%
==== ====== ====== ===== ====== ===== ====== =====
EXPOSURE BY
PROPERTY TYPE:
Industrial....... $ 71 8.7% $ 239 15.0% $ 884 42.7% $1,194 26.6%
Office........... 45 5.5 308 19.4 272 13.1 625 13.9
Retail Center.... 90 11.0 350 22.0 181 8.7 621 13.9
Single Family
and Condominiums 262 32.1 48 3.0 94 4.5 404 9.0
Apartments....... 42 5.1 269 16.9 21 1.0 332 7.4
Land Development. 142 17.4 39 2.5 29 1.4 210 4.7
Hotel............ 27 3.3 100 6.3 56 2.7 183 4.1
All Other........ 138 16.9 238 14.9 535 25.9 911 20.4
---- ----- ------ ----- ------ ----- ------ -----
$817 100.0% $1,591 100.0% $2,072 100.0% $4,480 100.0%
==== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Residential mortgage loans outstanding, including those held for sale,
increased by $565 million, or 20.0 percent, from $2,817 million at the end of
1993 to $3,382 million at year-end 1994. On a daily average basis, the portfolio
rose from $2,784 million in 1993 to $3,012 million in 1994, an increase of $228
million, or 8.2 percent. While the volume of loan originations declined in 1994,
a larger proportion of loans closed was retained in the portfolios of the
Corporation's banks.
The consumer loan portfolio increased by $910 million, or 13.5 percent,
from $6,758 million at year-end 1993 to $7,668 million at December 31, 1994. On
a daily average basis, consumers loans increased by $655 million, or 10.1
percent, from $6,493 million in 1993 to $7,148 million in 1994.
The expansion of the consumer loan portfolio in recent years has been
considerably greater than the growth of the Corporation's total loan portfolio
and total earning assets. This has been the result of a deliberate effort to
build this portfolio, in part by a broadening of the types of loans sought, both
directly through our extensive branch network of more than 600 offices, as well
as through the generation of indirect loans from automobile, boat, manufactured
housing and other dealers. In addition, the 1992 acquisitions of INB Financial,
Summcorp and Gainer Corporation in Indiana significantly expanded the size and
diversified the composition of the consumer loan portfolio. Consumer loan loss
experience declined again in 1994 and continued to compare favorably with
industry averages. The Corporation's net charge-off ratio has been favorably
influenced by: (1) the relatively large proportion of home-equity and
government-guaranteed student loans; (2) the relatively low proportion of credit
card loans, and (3) our high underwriting standards and close monitoring of
delinquency trends within the portfolio. Net charge-offs, as a percentage of
average outstandings, amounted to 0.36 of 1 percent in 1994, down from 0.43 of 1
percent in 1993 and 0.64 of 1 percent in 1992. During the 1990-91 recessionary
period, the consumer loan net charge-off ratio was approximately 0.87 of 1
percent.
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CONSUMER LOANS:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------------------------------------------------
1994 1993 1992
---------------------------- ---------------------------- ----------------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
--------------- --------- --------------- --------- --------------- ---------
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Automotive........................ $ 3,470 45.3% $ 3,043 45.0% $ 2,762 43.2%
Home Equity....................... 1,230 16.0 1,023 15.1 1,079 16.8
Student Loans..................... 815 10.6 786 11.6 689 10.8
Credit Card....................... 646 8.4 614 9.1 729 11.4
Recreational Vehicles............. 417 5.4 324 4.8 248 3.9
Manufactured Housing.............. 345 4.5 316 4.7 286 4.4
Personal Loans.................... 290 3.8 261 3.9 284 4.4
Marine............................ 250 3.3 192 2.8 179 2.8
All Other......................... 205 2.7 199 3.0 146 2.3
------- ------- ------- ------- ------- ------
$ 7,668 100.0% $ 6,758 100.0% $ 6,402 100.0%
======= ======= ======= ======= ======= ======
</TABLE>
Foreign loans increased by $366 million, or 33.1 percent, from $1,107
million at year-end 1993 to $1,473 million at December 31, 1994. The bulk of the
increase in foreign loans occurred at our Canadian, Australian and London
branches. On a daily average basis, the increase was a more modest $77 million,
or 7.2 percent, from $1,069 million in 1993 to $1,146 million in 1994.
NONPERFORMING LOANS
Nonperforming loans are defined to include loans on which interest is not
being accrued and restructured loans where interest rates have been renegotiated
at below market rates. The trend of such loans over the past five year-ends is
shown below. Also shown are: (1) loans 90 days or more past due but still
accruing interest -- largely consumer loans, which are either charged off when
they become 120 days to 150 days past due or are government guaranteed, and (2)
Other Real Estate Owned, which primarily represents the value of collateral
taken in settlement of loans.
ANALYSIS OF NONPERFORMING LOANS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
1994 1993 1992 1991 1990
----- ----- ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Nonaccrual -- Domestic........................................ $ 154 $ 265 $ 327 $ 367 $ 283
-- Foreign........................................ 3 1 24 13 4
Restructured.................................................. 23 3 1* 10* 12*
----- ----- ------ ------ ------
Total Nonperforming Loans................................. $ 180 $ 269 $ 352 $ 390 $ 299
===== ===== ====== ====== ======
Nonperforming Loans as a Percent of:
Total Loans and Leases...................................... 0.62% 1.05% 1.40% 1.64% 1.30%
Total Assets................................................ 0.38 0.66 0.86 1.01 0.81
Equity Capital plus Allowance for Possible Credit Losses.... 4.83 7.33 10.49 12.62 10.35
Loans 90 Days or More Past Due................................ $ 45 $ 41 $ 37 $ 44 $ 35
Other Real Estate Owned....................................... $ 29 $ 44 $ 58 $ 60 $ 33
</TABLE>
- -------------------------
* Excludes $88.9 million of United Mexican States (UMS) obligations (secured by
zero-coupon U. S. Treasury securities of comparable maturity) which were
renegotiated early in 1990 at a then below market rate. These obligations were
reclassified to "Investment Securities Available-for-Sale" at year-end 1993,
concurrent with the implementation of SFAS No. 115.
Total nonperforming loans declined by $89 million, or 33.1 percent, in
1994, following decreases of $83 million (23.6 percent) in 1993 and $38 million
(9.7 percent) in 1992. The principal factors accounting for the reduction in
1994 were: (1) a $13.2 million payment received on a loan to a retailing
concern; (2) a $5.2 million payment on a manufacturing firm credit, and (3)
recoveries and a return to performing status of a number of commercial real
estate loans. The three largest nonperforming credits at year-end 1994 were: (1)
a $19.0 million balance of a restructured loan to a newsprint producer, where
payments currently are being made at an interest
26
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
rate of LIBOR plus 1 1/2 percent; (2) $14.8 million to a real estate concern,
and (3) the $8.4 million balance of a loan to a retailing firm.
Approximately 62 percent of the net reduction in nonperforming loans during
1993 can be attributed to a combination of repayments, charge-offs and a return
to performing status on three credits -- two retailing firms and a manufacturing
concern -- and an $8.7 million charge-off of the remaining balances of loans to
political entities formerly known as Yugoslavia.
Following is an analysis of the gross interest income that would have been
recorded if the nonperforming loans at each year end had been current in
accordance with their original terms, and the amount of interest income that was
recorded on those loans:
<TABLE>
<CAPTION>
GROSS INTEREST INTEREST
INTEREST COLLECTED FOREGONE
-------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1994:
Domestic Loans..................................................... $ 14,415 $4,136 $10,279
Foreign Loans...................................................... 374 92 282
-------- ------ -------
$ 14,789 $4,228 $10,561
======== ====== =======
Per Share (after tax effect)....................................... $ 0.04
=======
1993:
Domestic Loans..................................................... $ 18,208 $6,141 $12,067
Foreign Loans...................................................... 76 -- 76
-------- ------ -------
$ 18,284 $6,141 $12,143
======== ====== =======
Per Share (after tax effect)....................................... $ 0.05
=======
</TABLE>
In addition to the loans classified as nonperforming, there were other
loans totaling $30.1 million at December 31, 1994 (and $56.2 million and $73.1
million at December 31, 1993 and 1992, respectively), where management was
closely monitoring the borrowers' ability to comply with payment terms, but
where existing conditions did not warrant either a partial charge-off or
classification as nonaccrual. The largest of such loans was $21.5 million at
year-end 1994.
MATURITY AND RATE SENSITIVITY OF LOANS
The following tables summarize the maturity distribution of the loan
portfolio, exclusive of residential mortgages and consumer loans, as of December
31, 1994. As compared to one year earlier, there was a noticeable increase in
the proportion of loans scheduled to mature within one year. This increase,
which was concentrated in commercial loans, can be attributed to the strength of
the U. S. economy in 1994 and attendant demand for short-term, working capital
financing by business.
MATURITY DISTRIBUTION OF COMMERCIAL, REAL ESTATE CONSTRUCTION AND FOREIGN LOANS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------------------------------- ----------------------------------------------
DUE IN DUE IN
---------------------------------------------- ----------------------------------------------
1 YEAR OVER 1 TO 5 OVER 5 1 YEAR OVER 1 TO 5 OVER 5
OR LESS YEARS YEARS TOTAL OR LESS YEARS YEARS TOTAL
-------- ------------ ------- ------- -------- ------------ ------- -------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.................... $ 11,731 $3,275 $ 520 $15,526 $ 9,571 $3,605 $ 619 $13,795
Real Estate Construction...... 523 263 31 817 518 240 31 789
Foreign....................... 1,316 122 35 1,473 989 99 19 1,107
-------- --------- ------ ------- -------- --------- ------ -------
Total....................... $ 13,570 $3,660 $ 586 $17,816 $ 11,078 $3,944 $ 669 $15,691
======== ========= ====== ======= ======= ========= ====== =======
Percent of Total.............. 76.2% 20.5% 3.3% 100.0% 70.6% 25.1% 4.3% 100.0%
======== ========= ====== ======= ======= ========= ====== =======
</TABLE>
The total amount of loans with maturities beyond one year declined by $367
million, or 8.0 percent, between December 31, 1993, and the end of 1994. The
proportion of these loans that carried a fixed rate of interest also declined,
from 53.6 percent at year-end 1993 to 51.5 percent at December 31, 1994.
27
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
COMMERCIAL, REAL ESTATE CONSTRUCTION AND FOREIGN LOANS WITH MATURITIES BEYOND
ONE YEAR
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------ ------------------------------
FIXED VARIABLE FIXED VARIABLE
RATE RATE TOTAL RATE RATE TOTAL
------ -------- ------ ------ -------- ------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Commercial............................... $1,987 $1,808 $3,795 $2,311 $1,913 $4,224
Real Estate Construction................. 90 204 294 77 194 271
Foreign.................................. 109 48 157 85 33 118
------ -------- ------ ------ -------- ------
Total................................ $2,186 $2,060 $4,246 $2,473 $2,140 $4,613
====== ====== ====== ====== ====== ======
Percent of Total......................... 51.5% 48.5% 100.0% 53.6% 46.4% 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
The following table details the residential mortgage and consumer loan
portfolios, as of December 31, 1994 and 1993, according to management's estimate
of their sensitivity to interest rate changes. For purposes of this analysis,
Mortgages Held for Sale have been included in the Residential Mortgage totals.
The portion of the residential mortgage portfolio that reprices within one
year, which includes estimated portfolio amortization, declined from 46.8
percent ($1,317 million out of $2,817 million) at the end of 1993 to 35.7
percent ($1,208 million out of $3,382 million) at year-end 1994. This decrease
reflects, in part, the Corporation's decision to retain in the portfolio 1994
mortgage originations having somewhat longer maturities and repricing periods.
The percent of total consumer loans considered to be sensitive to interest
rate changes within a one-year time horizon declined from approximately 58
percent at year-end 1993 to 55 percent at December 31, 1994.
RATE SENSITIVITY OF RESIDENTIAL MORTGAGE AND CONSUMER LOANS
AS OF DECEMBER 31, 1994:
<TABLE>
<CAPTION>
AFTER
1995 1996 1997 1998 1999 1999 TOTAL
------ ------ ------ ---- ---- ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Residential Mortgage......................... $1,208 $ 361 $ 330 $328 $290 $ 865 $ 3,382
Consumer..................................... 4,218 1,417 906 509 258 360 7,668
------ ------ ------ ---- ---- ------ -------
$5,426 $1,778 $1,236 $837 $548 $1,225 $11,050
====== ====== ====== ==== ==== ====== =======
Percent of Total............................. 49.1% 16.1% 11.2% 7.6% 4.9% 11.1% 100.0%
====== ====== ====== ==== ==== ====== =======
</TABLE>
AS OF DECEMBER 31, 1993:
<TABLE>
<CAPTION>
AFTER
1994 1995 1996 1997 1998 1998 TOTAL
------ ------ ------ ---- ---- ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Residential Mortgage......................... $1,317 $ 272 $ 211 $205 $236 $ 576 $ 2,817
Consumer..................................... 3,900 1,291 764 396 158 249 6,758
------ ------ ------ ---- ---- ------ -------
$5,217 $1,563 $ 975 $601 $394 $ 825 $ 9,575
====== ====== ====== ==== ==== ====== =======
Percent of Total............................. 54.5% 16.3% 10.2% 6.3% 4.1% 8.6% 100.0%
====== ====== ====== ==== ==== ====== =======
</TABLE>
INTERNATIONAL BANKING
The Corporation's foreign cross-border outstandings consist primarily of
loans, interest-bearing deposits, bankers' acceptances and federal funds sold.
An item is classified as either foreign or domestic based on the domicile of the
party ultimately responsible for payment. The balances are reported net of any
legally enforceable written guarantees by domestic or other non-local partners.
Assets of our foreign offices denominated in the local currency are included to
the extent that they are not hedged or are not funded by local currency
borrowings. For the past three year-ends, total foreign cross-border
outstandings have amounted to approximately $900 million.
During the first quarter of 1990, $88.9 million of Mexican debt was
exchanged for new United Mexican States 30-year bonds. The debt that was
exchanged had interest rates at 13/16 of 1 percent above the London interbank
rate for three- or six-month Eurodollar deposits and had maturities not
extending beyond
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
December 31, 2006. The bonds bear interest at 6.25 percent and had a market
value of approximately $49 million at December 31, 1994, compared to $74 million
at December 31, 1993, and $58 million at year-end 1992. These bonds are
collateralized by zero-coupon U. S. Treasury bonds, which have an identical
final maturity. The collateral is held at the Federal Reserve Bank of New York.
Payment of semi-annual interest on the bonds is collateralized by cash or
permitted short-term investments in an amount equal to but not less than 18
months' interest on a rolling basis. Interest collateral also is held at the
collateral agent for the benefit of the bondholders. These bonds are fully
performing in compliance with terms of the exchange agreements.
Included in foreign outstandings at year-end 1994 were $26.4 million in
aggregate (all of which was performing) for countries (Mexico) that management
considered to be experiencing severe economic and liquidity problems. Excluded
from this figure is $98.9 million of Mexican debt collateralized by zero-coupon
U.S. Treasury securities.
STANDBY LETTERS OF CREDIT
At December 31, 1994, aggregate standby letters of credit (SLC) issued by
various subsidiaries and outstanding amounted to $2,100 million. The comparable
amounts at year-ends 1993 and 1992 were $1,720 million and $1,558 million,
respectively. While these dollar amounts represent contingent liabilities of the
Corporation, they are not reflected on the Consolidated Balance Sheet since
funds had not been advanced against the commitments. The credit risk associated
with SLC commitments is evaluated and monitored using the same policies and
practices applicable to commercial loans. For a further discussion of other
commitments and contingencies, see Note 12 to the Financial Statements.
Fees for the "standby" backing are generally recognized over the life of
the commitment. Fees recognized in 1994 and 1993 were $11.2 million and $9.6
million, respectively. At year-end 1994, total SLC fees received but not yet
recognized as income amounted to $5.4 million. The comparable figure one year
earlier was $4.6 million.
The following table summarizes the Corporation's SLC position as of
year-ends 1994 and 1993 according to maturity and type of obligation guaranteed.
STANDBY LETTERS OF CREDIT
AS OF DECEMBER 31, 1994:
<TABLE>
<CAPTION>
EXPIRING IN:
------------------------------------------------------------
1 YEAR OVER 1 TO 3 OVER 3 TO 5 OVER 5
OR LESS YEARS YEARS YEARS TOTAL
------- ------------ ------------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
To Guarantee Performance of:
Industrial Revenue Bonds.......................... $ 284 $249 $250 $ 100 $ 883
Other Corporate Obligations....................... 775 192 64 5 1,036
Insurance Companies and Depository Institutions... 116 22 2 -- 140
Municipal Obligations............................. -- 41 -- -- 41
------- ------ ------ ------- ------
$ 1,175 $504 $316 $ 105 $2,100
======= ====== ====== ======= ======
</TABLE>
AS OF DECEMBER 31, 1993:
<TABLE>
<CAPTION>
EXPIRING IN:
-------------------------------------------------------------
1 YEAR OVER 1 TO 3 OVER 3 TO 5 OVER 5
OR LESS YEARS YEARS YEARS TOTAL
-------- ------------ ------------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
To Guarantee Performance of:
Industrial Revenue Bonds.......................... $196 $261 $131 $ 72 $ 660
Other Corporate Obligations....................... 671 159 56 26 912
Insurance Companies and Depository Institutions... 89 12 3 -- 104
Municipal Obligations............................. 14 30 -- -- 44
------ ------ ------ ------ ------
$970 $462 $190 $ 98 $1,720
====== ====== ====== ====== ======
</TABLE>
29
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RATE SENSITIVITY ANALYSIS
The following table summarizes the Rate Sensitivity of Earning Assets and
Funding Sources as of December 31, 1994. Balances are distributed to future
calendar periods based primarily on contractual interest rate repricing dates
and on contractual maturity (including principal amortization) dates. Maturity
distributions, however, are modified based on historical differences between
contractual versus actual payment flows and to reflect management's assumptions
as to the effect current interest rate levels may have on historical principal
prepayment trends. Additionally, distributions reflect management's current
assumptions as to repricing frequency of indeterminate maturity liabilities and
changes in deposit balances in reaction to interest rate levels.
The net difference between the amount of earning assets and funding sources
distributed to a calendar period is typically referred to as either the
"asset/liability funding gap" or the "rate sensitivity position." The magnitude
of the funding gap in the various calendar periods provides a general indication
of the extent to which future earnings, primarily net interest income, may be
effected by interest rate changes.
To mitigate the risk to earnings of changes in interest rates, it is the
Corporation's policy that the cumulative funding gap out to one year may not
exceed 10 percent of total earning assets. A funding gap in excess of 5 percent
requires Board of Directors approval. In addition, the Corporation has an
"interest rate shock" policy which specifies that in the event of an immediate
change in interest rates of 3 percentage points, the existing funding gap would
not cause the average interest rate margin over the ensuing year to decline by
more than 15 percent.
RATE SENSITIVITY OF EARNING ASSETS AND FUNDING SOURCES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-------------------------------------------------------------------------
1-30 31-90 91-180 181-365 1-5 OVER 5
DAYS DAYS DAYS DAYS YEARS YEARS TOTAL
------- ------- ------- -------- ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits............. $ 631 $ -- $ -- $ -- $ -- $ -- $ 631
Federal Funds Sold and Resale
Agreements.......................... 400 -- -- -- -- -- 400
Trading Account Securities............ 122 -- -- -- -- -- 122
Investment Securities................. 1,067 318 1,188 2,727 3,642 3,481 12,423
Loans -- Domestic..................... 12,863 2,314 1,705 2,062 6,584 1,865 27,393
-- Foreign...................... 1,410 34 16 13 -- -- 1,473
Lease Financing....................... 15 22 30 56 225 15 363
------- ------- ------- -------- ------- ------ -------
Total Earning Assets........... $16,508 $ 2,688 $ 2,939 $4,858 $10,451 $5,361 $42,805
------- ------- ------- -------- ------- ------ -------
Savings and Time Deposits............. $ 5,308 $ 1,302 $ 1,476 $1,761 $ 5,815 $ 74 $15,736
Money Market Accounts................. 4,317 -- -- -- 643 -- 4,960
Foreign Office Deposits............... 5,715 13 75 -- -- -- 5,803
Short-Term Borrowings................. 4,906 940 1,111 43 120 -- 7,120
Long-Term Debt........................ -- 147 66 3 1,288 1,000 2,504
Non-Interest-Bearing Liabilities and
Equity Capital...................... 928 -- -- -- 3,292 2,462 6,682
------- ------- ------- -------- ------- ------ -------
Total Sources of Funding....... $21,174 $ 2,402 $ 2,728 $1,807 $11,158 $3,536 $42,805
------- ------- ------- -------- ------- ------ -------
Asset (Liability) Funding Gap......... $(4,666) $ 286 $ 211 $3,051 $ (707) $1,825 $ --
------- ------- ------- -------- ------- ------ -------
Net Interest Rate Swap Position....... $ 281 $ 608 $ 43 $ (133) $(1,088) $ 289 $ --
------- ------- ------- -------- ------- ------ -------
Net Asset (Liability) Funding Gap..... $(4,385) $ 894 $ 254 $2,918 $(1,795) $2,114 $ --
------- ------- ------- -------- ------- ------ -------
Cumulative Net Asset (Liability)
Funding Gap......................... $(4,385) $(3,491) $(3,237) $ (319) $(2,114) $ -- $ --
======= ======= ======= ====== ======= ====== =======
</TABLE>
The period funding gaps at December 31, 1994, would suggest that in the
near term a change in interest rates would effect earnings, but that over the
longer period of one year the effect on earnings would more likely be minimal.
It can also be seen from the table that management's assumptions regarding the
repricing of indeterminate maturity liabilities (e.g., savings deposits) and the
reaction of non-interest bearing liabilities (primarily net demand deposits) to
rate changes has a significant bearing on the stated funding gap in a given
period.
To more closely monitor the earnings risk of interest rate changes, the
Corporation regularly performs simulation analyses of the effect that specific
interest rate changes would have on net interest income and net
30
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
interest margin. Utilizing December 31, 1994, data shown in the preceding table,
a simulation based on interest rates rising by 1 percentage point, in increments
of 25 basis points, over a four-month period would indicate that average
interest margin for 1995 would be only 4 basis points lower than if rates were
unchanged. A simulation based on the December 31, 1994, forward yield curve
would lower margin by 8 basis points. A "shock" analysis, calculated on the
basis of an immediate 3 percentage point increase in rates, would cause the
average interest margin for 1995 to decline by an amount significantly less than
the policy limit of 15 percent.
The Corporation utilizes interest rate swap contracts to alter the funding
gap, or interest rate sensitivity, on the balance sheet. At December 31, 1994,
there were $1.9 billion notional amount of interest rate swap contracts
outstanding for rate management purposes. Rate management swaps reduced net
interest income by $35.1 million, or 9 basis points, in 1994 and by $59.4
million, or 16 basis points in 1993. Net cash outflow, in contrast to the
accrual amounts indicated above, on these rate swaps was $43.6 million in 1994.
Note 11 of the Financial Statements provides additional information on the
specific purpose and duration of rate management contracts.
An additional $1.7 billion of customer accommodation contracts, unrelated
to the funding of specific earning assets of the Corporation and therefore not
shown in the preceding table, were outstanding at December 31, 1994.
LIQUIDITY CONSIDERATIONS
The parent holding company has four primary sources to meet its liquidity
requirements -- the commercial paper market, established credit facilities from
unaffiliated banks, capital markets and dividends from its subsidiaries.
Funds raised in the commercial paper market are primarily employed to
support the activities of the mortgage banking subsidiaries. The Corporation's
ability to attract funds from this market on a regular basis and at a
competitive cost is fostered by the highest credit ratings given by the major
credit rating agencies for commercial paper -- P1 from Moody's and A1+ from
Standard & Poor's. Commercial paper borrowings averaged $126 million in 1994,
$143 million in 1993 and $191 million in 1992. The decline in commercial paper
usage can be attributed in part to alternative borrowing by the mortgage company
directly from NBD Bank (Michigan). In addition, during 1994 there was a reduced
need for short-term mortgage company borrowings due to a lower level of
mortgages held for resale.
During 1990, NBD Bancorp established a $200 million revolving credit with a
group of unaffiliated banks. This credit facility was renewed in 1991 for a
two-year period with the right to convert to a three-year term loan. No drawings
were made under this facility, and its conversion feature was extended to August
of 1996 during 1994. This facility has been replaced early in 1995 by a
five-year revolving credit totaling $400 million.
The parent company has gone to the capital markets on three occasions in
the past three years to issue a total of $550 million of long-term subordinated
debt and preferred purchase units, of which $400 million was raised in 1992 and
$150 million in 1993. (As noted earlier, on March 15, 1994, the Corporation
called for redemption the balance of a $200 million convertible debenture
issue.) An additional $200 million of subordinated debt was issued by NBD Bank
(Michigan) in 1993, and the bank issued another $250 million of subordinated
debt in 1994. At December 31, 1994, a total of $646 million of parent company
debt was outstanding, with the earliest scheduled maturity falling in the year
2002. The parent company's subordinated debt ratings were reaffirmed in 1994 at
A1 (Moody's) and A+ (Standard & Poor's).
The cash requirements of the parent company can also be met to a limited
extent by dividends from its subsidiaries, which are the primary source of funds
for dividend payments to shareholders. During the past three years, NBD Bank
(Michigan) declared cash dividends totaling $413.4 million, while upstream
dividends from other subsidiaries amounted to $328.1 million. NBD Bancorp itself
declared dividends to shareholders amounting to $534.1 million over this same
three-year period, a 40.5 percent payout of Net Income.
* * *
31
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NBD Bank (Michigan) supports the funding requirements of its wholly-owned
subsidiary bank in Canada by guaranteeing its deposit and other liabilities.
Similar support for the funding requirements of Michell NBD Limited in Australia
was obviated when Michell NBD's offices became branches of NBD Bank (Michigan)
in 1994.
Management considers the liquidity of NBD Bank (Michigan) to be excellent.
In addition to a high degree of liquidity embodied in the loan and securities
portfolios, the Bank has demonstrated an ability to raise substantial amounts of
funds on a consistent basis during all phases of the credit cycle by: (1)
borrowing federal funds (i.e., the excess reserves of other financial
institutions) through a long-established and extensive network of correspondent
banks; (2) issuing large CDs, deposit notes and bank notes to regular customers,
as well as in the national money markets; (3) entering into repurchase
agreements whereby U.S. Government and U.S. Government Agency securities are
pledged as collateral for short-term borrowings, and (4) pledging acceptable
assets as collateral for certain tax collection monies held temporarily in the
U.S. Treasury Tax and Loan accounts in the commercial banking system. Borrowings
from the Federal Reserve Bank can be relied upon for short periods of time to
meet unexpected liquidity needs of a temporary nature; however, no such
borrowings occurred during the past three years at NBD Bank (Michigan).
The ability to attract funds from the money and capital markets on a
regular basis is enhanced by the strong credit ratings of NBD Bank (Michigan).
Among these ratings, as of December 31, 1994, were: (1) Aa2 and P1 from Moody's
on the Bank's long- and short-term deposits, respectively; (2) AA from Standard
& Poor's on the Bank's long-term deposits and letter of credit-backed issues,
and (3) Aa3 and AA- from Moody's and Standard & Poor's, respectively, on the
Bank's subordinated debt. These ratings were reaffirmed in 1994 by the rating
agencies.
The Corporation's other subsidiary banks typically meet their need for
funds from core deposit growth and through asset management policies designed to
maintain adequate liquidity. Individual banks also raise money from time to time
in the federal funds market, through repurchase agreements, Treasury Tax and
Loan account borrowings, bank notes and borrowings from the Federal Reserve
Bank. They can also draw upon the resources of NBD Bank (Michigan) and the
parent holding company for temporary liquidity needs, as well as to meet longer
term capital needs and requirements.
32
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
ORGANIZATIONAL PERFORMANCE
Performance data and other information listed by the three major
geographical banking markets serviced by the Corporation are presented in the
following table. The transfer of certain business activities and organizational
changes have minimized the usefulness of comparative data for prior periods.
ANALYSIS OF ORGANIZATIONAL PERFORMANCE
<TABLE>
<CAPTION>
MICHIGAN INDIANA ILLINOIS ALL OTHER** TOTAL
-------- -------- -------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income before Accounting Change................ $383,863 $100,490 $ 67,930 $ (5,004) $547,279
Net Income..................................... 378,421 99,651 67,426 (13,834) 531,664
Average Earning Assets ($ millions)............ 26,434 9,117 4,619 (199) 39,971
Return on Average Assets*...................... 1.33% 0.99% 1.36% -- 1.25%
Banking Offices (year end)..................... 330 227 42 30 629
Employees -- Full-Time Equivalent
(monthly averages)........................... 8,530 5,176 1,939 2,586 18,231
</TABLE>
- -------------------------
* Based on income before accounting change and extraordinary charge for early
retirement of debt.
** Includes parent company, other bank and non-bank subsidiaries and
eliminations emanating from the consolidation process.
The amount shown in the "All Other" column for Net Income in the preceding
table includes the $7,730,000 premium (after tax effect) paid by the Corporation
in connection with the early redemption of an outstanding convertible debenture
issue and recognizes the fact that $646 million of the Corporation's
consolidated long-term debt is an obligation of the parent company.
In the first quarter of 1994, an agreement was reached to acquire AmeriFed
Financial Corp. (AFFC), a holding company with $910 million in assets
headquartered in Joliet, Illinois. This transaction was completed on January 9,
1995, when approximately 5.2 million shares of NBD common stock, previously
acquired in the market, were exchanged for all of the outstanding shares of
AFFC. The acquisition was accounted for as a purchase.
On January 7, 1995, an agreement was reached to acquire Deerbank
Corporation, a holding company with $766 million in assets headquartered in
Deerfield, Illinois. The Corporation proposes to issue NBD common stock with an
aggregate market value of approximately $120 million for all of the outstanding
shares of Deerbank. The acquisition, which is subject to the approval of
Deerbank shareholders and regulatory authorities, will be accounted for as a
purchase and is expected to be consummated by mid-year 1995. It is anticipated
that the NBD shares to be exchanged will have been acquired in the market prior
to that time.
33
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CONSOLIDATED SIX-YEAR SUMMARY
AVERAGE BALANCES AND AVERAGE RATES
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE
RATE RATE RATE
AVERAGE EARNED/ AVERAGE EARNED/ AVERAGE EARNED/
BALANCE PAID BALANCE PAID BALANCE PAID
------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-Bearing Deposits...................... $ 652 5.03% $ 657 5.20% $ 760 6.26%
Federal Funds Sold and Resale Agreements....... 192 4.53 151 3.19 154 3.85
Trading Account Securities..................... 142 4.82 147 3.73 217 4.27
Money Market Investments....................... -- -- 52 4.13 48 7.67
Investment Securities:
U.S. Treasury................................ 1,379 5.48 1,594 5.49 1,362 6.16
U.S. Government Agencies..................... 8,987 6.56 6,642 7.04 6,201 8.05
States and Political Subdivisions............ 1,482 8.95 1,541 8.60 1,739 9.03
Other........................................ 347 5.25 477 4.55 1,052 5.72
------- ------- ------- ------- ------- -------
Total Investment Securities............. 12,195 6.69 10,254 6.92 10,354 7.73
------- ------- ------- ------- ------- -------
Loans and Leases:
Commercial................................... 14,408 7.71 13,696 7.02 13,281 7.45
Real Estate Construction..................... 768 7.91 813 7.27 993 7.35
Residential Mortgage......................... 3,012 7.54 2,784 8.25 2,915 9.06
Consumer..................................... 7,148 8.60 6,493 9.15 6,126 10.02
Lease Financing.............................. 308 9.89 258 11.39 265 12.10
Foreign...................................... 1,146 6.18 1,069 6.18 1,115 7.71
------- ------- ------- ------- ------- -------
Total Loans and Leases.................. 26,790 7.89 25,113 7.72 24,695 8.34
------- ------- ------- ------- ------- -------
Total Earning Assets.................... 39,971 7.45% 36,374 7.41% 36,228 8.07%
====== ====== ======
Cash and Due From Banks........................ 2,372 2,359 2,087
Other Assets................................... 2,025 1,693 1,717
Less Allowance for Possible Credit Losses...... (434) (434) (408)
------- ------- -------
TOTAL ASSETS............................... $43,934 $39,992 $39,624
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Domestic Interest-Bearing Deposits:
Savings...................................... $ 7,795 2.35% $ 7,252 2.52% $ 6,279 3.15%
Money Market Accounts........................ 5,278 3.09 5,918 2.81 6,030 3.42
Time......................................... 8,962 4.49 8,803 4.54 11,098 5.43
------- ------- ------- ------- ------- -------
Total Domestic Interest-Bearing
Deposits.............................. 22,035 3.40 21,973 3.41 23,407 4.30
Foreign Office Deposits........................ 2,699 4.62 1,741 4.57 1,615 6.30
------- ------- ------- ------- ------- -------
Total Interest-Bearing Deposits............ 24,734 3.53 23,714 3.49 25,022 4.43
------- ------- ------- ------- ------- -------
Short-Term Borrowings.......................... 6,647 4.37 4,994 3.13 4,624 3.61
Long-Term Debt................................. 2,061 6.15 1,230 6.56 804 7.28
------- ------- ------- ------- ------- -------
Total Borrowings........................... 8,708 4.79 6,224 3.81 5,428 4.15
------- ------- ------- ------- ------- -------
Total Interest-Bearing Liabilities...... 33,442 3.86% 29,938 3.56% 30,450 4.38%
====== ====== ======
------- ------- -------
Demand Deposits................................ 6,305 6,098 5,484
Other Liabilities.............................. 882 836 814
Shareholders' Equity........................... 3,305 3,120 2,876
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................. $43,934 $39,992 $39,624
======= ======= =======
INTEREST RATE SPREAD........................... 3.59% 3.85% 3.69%
====== ====== ======
NET INTEREST MARGIN............................ 4.22% 4.48% 4.39%
====== ====== ======
</TABLE>
- -------------------------
Notes: 1) Average rates are on a fully taxable equivalent basis.
2) Federal Funds Sold and Resale Agreements are classified with Money
Market Investments for years prior to 1992.
3) The combined amounts for Investment Securities Available-for-Sale and
Held-to-Maturity for 1994 are based on their respective carrying
values. Based on the amortized cost of Investment Securities
Available-for-Sale, the combined average balance for 1994 would be
$12,316 million and the average rate would be 6.62%.
34
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CONSOLIDATED SIX-YEAR SUMMARY (CONTINUED)
AVERAGE BALANCES AND AVERAGE RATES
<TABLE>
<CAPTION>
1991 1990 1989
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE
RATE RATE RATE
AVERAGE EARNED/ AVERAGE EARNED/ AVERAGE EARNED/
BALANCE PAID BALANCE PAID BALANCE PAID
------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-Bearing Deposits...................... $ 972 8.21% $ 919 10.28% $ 932 9.73%
Federal Funds Sold and Resale Agreements....... -- -- -- -- -- --
Trading Account Securities..................... 158 5.96 63 8.48 35 9.29
Money Market Investments....................... 262 9.18 561 8.40 506 9.34
Investment Securities:
U.S. Treasury................................ 856 7.91 1,084 8.66 1,318 8.58
U.S. Government Agencies..................... 4,828 9.26 4,722 9.54 3,120 9.49
States and Political Subdivisions............ 1,874 10.12 1,950 10.47 1,915 10.68
Other........................................ 1,650 7.19 1,016 8.66 1,292 8.96
------- ------- ------- ------- ------- -------
Total Investment Securities............. 9,208 8.94 8,772 9.54 7,645 9.54
------- ------- ------- ------- ------- -------
Loans and Leases:
Commercial................................... 12,439 9.27 11,764 10.48 11,316 11.21
Real Estate Construction..................... 1,113 8.97 1,134 10.12 954 11.07
Residential Mortgage......................... 2,684 10.14 2,605 11.33 2,599 11.16
Consumer..................................... 5,601 11.13 5,207 12.17 4,894 12.39
Lease Financing.............................. 278 12.52 298 12.80 301 12.47
Foreign...................................... 1,175 9.48 1,131 10.84 1,110 10.02
------- ------- ------- ------- ------- -------
Total Loans and Leases.................. 23,290 9.85 22,139 10.99 21,174 11.39
------- ------- ------- ------- ------- -------
Total Earning Assets.................... 33,890 9.53% 32,454 10.53% 30,292 10.84%
====== ====== ======
Cash and Due From Banks........................ 2,006 2,057 2,167
Other Assets................................... 1,605 1,429 1,406
Less Allowance for Possible Credit Losses...... (376) (348) (327)
------- ------- -------
TOTAL ASSETS............................... $37,125 $35,592 $33,538
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Domestic Interest-Bearing Deposits:
Savings...................................... $ 5,073 4.60% $ 5,455 5.32% $ 5,222 5.33%
Money Market Accounts........................ 5,256 5.35 5,336 6.93 4,824 7.33
Time......................................... 12,890 7.01 11,026 8.19 10,471 8.57
------- ------- ------- ------- ------- -------
Total Domestic Interest-Bearing
Deposits.............................. 23,219 6.11 21,817 7.17 20,517 7.45
Foreign Office Deposits........................ 1,549 8.63 1,549 10.65 1,524 9.63
------- ------- ------- ------- ------- -------
Total Interest-Bearing Deposits............ 24,768 6.26 23,366 7.40 22,041 7.60
------- ------- ------- ------- ------- -------
Short-Term Borrowings.......................... 3,580 5.79 3,913 8.10 3,241 8.93
Long-Term Debt................................. 490 8.62 327 10.01 447 10.25
------- ------- ------- ------- ------- -------
Total Borrowings........................... 4,070 6.13 4,240 8.24 3,688 9.09
------- ------- ------- ------- ------- -------
Total Interest-Bearing Liabilities...... 28,838 6.24% 27,606 7.53% 25,729 7.82%
====== ====== ======
------- ------- -------
Demand Deposits................................ 4,822 4,788 4,852
Other Liabilities.............................. 805 740 718
Shareholders' Equity........................... 2,660 2,458 2,239
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................. $37,125 $35,592 $33,538
======= ======= =======
INTEREST RATE SPREAD........................... 3.29% 3.00% 3.02%
====== ====== ======
NET INTEREST MARGIN............................ 4.22% 4.13% 4.20%
====== ====== ======
</TABLE>
- -------------------------
Notes: 1) Average rates are on a fully taxable equivalent basis.
2) Federal Funds Sold and Resale Agreements are classified with Money
Market Investments for years prior to 1992.
35
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CONSOLIDATED SIX-YEAR SUMMARY (CONTINUED)
SUPPLEMENTARY FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
INCOME AND DIVIDENDS:
Total Interest Income..................................... $ 2,915,394 $ 2,622,820 $ 2,843,797
Total Interest Expense.................................... 1,290,626 1,064,713 1,334,026
Net Interest Income..................................... 1,624,768 1,558,107 1,509,771
Provision for Possible Credit Losses...................... 52,032 119,674 228,480
Net Interest Income after Loan Loss Provision........... 1,572,736 1,438,433 1,281,291
Non-Interest Income....................................... 545,566 585,383 529,208
Non-Interest Expenses:
Compensation............................................ 720,733 703,744 676,240
Other................................................... 583,537 618,096 661,879
Total Non-Interest Expenses........................... 1,304,270 1,321,840 1,338,119
Income before Income Taxes................................ 814,032 701,976 472,380
Income Tax Expense........................................ 266,753 220,135 134,361
Income before Extraordinary Item and Cumulative Effect of
Accounting Change....................................... 547,279 481,841 338,019
Extraordinary Item...................................... (7,730) -- --
Cumulative Effect of Accounting Change (SFAS No. 112 in
1994, No. 109 in 1993 and No. 106 in 1992)............ (7,885) 3,950 (37,885)
Net Income................................................ $ 531,664 $ 485,791 $ 300,134
Cash Dividends Declared................................... (193,897) (173,496) (166,682)
Purchase of Common Stock for Treasury at Cost............. (166,606) (13,369) (134,222)
Fair Value Adjustment on Available-for-Sale Securities.... (147,293) (7,012) --
Acquisition of Subsidiary Banks........................... -- -- 168,186
Other..................................................... 19,076 15,792 57,340
Net Addition to Shareholders' Equity...................... $ 42,944 $ 307,706 $ 224,756
Memo: Income before Securities Transactions............... $ 534,133 $ 476,463 $ 299,281
RATES OF RETURN:
Return on Average Total Assets Based on:
Net Income.............................................. 1.21% 1.21% 0.76%
Income before Securities Transactions................... 1.22 1.19 0.76
Equity Leverage (Average Assets / Average Common
Shareholders' Equity)................................... 13.29X 12.82x 13.78x
Return on Average Common Shareholders' Equity Based on:
Net Income.............................................. 16.09% 15.57% 10.44%
Income before Securities Transactions................... 16.16 15.27 10.41
LOAN AND LEASE RATIOS:
Ratio of Allowance Balance to Period End Loans and
Leases.................................................. 1.49% 1.66% 1.66%
Ratio of Net Charge-Offs to Average Loans and Leases
Outstanding............................................. 0.15 0.46 0.81
Ratio of Recoveries to Charge-Offs........................ 66.56 44.43 22.23
OTHER SELECTED DATA:
Per Common Share:
Shareholders' Equity -- Year-End........................ $ 21.11 $ 20.21 $ 18.34
-- Average (Daily)................ 20.81 19.35 17.89
Net Income -- on Average Shares Outstanding............... 3.35 3.01 1.87
Income before Securities Transactions..................... 3.36 2.95 1.86
Cash Dividends Paid....................................... 1.17 1.08 1.02
Market Price -- High...................................... 33 36 3/8 33 1/8
-- Low...................................... 26 3/4 28 5/8 26 3/4
-- Year-End................................. 27 3/8 29 3/4 32 3/4
Common Shares Outstanding -- Year-End..................... 155,908,672 160,715,173 160,385,761
-- Average (Daily)......... 158,807,677 161,253,486 160,716,309
Employees (Full-Time Equivalent) -- Year-End.............. 17,836 18,716 18,543
-- Monthly
Averages................. 18,231 18,677 18,612
Banking Offices, Year-End -- Domestic..................... 620 632 646
-- Foreign.................... 9 10 10
</TABLE>
- -------------------------
Note: Rates of return and per share data are after an Extraordinary Item in 1994
and Cumulative Effect of Accounting Changes in 1994, 1993 and 1992.
36
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CONSOLIDATED SIX-YEAR SUMMARY (CONTINUED)
SUPPLEMENTARY FINANCIAL DATA
<TABLE>
<CAPTION>
1991 1990 1989
------------ ------------ ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
INCOME AND DIVIDENDS:
Total Interest Income..................................... $ 3,138,893 $ 3,320,312 $ 3,188,254
Total Interest Expense.................................... 1,800,759 2,077,923 2,011,362
Net Interest Income..................................... 1,338,134 1,242,389 1,176,892
Provision for Possible Credit Losses...................... 166,212 151,086 113,351
Net Interest Income after Loan Loss Provision........... 1,171,922 1,091,303 1,063,541
Non-Interest Income....................................... 473,027 412,339 391,444
Non-Interest Expenses:
Compensation............................................ 623,195 582,184 545,020
Other................................................... 537,932 473,590 461,611
Total Non-Interest Expenses........................... 1,161,127 1,055,774 1,006,631
Income before Income Taxes................................ 483,822 447,868 448,354
Income Tax Expense........................................ 122,288 99,319 97,822
Income before Extraordinary Item and Cumulative Effect of
Accounting Change....................................... 361,534 348,549 350,532
Extraordinary Item...................................... -- -- --
Cumulative Effect of Accounting Change (SFAS No. 112 in
1994, No. 109 in 1993 and No. 106 in 1992)............ -- -- --
Net Income................................................ $ 361,534 $ 348,549 $ 350,532
Cash Dividends Declared................................... (139,719) (136,177) (114,573)
Purchase of Common Stock for Treasury at Cost............. (70,799) (30,494) (45,366)
Fair Value Adjustment on Available-for-Sale Securities.... -- -- --
Acquisition of Subsidiary Banks........................... -- -- --
Other..................................................... 31,782 (4,054) 45,605
Net Addition to Shareholders' Equity...................... $ 182,798 $ 177,824 $ 236,198
Memo: Income before Securities Transactions............... $ 355,762 $ 352,316 $ 348,495
RATES OF RETURN:
Return on Average Total Assets Based on:
Net Income.............................................. 0.97% 0.98% 1.05%
Income before Securities Transactions................... 0.96 0.99 1.04
Equity Leverage (Average Assets / Average Common
Shareholders' Equity)................................... 13.96x 14.48x 14.98x
Return on Average Common Shareholders' Equity Based on:
Net Income.............................................. 13.59% 14.18% 15.65%
Income before Securities Transactions................... 13.37 14.33 15.56
LOAN AND LEASE RATIOS:
Ratio of Allowance Balance to Period End Loans and
Leases.................................................. 1.59% 1.56% 1.51%
Ratio of Net Charge-Offs to Average Loans and Leases
Outstanding............................................. 0.65 0.56 0.53
Ratio of Recoveries to Charge-Offs........................ 28.78 29.12 23.61
OTHER SELECTED DATA:
Per Common Share:
Shareholders' Equity -- Year-End........................ $ 17.26 $ 15.98 $ 14.94
-- Average (Daily)................ 16.70 15.46 14.23
Net Income -- on Average Shares Outstanding............... 2.27 2.19 2.23
Income before Securities Transactions..................... 2.23 2.22 2.21
Cash Dividends Paid....................................... 0.93 0.89 0.75
Market Price -- High...................................... 30 1/8 23 7/8 23 5/8
-- Low...................................... 20 3/4 16 1/8 16 1/8
-- Year-End................................. 29 3/4 22 21 3/8
Common Shares Outstanding -- Year-End..................... 157,348,618 157,968,282 157,039,841
-- Average (Daily)......... 159,265,471 159,015,859 157,349,785
Employees (Full-Time Equivalent) -- Year-End.............. 17,866 17,622 17,268
-- Monthly
Averages................. 17,827 17,549 17,234
Banking Offices, Year-End -- Domestic..................... 595 579 530
-- Foreign.................... 10 6 6
</TABLE>
- -------------------------
Note: Rates of return and per share data are after an Extraordinary Item in 1994
and Cumulative Effect of Accounting Changes in 1994, 1993 and 1992.
37
<PAGE> 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
(a) The following audited consolidated financial statements and independent
auditors' report are set forth in this Form 10-K on the following pages:
<TABLE>
<S> <C>
Consolidated Balance Sheet.............................................................. 40
Consolidated Statement of Income........................................................ 42
Consolidated Statement of Shareholders' Equity.......................................... 43
Consolidated Statement of Cash Flows.................................................... 44
Notes to Financial Statements........................................................... 45
Independent Auditors' Report............................................................ 71
</TABLE>
(b) The following additional data is set forth in this Form 10-K on the
following pages:
<TABLE>
<S> <C>
Management's Letter of Financial Responsibility......................................... 39
Earnings Per Share Computation.......................................................... 72
</TABLE>
38
<PAGE> 41
MANAGEMENT'S LETTER OF FINANCIAL RESPONSIBILITY
- ------------------------------------------------------------------------------
TO THE SHAREHOLDERS:
Management of NBD Bancorp, Inc. has prepared and is responsible for the
financial statements and for the integrity and consistency of other related
information contained in the Annual Report and Form 10-K. In the opinion of
management, the financial statements, which necessarily include amounts based on
management estimates and judgments, have been prepared in conformity with
generally accepted accounting principles appropriate to the circumstances.
The Corporation maintains a system of internal accounting controls designed
to provide reasonable assurance that assets are safeguarded, that transactions
are executed in accordance with the Corporation's authorizations and policies,
and that transactions are properly recorded so as to permit preparation of
financial statements that fairly present financial position and results of
operations in conformity with generally accepted accounting principles. Internal
accounting controls are augmented by written policies covering standards of
personal and business conduct and an organizational structure providing for
division of responsibility and authority.
The effectiveness of and compliance with established control systems is
monitored through a continuous program of internal audit and credit
examinations. In recognition of cost-benefit relationships and inherent control
limitations, some features of the control systems are designed to detect rather
than prevent errors, irregularities and departures from approved policies and
practices. Management believes the system of controls has prevented or detected
on a timely basis any occurrences that could be material to the financial
statements and that timely corrective actions have been initiated when
appropriate.
With the ratification of the shareholders, the Corporation engaged the firm
of Deloitte & Touche LLP, independent auditors, to render an opinion on the
financial statements. The independent auditors have advised management that they
were provided with access to all information and records necessary to render
their opinion.
The Board of Directors exercises its responsibility for the financial
statements and related information through the Audit Committee, which is
composed entirely of outside directors. The Audit Committee meets regularly with
management, the General Auditor of the Corporation and the independent auditors
to assess the scope of the annual audit plan, to review status and results of
audits, to review the Annual Report and Form 10-K including major changes in
accounting policies and reporting practices and to approve non-audit services
rendered by the independent auditors.
The independent auditors also meet with the Audit Committee, without
management being present, to afford them the opportunity to express their
opinion on the adequacy of compliance with established corporate policies and
procedures and the quality of financial reporting.
[Sig.] [Sig.]
Verne G. Istock Philip S. Jones
Chairman and Executive Vice President,
Chief Executive Officer Treasurer and
Chief Financial Officer
February 1, 1995
39
<PAGE> 42
NBD BANCORP, INC.
- ---------------------------
CONSOLIDATED BALANCE SHEET
(in thousands except share data)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
Cash and Due From Banks.................................................... $ 2,587,007 $ 2,405,694
Interest-Bearing Deposits.................................................. 630,688 722,109
Federal Funds Sold and Resale Agreements................................... 399,725 282,481
Trading Account Securities................................................. 122,135 109,637
Investment Securities (Note 4):
Available-for-Sale (At Fair Value)....................................... 4,814,252 3,784,384
Held-to-Maturity (Fair Value of $7,381,476 and $7,017,903,
respectively).......................................................... 7,608,713 6,607,409
----------- -----------
12,422,965 10,391,793
----------- -----------
Loans and Leases (Net of Unearned Income of $171,207 and $140,412,
respectively):
Commercial............................................................... 15,525,645 13,794,714
Real Estate Construction................................................. 817,452 789,248
Residential Mortgage..................................................... 3,351,840 2,560,539
Mortgages Held For Sale.................................................. 30,171 255,902
Consumer................................................................. 7,667,907 6,758,171
Lease Financing.......................................................... 363,200 284,805
Foreign.................................................................. 1,473,449 1,107,413
----------- -----------
29,229,664 25,550,792
Allowance For Possible Credit Losses (Note 5)............................ (435,051) (423,030)
----------- -----------
28,794,613 25,127,762
----------- -----------
Net Premises and Equipment (Note 6)........................................ 630,357 634,541
Customers' Liability on Acceptances........................................ 193,866 172,171
Other Assets............................................................... 1,329,777 929,717
----------- -----------
TOTAL ASSETS........................................................ $47,111,133 $40,775,905
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE> 43
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1993
----------- -----------
<S> <C> <C> <C> <C>
Deposits:
Demand (Non-Interest Bearing).............................................. $ 6,731,050 $ 6,667,958
Savings.................................................................... 7,679,922 8,051,337
Money Market Accounts...................................................... 4,959,816 5,561,573
Time....................................................................... 8,055,429 7,474,234
Foreign Office............................................................. 5,803,224 2,066,005
----------- -----------
33,229,441 29,821,107
Short-Term Borrowings (Note 7)............................................... 7,119,972 5,354,839
Liability on Acceptances..................................................... 193,866 172,171
Accrued Expenses and Sundry Liabilities...................................... 771,963 744,242
Long-Term Debt (Note 8)...................................................... 2,504,348 1,434,947
----------- -----------
Total Liabilities..................................................... 43,819,590 37,527,306
----------- -----------
Shareholders' Equity (Notes 8 & 9):
Series A Preferred Stock -- Par Value $1, Stated Value $50................. -- --
NO. OF SHARES 1994 1993
- ------------------------------------------------ ----------- -----------
Authorized............................... 460,000 460,000
Issued................................... -- --
Preferred Stock -- No Par Value............................................ -- --
NO. OF SHARES 1994 1993
- ------------------------------------------------ ----------- -----------
Authorized............................... 10,000,000 10,000,000
Issued................................... -- --
Common Stock -- Par Value $1............................................... 160,877 160,715
NO. OF SHARES 1994 1993
- ------------------------------------------------ ----------- -----------
Authorized............................... 500,000,000 500,000,000
Issued................................... 160,876,819 160,715,173
Capital Surplus............................................................ 545,717 541,232
Retained Earnings.......................................................... 2,903,394 2,565,627
Fair Value Adjustment on Investment Securities Available-for-Sale (Note
4)....................................................................... (154,305) (7,012)
Accumulated Translation Adjustment......................................... 6,942 4,384
Deferred Compensation...................................................... (17,438) (16,347)
Less Treasury Stock (4,968,147 shares)..................................... (153,644) --
----------- -----------
Total Shareholders' Equity............................................ 3,291,543 3,248,599
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................... $47,111,133 $40,775,905
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE> 44
NBD BANCORP, INC.
- ---------------------------
CONSOLIDATED STATEMENT OF INCOME
(in thousands except share data)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and Leases (including fees).............................. $2,102,936 $1,924,075 $2,039,575
Investment Securities:
Taxable...................................................... 665,068 544,933 614,341
Non-Taxable.................................................. 99,206 107,291 123,550
Trading Account Securities..................................... 6,760 5,379 9,145
Federal Funds Sold and Resale Agreements....................... 8,688 4,820 5,921
Other Money Market Investments................................. -- 2,138 3,709
Interest-Bearing Deposits...................................... 32,736 34,184 47,556
---------- ---------- ----------
Total Interest Income........................................ 2,915,394 2,622,820 2,843,797
---------- ---------- ----------
INTEREST EXPENSE:
Deposits....................................................... 873,190 827,875 1,108,714
Short-Term Borrowings.......................................... 290,624 156,227 166,756
Long-Term Debt................................................. 126,812 80,611 58,556
---------- ---------- ----------
Total Interest Expense....................................... 1,290,626 1,064,713 1,334,026
---------- ---------- ----------
NET INTEREST INCOME.............................................. 1,624,768 1,558,107 1,509,771
Provision For Possible Credit Losses (Note 5).................. 52,032 119,674 228,480
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE CREDIT LOSSES... 1,572,736 1,438,433 1,281,291
---------- ---------- ----------
NON-INTEREST INCOME:
Trust Fees..................................................... 157,355 149,552 139,856
Service Charges on Deposit Accounts............................ 159,996 165,416 158,380
Credit Card Fees............................................... 38,566 36,050 37,308
Securities Gains(Losses) (Note 4).............................. (2,469) 9,328 1,614
Other.......................................................... 192,118 225,037 192,050
---------- ---------- ----------
Total Non-Interest Income.................................... 545,566 585,383 529,208
---------- ---------- ----------
NON-INTEREST EXPENSES:
Compensation:
Salaries..................................................... 542,565 535,472 517,763
Benefits (Note 9)............................................ 178,168 168,272 158,477
---------- ---------- ----------
Total Compensation........................................... 720,733 703,744 676,240
Net Occupancy (Note 6)......................................... 117,253 118,063 111,947
Equipment Rentals, Depreciation and Maintenance (Note 6)....... 89,590 84,280 80,063
FDIC and Other Regulatory Assessments.......................... 66,663 68,766 70,145
Amortization of Intangibles.................................... 25,806 35,742 31,568
Merger-Related Expenses........................................ -- -- 76,071
Other.......................................................... 284,225 311,245 292,085
---------- ---------- ----------
Total Non-Interest Expenses.................................. 1,304,270 1,321,840 1,338,119
---------- ---------- ----------
INCOME BEFORE INCOME TAXES....................................... 814,032 701,976 472,380
Income Tax Expense (Including tax expense(benefit) of $(924),
$3,536, and $761, respectively, on securities sales) (Note
10).......................................................... 266,753 220,135 134,361
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.............................................. 547,279 481,841 338,019
Extraordinary Item (net of income tax effect) (Note 8)......... (7,730) -- --
Cumulative Effect of Accounting Change (net of income tax
effect) (Note 9)............................................. (7,885) 3,950 (37,885)
---------- ---------- ----------
NET INCOME....................................................... $ 531,664 $ 485,791 $ 300,134
========== ========== ==========
NET INCOME PER SHARE (ON AVERAGE SHARES OUTSTANDING):
Income before Extraordinary Item and Cumulative Effect of
Accounting Change............................................ $ 3.45 $ 2.98 $ 2.11
Extraordinary Item (net of income tax effect).................. (0.05) -- --
Cumulative Effect of Accounting Change(net of income tax
effect)...................................................... (0.05) 0.03 (0.24)
---------- ---------- ----------
NET INCOME PER SHARE............................................. $ 3.35 $ 3.01 $ 1.87
========== ========== ==========
Average Shares Outstanding....................................... 158,807,677 161,253,486 160,716,309
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE> 45
NBD BANCORP, INC.
- ---------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands except share data)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
PREFERRED STOCK:
Balance, Beginning and End of Period........................... $ -- $ -- $ --
---------- ---------- ----------
COMMON STOCK:
Balance, Beginning of Period................................... 160,715 160,386 159,775
Conversion of Subordinated Debentures and Other (161,646
shares in 1994)........................................... 162 329 611
Acquisition of Subsidiary Bank............................... -- -- 3,037
Cancellation of Shares Held in Treasury...................... -- -- (3,037)
---------- ---------- ----------
Balance, End of Period......................................... 160,877 160,715 160,386
---------- ---------- ----------
CAPITAL SURPLUS:
Balance, Beginning of Period................................... 541,232 536,900 540,906
Conversion of Subordinated Debentures and Other.............. 4,485 4,332 (8,197)
Acquisition of Subsidiary Bank............................... -- -- 90,918
Cancellation of Shares Held in Treasury...................... -- -- (86,727)
---------- ---------- ----------
Balance, End of Period......................................... 545,717 541,232 536,900
---------- ---------- ----------
RETAINED EARNINGS:
Balance, Beginning of Period................................... 2,565,627 2,253,332 2,119,512
Net Income................................................... 531,664 485,791 300,134
Cash Dividends Declared on Common Stock:
Corporation ($1.23, $1.08 and $1.04 per share,
respectively)........................................... (193,897) (173,496) (148,329)
Pooled Affiliates......................................... -- -- (18,353)
Other........................................................ -- -- 368
---------- ---------- ----------
Balance, End of Period......................................... 2,903,394 2,565,627 2,253,332
---------- ---------- ----------
FAIR VALUE ADJUSTMENT ON INVESTMENT SECURITIES
AVAILABLE-FOR-SALE:
Balance, Beginning of Period................................... (7,012) -- --
Change in Fair Value (net of tax benefit of $84,291 and
$3,470, respectively)..................................... (147,293) (7,012) --
---------- ---------- ----------
Balance, End of Period......................................... (154,305) (7,012) --
---------- ---------- ----------
ACCUMULATED TRANSLATION ADJUSTMENT:
Balance, Beginning of Period................................... 4,384 5,610 9,576
Translation Gain(Loss) (net of tax benefit of $302, $660 and
$2,043, respectively)..................................... 2,558 (1,226) (3,966)
---------- ---------- ----------
Balance, End of Period......................................... 6,942 4,384 5,610
---------- ---------- ----------
DEFERRED COMPENSATION:
Balance, Beginning of Period................................... (16,347) (15,335) (47,207)
Awards Granted............................................... (14,445) (11,639) (10,640)
Amortization of Deferred Compensation........................ 11,155 9,281 15,369
Termination -- ESOP.......................................... -- -- 27,809
Other........................................................ 2,199 1,346 (666)
---------- ---------- ----------
Balance, End of Period......................................... (17,438) (16,347) (15,335)
---------- ---------- ----------
TREASURY STOCK:
Balance, Beginning of Period................................... -- -- (66,425)
Purchase of Common Stock (5,410,345 shares in 1994).......... (166,606) (13,369) (134,222)
Conversion of Subordinated Debentures and Other (442,198
shares in 1994)........................................... 12,962 13,369 36,652
Acquisition of Subsidiary Bank............................... -- -- 74,231
Cancellation of Shares Held in Treasury...................... -- -- 89,764
---------- ---------- ----------
Balance, End of Period......................................... (153,644) -- --
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD........................ $3,291,543 $3,248,599 $2,940,893
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE> 46
NBD BANCORP, INC.
- ---------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................. $ 531,664 $ 485,791 $ 300,134
Adjustments to Reconcile Net Income to Net Cash Provided
by Operations:
Depreciation and Amortization............................. 102,558 106,999 109,531
Provision for Possible Credit Losses...................... 52,032 119,674 228,480
Securities Losses(Gains).................................. 2,469 (9,328) (1,614)
Extraordinary Item -- Redemption of Debt.................. 7,730 -- --
(Increase)Decrease in Interest Receivable................. (65,697) 13,607 15,385
Increase(Decrease) in Current Income Taxes Payable........ 42,189 12,249 (46,592)
Increase(Decrease) in Accrued Expenses.................... 41,876 (57,701) (410)
(Increase)Decrease in Trading Account Investments......... (11,094) 59,677 11,539
Decrease(Increase) in Mortgages Held for Sale............. 225,731 33,784 (18,511)
Other, net................................................ (49,061) (35,960) 531
----------- ----------- -----------
Net Cash Provided by Operating Activities.............. 880,397 728,792 598,473
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease(Increase) in Interest-Bearing Deposits............. 98,524 (43,159) 397,445
(Increase)Decrease in Federal Funds Sold and Resale
Agreements................................................ (117,244) (159,025) 265,124
Decrease in Money Market Investments........................ -- 14,910 22,534
Purchase of Investment Securities Available-for-Sale........ (5,104,309) -- --
Proceeds from Maturity or Call of Investment Securities
Available-for-Sale........................................ 1,829,094 -- --
Proceeds from Sale of Investment Securities
Available-for-Sale........................................ 1,918,714 -- --
Purchase of Investment Securities Held-to-Maturity.......... (2,792,428) (4,654,663) (5,484,298)
Proceeds from Maturity or Call of Investment Securities
Held-to-Maturity.......................................... 1,752,504 5,219,133 4,131,454
Proceeds from Sale of Investment Securities
Held-to-Maturity.......................................... -- 66,037 703,193
Increase in Loans and Leases................................ (3,926,926) (579,340) (603,206)
Purchase of Loan Portfolios................................. -- (19,617) (101,874)
Proceeds from Sale of Loan Portfolios....................... 123,341 70,107 --
Purchase of Premises and Equipment and Other Assets......... (400,167) (155,702) (85,626)
Proceeds from Sale of Premises and Equipment and Other
Assets.................................................... 68,938 65,585 38,406
Net Cash(Paid)Acquired in Purchase or Sale of
Subsidiaries.............................................. (5,720) -- 100,527
----------- ----------- -----------
Net Cash Used by Investing Activities.................. (6,555,679) (175,734) (616,321)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase(Decrease) in Deposits.............................. 3,381,134 (1,207,518) 346,784
Increase(Decrease) in Short-Term Borrowings................. 1,762,360 233,709 (133,944)
Proceeds from the Issuance of Long-Term Debt................ 1,525,000 500,000 551,671
Principal Payments on Long-Term Debt........................ (252,511) (38,556) (100,439)
Redemption of Long-Term Debt................................ (208,734) -- --
Proceeds from Stock Option Exercises........................ 1,401 2,527 1,415
Payments to Acquire Treasury Stock.......................... (166,606) (13,369) (134,222)
Dividends Paid.............................................. (185,840) (173,413) (152,353)
----------- ----------- -----------
Net Cash Provided(Used) by Financing Activities........ 5,856,204 (696,620) 378,912
----------- ----------- -----------
Effect of Exchange Rate Changes on Cash and Due From Banks.... 391 (15) (2,138)
----------- ----------- -----------
Net Increase(Decrease) in Cash and Due From Banks............. 181,313 (143,577) 358,926
Cash and Due From Banks -- Beginning of Period................ 2,405,694 2,549,271 2,190,345
----------- ----------- -----------
CASH AND DUE FROM BANKS -- END OF PERIOD...................... $ 2,587,007 $ 2,405,694 $ 2,549,271
=========== =========== ===========
Other Cash Flow Disclosures:
Interest Paid............................................... $ 1,349,668 $ 1,088,656 $ 1,181,123
State and Federal Taxes Paid................................ 220,126 203,937 136,913
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE> 47
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of NBD Bancorp, Inc. and its
subsidiaries (the Corporation) conform to generally accepted accounting
principles.
(A) CONSOLIDATION:
The consolidated financial statements of the Corporation include the
accounts of NBD Bancorp, Inc. (the Parent) and its majority-owned subsidiary
companies. All material intercompany accounts and transactions have been
eliminated.
(B) STATEMENT OF CASH FLOWS:
Cash and Due From Banks is considered Cash and Cash Equivalents in the
Consolidated Statement of Cash Flows.
(C) SECURITIES:
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective December 31, 1993.
In accordance with SFAS No. 115, Investment Securities are accounted for as
follows: (a) Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as Held-to-Maturity and reported at
amortized cost; (b) Debt and equity securities that are bought and held
principally for the purpose of selling in the near term are classified as
Trading Account Securities and reported at fair value, with realized and
unrealized gains and losses included in Other Non-Interest Income; and (c) Debt
and equity securities not classified as Held-to-Maturity or Trading Account
Securities are classified as Available-for-Sale and reported at fair value. Fair
value adjustments are excluded from earnings and reported in a separate
component of shareholders' equity, net of tax.
Prior to December 31, 1993, the Corporation classified securities purchased
with the intent and the ability to hold to maturity as Investment Securities and
reported them at amortized cost. If it was subsequently determined that certain
investment securities were to be sold, their reported value was adjusted as
necessary to the lower of cost or fair value with the adjustments included in
Securities Gains(Losses). Securities purchased that the Corporation intended to
sell prior to maturity were classified as Other Money Market Investments and
recorded at the lower of amortized cost or fair value. Fair value adjustments
were included in Securities Gains(Losses). The Corporation's accounting for
Trading Account Securities was not changed by the adoption of SFAS No. 115;
these securities are carried at fair value with unrealized gains and losses
included in Other Non-Interest Income.
Gains and losses realized on the sale of Investment Securities are
determined by the specific identification method and included in Securities
Gains(Losses).
(D) LOANS:
Loans are generally reported at the principal amount outstanding, net of
unearned income. Non-refundable loan origination and commitment fees and certain
costs of origination are deferred and either included in interest income over
the term of the related loan or commitment or, if the loan is held for sale,
included in Other Non-Interest Income when the loan is sold.
Mortgages Held For Sale are valued at the lower of aggregate cost or fair
value. Unrealized losses, as well as realized gains or losses, are included in
Other Non-Interest Income.
Interest income on loans is accrued as earned. Except for consumer loans,
loans are placed on non-accrual status and previously accrued but unpaid
interest is reversed against current period interest income when collectibility
of principal or interest is considered doubtful, payment of principal or
interest is 90 days or more past due, or the loan is completely or partially
charged off. Interest income on loans considered doubtful or 90 days or more
past due is recorded as collected. Collections of principal and interest on
charged-off loans are applied in the following sequence: (1) as a reduction of
remaining principal balance; (2) as recovery of principal charged off; and (3)
as interest income.
45
<PAGE> 48
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) LOANS: (CONTINUED)
Consumer loans are not placed on a non-accrual status because they are
generally charged off when 120 days to 150 days past due. Accrued but unpaid
interest is reversed against current period interest income when the loan is
charged off.
(E) ALLOWANCE FOR POSSIBLE CREDIT LOSSES:
The Allowance is maintained at a level considered by management to be
adequate to provide for probable loan and lease losses inherent in the
portfolio. Management's evaluation is based on a continuing review of the loan
and lease portfolio and includes consideration of the actual loan and lease loss
experience, the present and prospective financial condition of borrowers, the
balance of the loan and lease portfolio, industry and country concentrations
within the portfolio and general economic conditions.
(F) BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is charged to operations over the
estimated useful lives of the assets and is computed on either a straight-line
or an accelerated depreciation method. The estimated useful lives are generally
10 to 35 years for buildings and building improvements, and three to 10 years
for furniture and equipment.
Leasehold improvements are amortized over the terms of the respective
leases or the estimated useful lives of the improvements, whichever is shorter.
Maintenance, repairs and minor alterations are expensed as incurred.
(G) INTANGIBLE ASSETS:
The unamortized amount of intangible assets is included in Other Assets.
Goodwill, representing the excess of the cost of investments in consolidated
subsidiaries over the fair value of net assets acquired, is amortized on a
straight-line basis over periods ranging from 15 to 25 years.
Other intangible assets such as purchased mortgage servicing rights, core
deposits, and credit card relationships are amortized using various methods over
the periods benefited.
(H) INCOME TAXES:
The Corporation adopted SFAS No. 109, "Accounting For Income Taxes,"
effective January 1, 1993. SFAS No. 109 requires an asset and liability approach
to accounting and reporting for income taxes. Under this approach, current and
deferred income taxes payable and refundable are remeasured annually using
provisions of then enacted tax laws and rates. SFAS No. 109 also changed the
criteria for recognition and measurement of deferred income tax benefits.
Prior to January 1, 1993, the Corporation accounted and reported for income
taxes in accordance with Accounting Principles Board Opinion (APB) No. 11,
"Accounting For Income Taxes." Under APB No. 11, income tax expense was based on
income as reported in the financial statements. Deferred income tax liabilities
and benefits were measured using tax rates in effect when the deferred item was
first created, and were not adjusted for subsequent changes in the statutory tax
rate.
(I) PENSION AND OTHER EMPLOYEE BENEFITS:
The Corporation adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective January 1, 1992. This
statement requires that the expected cost of providing postretirement benefits
be recognized in the financial statements during an employee's active service
period.
The Corporation adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994. This statement requires the
accrual of benefits provided to former or inactive employees after employment
but before retirement. The Corporation's prior practice was to expense these
benefits when paid.
46
<PAGE> 49
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) INTEREST RATE CONTRACTS:
The Corporation enters into interest rate contracts as part of its
asset/liability management activities (risk management contracts), as a source
of fee income (customer contracts) and, on a limited scale, to generate profits
(trading contracts).
Income or expense on a risk management contract is accrued over its life
and is included in Net Interest Income. Any gain or loss from early termination
of a risk management contract is deferred and amortized to the earlier of the
maturity date of the specified asset or liability, or the original expiration
date of the contract. If the specified asset or liability is disposed of, any
unrealized or deferred gain or loss on the related risk management contract is
included in determining the gain or loss on the disposition.
Any fee, including the initial bid/offer spread, on a customer contract is
recognized as Other Non-Interest Income over the life of the contract.
Customer contracts and trading contracts are recorded at fair value, with
changes in their value recorded as Other Non-Interest Income.
(K) FOREIGN CURRENCY EXCHANGE AND TRANSLATION:
The Corporation distinguishes between (1) adjustments arising principally
from translation of foreign entity financial statements into U.S. dollar
equivalents, which are recorded in a separate component of shareholders' equity,
and (2) translation gains or losses arising from transactions conducted in
foreign currencies, which are recorded in Other Non-Interest Income.
Foreign exchange positions on forward contracts are valued monthly at
market rates and the unrealized gain or loss is included in Other Non-Interest
Income.
(L) LETTERS OF CREDIT AND GUARANTEES:
In the normal course of business, the Corporation issues and participates
in letters of credit and financial guarantees. Fees are accrued over the life of
the agreements and included in Other Non-Interest Income.
(M) INCOME PER SHARE:
Per share amounts are based on the weighted average number of shares
outstanding throughout the year adjusted for the assumed exercise of stock
options.
(N) RECLASSIFICATION:
Prior years' financial statements have been reclassified to conform with
the current financial statement presentations.
2. ACQUISITIONS
On January 23, 1992, the Corporation acquired all of the common stock of
Gainer Corporation, a bank holding company located in Merrillville, Indiana. The
acquisition was accounted for as a purchase and, accordingly, operations of
Gainer Corporation are included in the consolidated statements since the date of
acquisition. Essentially all of the purchase price of $168,379,000 was provided
by issuing 5,729,000 shares of the Corporation's common stock. The fair value of
assets acquired amounted to $1,519,368,000 and liabilities assumed totaled
$1,350,989,000. The transaction generated $41,260,000 of goodwill, which is
being amortized over 15 years using the straight-line method.
On July 1, 1992, the Corporation issued approximately 11,911,000 shares of
its common stock in exchange for all the common stock of Summcorp, a bank
holding company located in Fort Wayne, Indiana. The combination was accounted
for as a pooling of interests.
In June 1992, Summcorp recorded $6.0 million ($4.4 million after tax) of
merger-related expenses. These expenses were composed of charges taken for the
elimination of duplicate facilities and equipment, and intangibles revaluation.
Summcorp also recorded a $9.8 million ($5.9 million after tax) provision for
possible credit losses to conform its credit evaluation policies to those of the
Corporation.
47
<PAGE> 50
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
2. ACQUISITIONS (CONTINUED)
On October 15, 1992, the Corporation issued approximately 29,892,000 shares
of its common stock for all of the common stock of INB Financial Corporation,
Inc. (INB), of Indianapolis, Indiana. This merger was also accounted for as a
pooling of interests.
In the third quarter of 1992, the Corporation recorded $70.1 million ($48.0
million after tax) of merger-related expenses for severance and early
retirement, elimination of duplicate facilities and equipment, and intangibles
revaluation. In addition, INB recorded a $41.6 million ($25.1 million after tax)
provision for credit losses to conform its credit evaluation policies to those
of the Corporation.
During 1994, the Corporation entered into a merger agreement with AmeriFed
Financial Corp., a thrift holding company located in Joliet, Illinois, with
total assets of $910 million. The merger was consummated on January 9, 1995, and
accounted for as a purchase. Essentially all of the purchase price was provided
by the issuance of 5,234,000 shares of the Corporation's common stock valued at
approximately $148 million. The Corporation had repurchased 4,964,000 of the
shares issued before the closing of the merger, and repurchased an amount
equivalent to the remaining shares issued soon after the closing.
In January 1995, the Corporation entered into a definitive agreement under
which Deerbank Corporation, a $766 million thrift holding company located in
Deerfield, Illinois, would become affiliated with the Corporation. Under the
terms of the agreement, valued at approximately $120 million, each share of
Deerbank Corporation common stock will be exchanged for $45.00 of the
Corporation's common stock, based on the average market price of the
Corporation's common stock for a certain period preceding the closing of the
merger. The Corporation will have repurchased an equivalent number of its common
shares at or soon after the closing of the merger. The merger, which will be
accounted for as a purchase, is subject to the approval of Deerbank Corporation
shareholders and regulatory authorities.
3. CASH AND DUE FROM BANKS
The subsidiary banks of the Corporation are required to maintain
non-interest bearing reserve balances with the Federal Reserve Bank based on a
percentage of the subsidiary banks' deposits. During 1994 and 1993, the average
reserve balances were approximately $330,387,000 and $308,100,000, respectively.
48
<PAGE> 51
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
4. INVESTMENT SECURITIES
Following are the amortized cost and fair value of Investment Securities
Available-for-Sale and Held-to-Maturity at DECEMBER 31, 1994:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury........................................ $ 505,540 $ 96 $ 592 $ 505,044
U.S. Government Agencies:
Mortgage-backed Securities......................... 2,655,673 4 160,195 2,495,482
Collateralized Mortgage Obligations................ 1,461,321 4,940 45,974 1,420,287
Other.............................................. 22,916 1,267 3 24,180
States and Political Subdivisions.................... 76,586 33 363 76,256
Collateralized Mortgage Obligations(a)............... 111,351 76 936 110,491
Other................................................ 222,931 459 40,878 182,512
---------- ---------- ---------- ----------
Total......................................... $5,056,318 $6,875 $248,941 $4,814,252
========== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES HELD-TO-MATURITY
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury........................................ $ 519,656 $ 225 $ 13,145 $ 506,736
U.S. Government Agencies:
Mortgage-backed Securities......................... 5,664,739 45,612 282,356 5,427,995
Other.............................................. 8,420 6 145 8,281
States and Political Subdivisions.................... 1,415,398 46,182 23,626 1,437,954
Other................................................ 500 10 -- 510
---------- ---------- ---------- ----------
Total......................................... $7,608,713 $ 92,035 $319,272 $7,381,476
========== ========= ========= ==========
</TABLE>
- -------------------------
(a) All Collateralized Mortgage Obligations of private issuers have underlying
collateral consisting of obligations of U.S. Government Agencies.
49
<PAGE> 52
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
4. INVESTMENT SECURITIES (CONTINUED)
Following are the amortized cost and fair value of Investment Securities
Available-for-Sale and Held-to-Maturity at DECEMBER 31, 1993:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury........................................ $ 965,190 $ 9,405 $ 1 $ 974,594
U.S. Government Agencies:
Mortgage-backed Securities......................... 729,612 2,639 2,509 729,742
Collateralized Mortgage Obligations................ 1,663,910 3,055 9,026 1,657,939
Other.............................................. 3,405 88 -- 3,493
States and Political Subdivisions.................... 1,261 112 -- 1,373
Collateralized Mortgage Obligations(a)............... 240,213 803 650 240,366
Other................................................ 191,275 279 14,677 176,877
---------- ---------- ---------- ----------
Total......................................... $3,794,866 $ 16,381 $ 26,863 $3,784,384
========== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES HELD-TO-MATURITY
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury........................................ $ 525,698 $ 22,020 $ 36 $ 547,682
U.S. Government Agencies:
Mortgage-backed Securities......................... 4,563,883 252,693 2,354 4,814,222
Other.............................................. 9,978 153 2 10,129
States and Political Subdivisions.................... 1,505,270 139,527 1,585 1,643,212
Other................................................ 2,580 78 -- 2,658
---------- ---------- ---------- ----------
Total......................................... $6,607,409 $414,471 $3,977 $7,017,903
========== ========= ========= ==========
</TABLE>
- -------------------------
(a) All Collateralized Mortgage Obligations of private issuers have underlying
collateral consisting of obligations of U.S. Government Agencies.
The maturity distribution of investment securities at December 31, 1994, is
shown below. The distribution
of mortgage-backed securities and collateralized mortgage obligations is based
on average expected maturities. Actual maturities may differ because issuers may
have the right to call or prepay obligations.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------ ------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less.............................. $ 888,418 $ 882,290 $ 162,849 $ 164,791
Due after one year through five years................ 867,625 843,603 2,558,425 2,507,006
Due after five years through ten years............... 696,840 669,745 4,545,950 4,382,584
Due after ten years.................................. 2,535,049 2,349,786 341,489 327,095
Equity securities.................................... 68,386 68,828 -- --
---------- ---------- ---------- ----------
$5,056,318 $4,814,252 $7,608,713 $7,381,476
========== ========== ========== ==========
</TABLE>
Proceeds from the sale of Investment Securities Available-for-Sale during
1994 were $1,918,714,000 resulting in gross realized gains of $7,723,000 and
gross realized losses of $10,192,000. Proceeds from the sale of Investment
Securities during 1993 were $66,037,000 resulting in gross realized gains of
$9,047,000 and gross realized losses of $129,000. Securities Gains in 1993 also
included $410,000 of gains realized on the sale of Other Money Market
Investments. Proceeds from the sale of Investment Securities during 1992 were
$703,193,000 resulting in gross realized gains of $9,516,000 and gross realized
losses of $7,902,000.
50
<PAGE> 53
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
4. INVESTMENT SECURITIES (CONTINUED)
Assets, principally Investment Securities, carried at approximately
$6,996,973,000 were pledged at December 31, 1994, to secure public deposits
(including deposits of $8,845,000 of the Treasurer, State of Michigan),
repurchase agreements and for other purposes required by law.
Excluded from the Consolidated Statement of Cash Flows in 1993 is the
reclassification to Investment Securities Available-for-Sale of $88.9 million of
United Mexican States obligations previously classified as Loans, and $30.9
million of obligations previously classified as Other Money Market Investments.
These reclassifications were made concurrent with the implementation of SFAS No.
115 as of December 31, 1993.
5. ALLOWANCE FOR POSSIBLE CREDIT LOSSES
The changes in the Allowance for Possible Credit Losses are summarized
below:
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
-----------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year......................................... $ 423,030 $ 417,764 $ 377,585
Provision........................................................ 52,032 119,674 228,480
Charge-offs...................................................... (121,026) (206,101) (256,860)
Recoveries....................................................... 80,560 91,576 57,112
--------- --------- ---------
Net Charge-offs............................................. (40,466) (114,525) (199,748)
Translation Adjustments.......................................... 455 117 (808)
Acquisitions..................................................... -- -- 12,255
--------- --------- ---------
Balance, end of year............................................... $ 435,051 $ 423,030 $ 417,764
========= ========= =========
</TABLE>
In 1993, the Financial Accounting Standards Board (FASB) issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," requiring that an
impaired loan be measured based on the present value of the expected future cash
flows discounted at the loan's effective interest rate, the observable market
price of the loan or the fair value of the collateral if the loan is collateral
dependent. In 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures," which amends SFAS
No. 114 to allow a creditor to use existing methods for recognizing interest
income on an impaired loan. The standards are effective for fiscal years
beginning after December 15, 1994. The Corporation does not expect adoption of
the standards to have a material impact on the financial statements.
6. PREMISES AND EQUIPMENT
The components of premises and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land......................................................................... $ 93,820 $ 93,842
Premises..................................................................... 511,642 507,272
Leasehold Improvements....................................................... 97,225 98,954
Furniture and Equipment...................................................... 529,537 501,580
---------- ----------
Total................................................................. 1,232,224 1,201,648
Less Accumulated Depreciation and Amortization............................... (601,867) (567,107)
---------- ----------
Net Premises and Equipment................................................... $ 630,357 $ 634,541
========== ==========
</TABLE>
Depreciation and amortization expense was $73,479,000 in 1994, $65,914,000
in 1993 and $59,976,000 in 1992.
Rental expense for leased properties and equipment totaled $43,490,000 in
1994, $42,453,000 in 1993 and $41,814,000 in 1992. Aggregate future minimum
rental payments on operating leases having non-cancelable
51
<PAGE> 54
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
6. PREMISES AND EQUIPMENT (CONTINUED)
lease terms in excess of one year amounted to $209,670,000 as of December 31,
1994; minimum annual rental payments for such leases are $30,326,000 in 1995 and
do not exceed $28,897,000 for any year thereafter.
7. SHORT-TERM BORROWINGS
The Corporation classifies borrowings with original maturities of less than
one year as short-term borrowings. The following is a summary of short-term
borrowings for each of the three years ended December 31, 1994:
<TABLE>
<CAPTION>
END OF PERIOD
---------------------- MAXIMUM
WEIGHTED DAILY AVERAGE OUTSTANDING
AVERAGE ------------------ AT ANY
BALANCE RATE BALANCE RATE MONTH END
---------- -------- ---------- ---- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1994:
Securities Sold Under Agreements to
Repurchase................................... $2,861,513 5.81% $2,486,717 4.35% $3,365,134
Bank Notes..................................... 2,484,000 5.75 1,784,190 4.58 2,484,000
Federal Funds Purchased........................ 1,031,055 5.99 1,588,259 4.40 1,953,810
Treasury Tax and Loan Notes.................... 634,190 4.69 547,419 3.76 1,327,645
Commercial Paper............................... 59,236 5.42 126,499 3.92 195,859
Other.......................................... 49,978 4.01 114,321 4.76 192,129
---------- -------- ---------- ----
Total................................... $7,119,972 5.70% $6,647,405 4.37%
========== ======= ========== ====
1993:
Securities Sold Under Agreements to
Repurchase................................... $1,586,105 3.19% $1,403,960 3.08% $1,586,105
Bank Notes..................................... 1,103,400 3.36 922,780 3.30 1,245,000
Federal Funds Purchased........................ 1,196,355 2.81 1,729,008 3.04 2,308,711
Treasury Tax and Loan Notes.................... 1,225,016 2.64 683,927 2.81 1,347,352
Commercial Paper............................... 158,886 3.25 143,126 3.18 196,367
Other.......................................... 85,077 5.93 111,362 5.60 147,269
---------- -------- ---------- ----
Total................................... $5,354,839 3.06% $4,994,163 3.13%
========== ======= ========== ====
1992:
Securities Sold Under Agreements to
Repurchase................................... $1,215,513 3.33% $ 991,644 3.50% $1,228,401
Bank Notes..................................... 450,000 3.40 231,585 3.41 550,000
Federal Funds Purchased........................ 2,413,420 3.04 2,522,819 3.54 2,922,960
Treasury Tax and Loan Notes.................... 730,440 2.45 551,081 3.39 1,298,441
Commercial Paper............................... 184,437 3.42 191,761 3.69 386,639
Other.......................................... 125,683 6.91 135,370 6.71 176,686
---------- -------- ---------- ----
Total................................... $5,119,493 3.17% $4,624,260 3.61%
========== ======= ========== ====
</TABLE>
In 1994, the Corporation entered into a series of interest rate swap
contracts with varying maturities that have the effect of fixing the interest
rate on up to $875,000,000 of Federal Funds Purchased. At December 31, 1994, the
weighted average life of the swap contracts was 2.0 years and the weighted
average pay rate was 6.55%. The effect of the accruals on these contracts are
included in the daily average rates shown above, and excluded from the end of
period weighted average rates.
At December 31, 1994, the Parent had an unused revolving credit of $200
million, convertible to a term loan at the option of the Corporation, to support
general corporate financing needs. An annual commitment fee of 17 1/2 basis
points is paid on the credit facility.
52
<PAGE> 55
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
8. LONG-TERM DEBT
The following is a summary of long-term debt:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1993
---------- ----------
<S> <C> <C>
Parent:
7 1/4% Fixed Rate Subordinated Debentures Due 2004......................... $ 200,000 $ 200,000
8.10% Fixed Rate Subordinated Notes Due 2002............................... 200,000 200,000
7 1/2% Preferred Purchase Units, Due 2023.................................. 150,000 150,000
Floating Rate Subordinated Notes Due 2005 (6.50% and 5.25%
at December 31, 1994 and 1993, respectively)............................. 96,000 96,000
7 1/4% Convertible Subordinated Debentures Due 2006........................ -- 199,985
---------- ----------
646,000 845,985
---------- ----------
Subsidiaries:
Bank Notes, various rates and maturities................................... 1,375,000 350,000
8 1/4% Fixed Rate Subordinated Note Due 2024............................... 250,000 --
6 1/4% Fixed Rate Subordinated Notes Due 2003.............................. 200,000 200,000
8.75% Fixed Rate Senior Notes Due 1997 -- 1999............................. 10,000 10,000
Capital Lease Obligations, various rate and maturities..................... 17,185 19,866
Other...................................................................... 6,163 9,096
---------- ----------
1,858,348 588,962
---------- ----------
$2,504,348 $1,434,947
========== ==========
</TABLE>
The 7 1/4% Fixed Rate Subordinated Debentures Due 2004 will mature on
August 15, 2004. The Debentures are unsecured, subordinated to all present and
future Senior Indebtedness of the Parent, and are not redeemable prior to
maturity. Interest is payable semiannually on February 15 and August 15.
The 8.10% Fixed Rate Subordinated Notes Due 2002 will mature on March 1,
2002. The Notes are unsecured, subordinated to all present and future Senior
Indebtedness of the Parent, and are not redeemable prior to maturity. Interest
is payable semiannually on March 1 and September 1. Subsequent to the issuance
of these Notes, the Corporation entered into $120,000,000 notional amount of
interest rate swap contracts that converted the fixed rate on $120,000,000 of
these Notes to the six-month LIBOR plus 0.25 percent.
Each 7 1/2% Preferred Purchase Unit consists of a 7.40% subordinated
debenture due May 10, 2023, in a principal amount of $25 and a related purchase
contract paying fees of 0.10% of the principal amount of the debenture per year.
The contract requires the purchase on May 10, 2023, of one depositary share
representing a one-fourth interest in a share of 7 1/2% cumulative preferred
stock of NBD Bancorp at a purchase price of $25 per depositary share. During
1994, the Corporation entered into $150,000,000 notional value of interest rate
swap contracts that converted the effective cost of the Units to the three-month
LIBOR through August 10, 2004.
The Floating Rate Subordinated Notes Due 2005 will mature on the interest
payment date in December 2005 at par. The Notes are unsecured, subordinated to
all present and future Senior Indebtedness of the Corporation, and may be
redeemed by the Corporation, in whole or in part, on any interest payment date
at par. Interest on the Notes is payable quarterly in arrears at a rate of 1/4
of 1 percent per annum above the arithmetic mean of London interbank bid
quotations for three-month Eurodollar deposits. In no event will the rate be
less than 5.25 percent per annum.
The 7 1/4% Convertible Subordinated Debentures Due 2006 were called by the
Parent for redemption on March 15, 1994, at a redemption price of $1,050.75 per
$1,000 of the principal amount. The Corporation incurred an extraordinary item
charge of $11,892,000 ($7,730,000 net of income taxes) on the redemption. Prior
to redemption, holders elected to convert $1,333,000 of the Debentures into
shares of common stock of the Parent at a conversion price of $30.40 per share.
During 1993, $15,000 of the Debentures were converted.
The Bank Notes are unsecured and unsubordinated debt obligations, issued in
denominations of $250,000 or any amount in excess thereof that is a multiple of
$1,000. Each Note bears interest at a fixed rate that is established by the
issuing bank at the time of issuance. The interest payment dates on the Bank
Notes are
53
<PAGE> 56
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
8. LONG-TERM DEBT (CONTINUED)
January 15 and July 15 of each year. At December 31, 1994, the weighted average
rate of the outstanding Notes was 5.84% and the remaining weighted average
maturity was 23 months.
The 8 1/4% Fixed Rate Subordinated Notes Due 2024 will mature on November
1, 2024. The Notes are unsecured, subordinated to the claims of depositors and
other creditors of NBD Bank, N.A. (Michigan), and are not redeemable by the bank
prior to maturity. Registered holders have a one-time right to redeem the Notes
at par, in whole or in part, on November 1, 2004. Interest is payable
semiannually on May 1 and November 1. Concurrent with the issuance of these
Notes, the bank entered into a $50,000,000 notional amount interest rate swap
contract that converts the effective cost for $50,000,000 of the Notes to 7.62%
through November 2, 1997, and to the six-month LIBOR from November 3, 1997,
through November 1, 2004.
The 6 1/4% Fixed Rate Subordinated Notes Due 2003 will mature on August 15,
2003. The Notes are unsecured, subordinated to the claims of depositors and
other creditors of NBD Bank, N.A. (Michigan), and are not redeemable prior to
maturity. Interest is payable semiannually on February 15 and August 15.
Aggregate long term debt of $118,941,000, $553,364,000, $566,411,000,
$106,674,000 and $56,771,000 will mature in 1995, 1996, 1997, 1998 and 1999,
respectively.
9. PENSION AND OTHER EMPLOYEE BENEFITS
The Corporation maintains pension plans (the Pension Plans) covering
substantially all full time salaried employees. The Pension Plans are
non-contributory, defined benefit plans that provide benefits based on years of
service and compensation level. The Corporation's policy is to fund the Pension
Plans according to the requirements of the Employee Retirement Income Security
Act of 1974 (ERISA).
Plan assets are stated at market value and are composed primarily of equity
securities and debt securities issued by the U.S. Government and its agencies
and corporations.
In addition, the Corporation maintains separate unfunded nonqualified
pension restoration plans (the Restoration Plans) for certain officers when the
defined benefits provided under the terms of the pension plans exceed limits
imposed by Federal tax law on benefits payable from qualified plans.
The pension expense is comprised of:
<TABLE>
<CAPTION>
THE PENSION PLANS
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost (benefits earned during year)............................ $ 23,211 $ 18,672 $ 21,284
Interest cost on projected benefit obligation......................... 40,837 38,596 35,035
Actual loss(return) on assets......................................... 13,213 (73,666) (50,129)
Net amortization and deferral......................................... (70,367) 23,003 2,307
-------- -------- --------
Net pension expense................................................... $ 6,894 $ 6,605 $ 8,497
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THE RESTORATION PLANS
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost (benefits earned during year)............................ $1,010 $ 573 $ 810
Interest cost on projected benefit obligation......................... 2,950 1,918 1,719
Net amortization and deferral......................................... 1,827 591 554
Net pension expense................................................... $5,787 $3,082 $3,083
</TABLE>
The expected long-term rate of return on plan assets was 9.5% for each year
presented above. Service cost in 1992 includes $4,014,000 and $245,000 for the
Pension Plans and the Restoration Plans, respectively, of additional expense for
individuals who elected to accept an early retirement option offered to
employees of INB.
54
<PAGE> 57
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
9. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the Plans' funded status and amounts
recognized in the consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
THE RESTORATION
THE PENSION PLANS PLANS
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of the projected benefit
obligation, based on employment services to date, and
current salary levels:
Vested employees....................................... $371,772 $404,672 $ 25,094 $ 23,514
Non-vested employees................................... 24,351 25,169 1,407 2,476
-------- -------- -------- --------
Accumulated benefit obligation......................... 396,123 429,841 26,501 25,990
Additional amounts related to projected salary increases... 129,347 154,755 9,941 16,831
-------- -------- -------- --------
Total projected benefit obligation......................... 525,470 584,596 36,442 42,821
Plan assets (at market value).............................. 568,393 583,076 -- --
-------- -------- -------- --------
Funded assets in excess of(less than) projected benefit
obligation............................................... 42,923 (1,520) (36,442) (42,821)
Unrecognized net (gain)loss................................ (24,953) 6,153 1,909 11,183
Unrecognized transition (asset)liability being amortized
over 15 years beginning January 1, 1986.................. (33,331) (38,262) 1,169 1,455
Unrecognized prior service cost............................ 9,781 11,198 10,571 11,542
Adjustment to recognize minimum liability.................. -- -- (3,708) (7,349)
-------- -------- -------- --------
Accrued pension liability included in the consolidated
balance sheet............................................ $ (5,580) $(22,431) $(26,501) $(25,990)
======== ======== ======== ========
</TABLE>
The funded status of the Pension Plans as of December 31, 1993, included
plan assets of $75,800,000, accumulated benefit obligation of $85,607,000, and
projected benefit obligation of $112,809,000 relating to a pension plan
maintained by NBD Indiana, Inc. (formerly INB), a wholly-owned subsidiary of NBD
Bancorp, Inc. The INB plan was merged with the NBD Bancorp, Inc. plan on January
1, 1994.
The assumptions used in determining the actuarial present value of the
projected benefit obligations are set forth below:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount Rate........................................................ 8.0 % 7.0 %
Rate of increase in compensation levels.............................. 5.5 5.5
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective January 1, 1992. The
Statement requires that the expected cost of providing postretirement benefits
be recognized in the financial statements during employees' active service
periods.
The Corporation provides medical and life insurance for employees who
retire after age 55 with a minimum of 15 years of service. The postretirement
health care benefit, which can also cover eligible dependents, is contributory
with retiree contributions adjusted annually to reflect increases in the
Corporation's health care costs. The postretirement life insurance benefit is
noncontributory.
The Corporation elected to immediately recognize the January 1, 1992,
accumulated benefit obligation which resulted in a charge of $58,924,000
($37,885,000 after tax) to 1992 earnings.
55
<PAGE> 58
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
9. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
Net periodic postretirement benefit cost included the following components
for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................................ $ 940 $1,539 $1,362
Interest cost............................................................... 3,600 5,003 4,769
Amortization of unrecognized net gains...................................... (440) -- --
------ ------ ------
Net periodic postretirement benefit cost.................................... $4,100 $6,542 $6,131
====== ====== ======
</TABLE>
The Corporation funds postretirement benefit cost as claims are incurred.
The following table sets forth the plan's funded status and amounts recognized
in the consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................................... $ 36,600 $ 44,014
Fully eligible active plan participants....................................... 3,800 7,413
Other active plan participants................................................ 8,500 21,083
-------- --------
Total accumulated postretirement benefit obligation............................. 48,900 72,510
Plan assets (at market value)................................................... -- --
-------- --------
Accumulated postretirement benefit obligation in excess of plan assets.......... (48,900) (72,510)
Unrecognized net (gain)loss..................................................... (17,494) 6,766
-------- --------
Accrued postretirement benefit liability recognized in the consolidated balance
sheet......................................................................... $(66,394) $(65,744)
======== ========
</TABLE>
For measurement purposes, a 10 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1995; the rate was
assumed to trend downward to 5.5 percent by the year 2000 and remain at that
level thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. Increasing the assumed health care cost trend
rates by one percentage point in each year would have increased the accumulated
postretirement benefit obligation as of December 31, 1994, by $3,800,000 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1994 by approximately $390,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0 percent at December 31, 1994, and 7.0
percent at year-end 1993.
The Corporation adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994. The cumulative effect of
adoption was a charge of $12,323,000 ($7,885,000 net of income taxes). The
impact of the new accounting method in 1994 on income before accounting changes
was insignificant.
EMPLOYEE SAVINGS PLANS
The Corporation contributes to various 401(k) savings plans and profit
sharing plans for the benefit of employees meeting certain eligibility
requirements. The Corporation's participation in the 401(k) savings plans is in
the form of "matching funds" wherein it contributes an amount equal to the
participants' contributions up to 2 percent of the participants' compensation,
plus an amount equal to one-half of the participant's contribution between 2
percent and 6 percent of the participant's compensation subject to certain
limitations imposed by the IRS.
In addition, INB sponsored a leveraged Employee Stock Ownership Plan
(ESOP), wherein the ESOP used the proceeds of a $33.0 million loan from INB to
acquire 1,236,500 shares of its common stock. Subsequently, shares of common
stock held by the ESOP were allocated to participating employees. The ESOP was
terminated in the fourth quarter of 1992.
56
<PAGE> 59
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
9. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
Total expense for all employee savings plans was $14,651,000 in 1994,
$15,467,000 in 1993, and $12,659,000 in 1992.
STOCK AWARD AND STOCK OPTION PLANS
The executive officers of the Corporation and certain other employees are
eligible for awards pursuant to the Performance Incentive Plan (the PIP Plan)
administered by the Compensation Committee of the Board of Directors. The
Committee is empowered to make two types of awards and to establish two groups
of awardees.
The first group is selected from among the more senior officers. The
Committee is authorized to award to this group Performance Shares. A Performance
Share is one share of the Corporation's common stock. Distribution of the awards
is tied to the achievement of certain financial performance goals for the
Corporation as set by the Committee, over performance periods of at least one
year and up to five years in duration. The second group of employees (which
excludes the more senior officers, except by special Committee action) may be
awarded shares of the Corporation's common stock, the ultimate distribution of
which is not tied to corporate performance goals. The award periods for this
group has ranged from one to five years in duration.
The cost of stock awards to the more senior officers is the market value of
the stock on the date the award is finally distributed. For the second group of
employees, the cost of stock awards is the market value of the stock on the date
of grant. The cost, either estimated or actual, of stock awards for both groups
is amortized on a straight-line basis over the award duration periods. The
unamortized cost of these awards is included in Shareholders' Equity.
The PIP Plan also permits the granting of stock options. The term of each
option is determined by the Committee, except that the term of an incentive
option may not exceed ten years from the date of grant. No option can be
exercised prior to the expiration of the first year of its term. The option
price may not be less than the fair market value of the common stock on the date
the option is granted.
The Committee may grant stock options that include the right to receive
"restoration options." A restoration option allows a participant who exercises
the original option prior to retirement, and who pays all or part of the
purchase price of the option with shares of the Corporation's common stock, the
right to receive an option to purchase the number of shares of the common stock
of the Corporation equal to the number of shares used by the participant in
payment of the original option price. The exercise price of the restoration
option is equal to the fair market value of the common stock on the date the
restoration option is granted.
The following table summarizes activity under the option and award plans
for 1992, 1993 and 1994:
<TABLE>
<CAPTION>
OPTIONS
------------------------------
STOCK PRICE
AWARDS OUTSTANDING PER SHARE
------ ----------- ---------------
(NO. OF SHARES IN
THOUSANDS)
<S> <C> <C> <C>
January 1, 1992.................................................. 1,538 2,636 $ 4.72 - $29.21
Granted........................................................ 362 1,015 27.44 - 31.94
Exercised...................................................... (466) (1,048) 6.62 - 29.21
Forfeited...................................................... (177) (7) 11.17 - 18.36
------ -----------
December 31, 1992................................................ 1,257 2,596 4.72 - 31.94
Granted........................................................ 369 316 29.81 - 36.06
Exercised...................................................... (303) (769) 4.72 - 30.88
Forfeited...................................................... (28) (97) 14.91 - 33.94
------ -----------
December 31, 1993................................................ 1,295 2,046 6.62 - 36.06
Granted........................................................ 470 970 28.44 - 31.56
Exercised...................................................... (309) (230) 6.62 - 29.94
Forfeited...................................................... (34) (14) 21.13 - 35.69
------ -----------
December 31, 1994................................................ 1,422 2,772 $ 9.38 - $36.06
====== ===========
</TABLE>
As of December 31, 1994, 1,192,000 options were exercisable.
57
<PAGE> 60
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
10. INCOME TAXES
The consolidated income tax expense(benefit) is comprised of the following
elements:
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income Tax Expense(Benefit):
Domestic:
Currently Payable:
Federal......................................... $203,358 $194,733 $156,819
State........................................... 18,237 20,109 19,287
-------- -------- --------
221,595 214,842 176,106
-------- -------- --------
Deferred:
Federal......................................... 33,551 1,652 (37,974)
State........................................... 5,495 1,295 (5,649)
-------- -------- --------
39,046 2,947 (43,623)
-------- -------- --------
Total Domestic.............................. 260,641 217,789 132,483
Foreign -- Currently Payable......................... 6,112 2,346 1,878
-------- -------- --------
Total Income Tax Expense............................... $266,753 $220,135 $134,361
======== ======== ========
</TABLE>
The tax effects of fair value adjustments on investment securities
available-for-sale, foreign currency translation adjustments and certain tax
benefits related to stock options are recorded directly in Shareholders' Equity.
Net tax credits recorded directly in Shareholders' Equity amounted to
$85,490,000, $9,450,000 and $5,330,000 for 1994, 1993 and 1992, respectively.
Also in 1994, a tax benefit of $4,162,000 was recorded as part of an
extraordinary item relating to the early retirement of debt and a deferred tax
benefit of $4,438,000 was recorded as part of the cumulative effect of adopting
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." Deferred tax
benefits of $3,950,000 and $21,039,000, respectively, were recorded as part of
the cumulative effects of adopting SFAS No. 109, "Accounting for Income Taxes,"
in 1993 and SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," in 1992.
The Corporation has substantial investments in tax-exempt debt securities
and loans on which borrowers pay a lower rate of interest than would be required
if the income were subject to federal income taxes. Because of these and other
differences, Income Tax Expense is less than that computed by applying the
federal statutory income tax rate of 35 percent in 1994 and 1993 and 34 percent
in 1992. A summary reconciliation of reported income tax expense to income tax
based on the statutory rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Reported Income Tax Expense........................................... $266,753 $220,135 $134,361
Effect of:
Tax-exempt securities and loan income............................... 39,765 44,965 50,411
Goodwill amortization............................................... (7,572) (8,029) (9,692)
State income taxes (net of federal tax benefit)..................... (15,426) (13,913) (9,001)
Federal tax rate increase on deferred tax assets and liabilities.... -- 4,805 --
Other............................................................... 1,391 (2,271) (5,470)
-------- -------- --------
Income Tax based on statutory rate.................................... $284,911 $245,692 $160,609
======== ======== ========
</TABLE>
58
<PAGE> 61
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
10. INCOME TAXES (CONTINUED)
The significant components of the Corporation's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Provision for Loan Losses..................................................... $164,109 $158,247
Fair Value Adjustment on Investment Securities Available-for-Sale............. 87,761 3,470
Pension, Retirement and Postemployment Benefits............................... 37,255 38,574
Employee Compensation......................................................... 17,078 12,318
Deferred Loan Fees............................................................ 11,876 14,697
Other......................................................................... 28,746 48,943
-------- --------
Total Deferred Tax Assets................................................ 346,825 276,249
-------- --------
Deferred Tax Liabilities:
Lease Accounting.............................................................. 21,770 12,070
Depreciation.................................................................. 19,146 18,891
Purchase Accounting Adjustments............................................... 17,759 16,040
Accrued Discount.............................................................. 12,198 11,615
Prepaid Expenses.............................................................. 11,965 874
Other......................................................................... 30,905 34,559
-------- --------
Total Deferred Tax Liabilities........................................... 113,743 94,049
-------- --------
Net Deferred Tax Assets.................................................. $233,082 $182,200
======== ========
</TABLE>
During 1992, as required by APB No. 11, deferred income taxes were recorded
to reflect any differences between the years that revenue and expenses were
recorded in the financial statements and when they were recognized for payment
of income taxes. The sources of the differences and their income tax effect are
as follows:
<TABLE>
<CAPTION>
1992
--------------
(IN THOUSANDS)
<S> <C>
Lease Income...................................................... $ 1,400
Loan Loss Deduction............................................... 12,900
Merger -- Related Expenses........................................ 21,560
Other, net........................................................ 7,763
--------------
$ 43,623
==============
</TABLE>
The cumulative deferred tax benefit amounted to $188,534,000 (which
included $21,039,000 attributable to the cumulative effect of adopting SFAS No.
106) at December 31, 1992.
11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS
The Corporation, in the normal course of business, utilizes various types
of contracts for managing the market risk in its balance sheet instruments, for
accommodating customer needs and for other purposes, including mitigating the
risk in customer accommodation contracts and, on a limited scale, generating
trading profits. These contracts include interest rate swaps, futures, options
and foreign exchange contracts.
These contracts may contain elements of both market and credit risk. Market
risk is the possibility of changes in interest or currency rates that would
cause a financial instrument to decrease in value or to be more costly to
settle. Credit risk is the possibility of loss arising from failure by a party
to the transaction to perform according to terms of the contract. Credit risk is
controlled through credit policies, approval processes, collateral requirements,
counterparty exposure limits and monitoring procedures similar to the
Corporation's practices employed to monitor and control the credit risk of loans
and loan commitments.
Interest rate swaps are contracts where the parties agree to exchange fixed
rate for floating rate interest payments, or to exchange floating rate interest
payments based on two different rate indexes (basis swap), for a
59
<PAGE> 62
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED)
specified time period on a specified (notional) amount. The notional amount is
used only to calculate the amount of the interest payments to be exchanged, and
does not represent the amount at risk.
Futures contracts require the seller of a contract to deliver a specified
instrument to the purchaser at a specified price or yield, on a specified date.
Commitments to purchase securities are contracts made for the future delivery of
investment securities at a specified price or yield. Typically, no fees are
charged for these types of contracts.
Options are contracts that allow the holder to purchase or sell a financial
instrument, at a specified price, prior to the expiration date of the contract.
Caps and floors are contracts which limit the holder's exposure to interest rate
changes by providing for receipt of the interest rate differential when a
specified benchmark rate exceeds the cap rate, or falls below the floor rate.
The writer of these types of contracts charges a fee at the outset in exchange
for assuming the risk of an unfavorable change in the price of the financial
instrument or interest rate underlying the contract.
Foreign exchange contracts are agreements to exchange at a specified date
different currencies at a specified exchange rate. Foreign exchange options
allow the holder to purchase or sell a foreign currency at a specified date and
price. The Corporation manages its exposure to changes in exchange rates by
establishing limits for the amount of individual currencies and exchange
contracts held.
60
<PAGE> 63
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED)
The following tables show the contract or notional amount of risk
management contracts and of various commitments, and the related unrealized
gains and losses, as of the periods indicated.
RISK MANAGEMENT CONTRACTS AND COMMITMENTS:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------------
NET
CONTRACT OR UNREALIZED UNREALIZED UNREALIZED
NOTIONAL AMOUNT GAINS LOSSES GAINS(LOSSES)
--------------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Rate Swaps:
Modifying the Interest Rate Characteristics
of:
Commercial Loans.......................... $ 235,995 $ 1,072 $ (1,907) $ (835)
Investment Securities:
Mortgage-backed........................ 225,000 -- (745) (745)
States and Political Subdivisions...... 225,100 -- (5,579) (5,579)
Interest-Bearing Deposits................. 14,028 73 (74) (1)
Short-Term Borrowings..................... 875,000 20,015 -- 20,015
Long-Term Debt............................ 320,000 109 (8,294) (8,185)
--------------- ---------- ---------- -------------
$ 1,895,123 21,269 (16,599) 4,670
===============
Futures and Options Contracts Purchased:
Modifying the Interest Rate Characteristics
of:
Commercial loans.......................... $ 11,103 299 -- 299
=============== ---------- ---------- -------------
$ 21,568 $(16,599) $ 4,969
========== ========== =============
Commitments:
To Purchase Securities...................... $ 4,050 $ 3 $ -- $ 3
To Extend Credit (Note 12).................. 21,240,034 94 (391) (297)
To Sell Loans (Note 12)..................... 64,954 89 (196) (107)
--------------- ---------- ---------- -------------
$21,309,038 $ 186 $ (587) $ (401)
=============== ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------------------------------------------------
NET
CONTRACT OR UNREALIZED UNREALIZED UNREALIZED
NOTIONAL AMOUNT GAINS LOSSES GAINS(LOSSES)
--------------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Rate Swaps:
Modifying the Interest Rate Characteristics
of:
Loans:
Commercial............................. $ 260,258 $ 12 $(13,187) $ (13,175)
Consumer............................... 200,000 -- (201) (201)
Investment Securities:
Mortgage-backed........................ 375,000 -- (11,858) (11,858)
States and Political Subdivisions...... 415,230 -- (32,390) (32,390)
Interest-Bearing Deposits................. 10,716 365 -- 365
Long-Term Debt............................ 120,000 15,310 -- 15,310
--------------- ---------- ---------- -------------
$ 1,381,204 15,687 (57,636) (41,949)
===============
Futures and Options Contracts Purchased:
Modifying the Interest Rate Characteristics
of:
Commercial loans.......................... $ 15,788 25 -- 25
=============== ---------- ---------- -------------
$ 15,712 $(57,636) $ (41,924)
========= ========== ============
Commitments:
To Purchase Securities...................... $ 662,372 $ 147 $ -- $ 147
To Extend Credit (Note 12).................. 16,834,688 1,736 (28) 1,708
To Sell Loans (Note 12)..................... 463,000 654 (1,648) (994)
--------------- ---------- ---------- -------------
$17,960,060 $ 2,537 $ (1,676) $ 861
=============== ========== ========== =============
</TABLE>
61
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NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED)
Unrealized gains and losses in the preceding tables are calculated based on
differences between current market interest rates, as of the date indicated, and
the interest rates specified in the contracts.
Unrealized gains are also a measure of the credit risk applicable to the
contracts. Credit risk occurs when one party to a contract fails to perform in
accordance with contract terms. Thus, in the case of counterparty failure on a
contract with an unrealized gain, the Corporation, given current market interest
rates, would be required to pay a premium, or in effect incur a loss, to replace
the contract with one having identical terms. The amount of unrealized credit
risk was $21,754,000 at December 31, 1994, and $18,249,000 at December 31, 1993.
Credit risk is recorded in the financial statements only when counterparty
failure has occurred or is probable.
Gains and losses can also occur if the Corporation should elect to
terminate a contract prior to maturity. Such realized gains or losses are
deferred to future periods. As of year-end 1993 and 1994, there were no such
deferred gains or losses.
The average notional amount and weighted average fixed rates of risk
management swap contracts outstanding at December 31, 1994, are shown below in
accordance with their contractual dates. The predominant variable repricing
index associated with these contracts is three-month LIBOR, which was 6.50% at
December 31, 1994.
<TABLE>
<CAPTION>
AVERAGE OUTSTANDING
------------------------------------------------------------ EXPIRING
1995 1996 1997 1998 1999 THEREAFTER
----------- --------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed Swaps:
Notional Amount................. $ 277,014 $ 273,012 $281,094 $323,012 $321,506 $ 320,000
Weighted Average Receive Rate... 7.59% 7.62% 7.63% 7.71% 7.73% 7.73%
Pay Fixed Swaps:
Notional Amount................. $ 1,288,972 $ 759,565 $315,513 $130,111 $ 94,383 $ 31,250
Weighted Average Pay Rate....... 6.93% 6.84% 7.29% 7.77% 7.89% 9.05%
Net Receive(Pay) Fixed Position:
Notional Amount................. $(1,011,958) $(486,553) $(34,419) $192,901 $227,123
Fixed Rate...................... 6.75% 6.40% 4.51% 7.67% 7.66%
</TABLE>
Substantially all of the $15,153,000 of futures contracts, option contracts
and commitments to purchase securities have remaining terms of less than one
year.
The following tables show the contract or notional amount and the fair
value of customer accommodation and other contracts at December 31, 1994 and
1993, and the related average fair value for the year ended December 31, 1994.
Fair values are the amounts that would be received (asset amount) and the
amounts that would be paid (liability amount) to replace existing contracts with
new contracts given current market interest rates.
62
<PAGE> 65
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED)
CUSTOMER ACCOMMODATION AND OTHER CONTRACTS:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1994
DECEMBER 31, 1994 --------------------
---------------------------------------
FAIR VALUE AVERAGE FAIR VALUE
CONTRACT OR -------------------- --------------------
NOTIONAL AMOUNT ASSET LIABILITY ASSET LIABILITY
--------------- ------- --------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Received Fixed.............................. $ 666,419 $ 6,008 $17,262 $ 9,169 $ 7,818
Pay Fixed................................... 584,388 15,963 5,683 7,576 8,957
Basis....................................... 430,000 75 64 44 11
--------------- ------- --------- ------- ---------
$ 1,680,807 22,046 23,009 16,789 16,786
===============
Futures Contracts:
Purchased................................... $ 69,100 -- -- -- --
Sold........................................ 614,100 -- -- -- --
Interest Rate Options:
Purchased................................... 224,904 4,415 -- 2,270 --
Written..................................... 224,892 -- 4,435 -- 2,298
Foreign Exchange Contracts:
Commitments to Buy.......................... 1,778,752 11,539 21,929 7,570 17,938
Commitments to Sell......................... 1,638,299 21,836 10,300 17,144 6,594
------- --------- ------- ---------
$59,836 $59,673 $43,773 $43,616
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------
FAIR VALUE
CONTRACT OR --------------------
NOTIONAL AMOUNT ASSET LIABILITY
--------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest Rate Swaps:
Received Fixed............................. $ 706,790 $19,987 $ 1,811
Pay Fixed.................................. 663,760 2,234 19,075
--------------- ------- ---------
$ 1,370,550 22,221 20,886
===============
Futures Contracts:
Purchased.................................. $ 51,000 -- --
Sold....................................... 284,292 -- --
Interest Rate Options:
Purchased.................................. 208,536 1,749 --
Written.................................... 207,533 -- 1,759
Foreign Exchange Contracts:
Commitments to Buy......................... 1,219,819 3,600 13,947
Commitments to Sell........................ 1,183,146 12,451 2,888
------- ---------
$40,021 $39,480
======= =======
</TABLE>
In contrast to risk management contracts, where only realized gains and
losses in value are recorded, unrealized valuation changes for customer
accommodation and other contracts are recognized and recorded currently as gains
or losses in the financial statements. The net amount of such gains and losses
recognized and included in Other Non-Interest Income in each of the following
years was:
<TABLE>
<CAPTION>
NET GAINS
-----------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest Rate Swaps.................................. $ 812 $ 3,483 $ 3,782
Futures Contracts.................................... 1,626 66 27
Interest Rate Options................................ 166 -- --
Foreign Exchange Contracts........................... 13,485 12,567 11,619
------- ------- -------
$16,089 $16,116 $15,428
======= ======= =======
</TABLE>
63
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NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
11. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS (CONTINUED)
The average notional amount of customer accommodation and other interest
rate swaps and futures contracts outstanding at December 31, 1994, are indicated
in the following table in accordance with their contractual dates. The
difference between the fixed rates, either paid or received, and the variable
rates received or paid, provide an indication of future cash flows. The variable
rates are in most instances based on three-month LIBOR, which was 6.50% at
December 31, 1994. Since the valuation adjustment of these contracts as of
year-end 1994 was based on current interest rates, future gains or losses will
occur only to the extent of interest rate changes.
<TABLE>
<CAPTION>
AVERAGE OUTSTANDING
------------------------------------------------------- EXPIRING
1995 1996 1997 1998 1999 THEREAFTER
-------- -------- -------- -------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Receive Fixed Swaps:
Notional Amount..................... $565,621 $370,894 $259,620 $154,054 $96,092 $ 63,367
Weighted Average Receive Rate....... 6.71% 6.79% 6.89% 7.00% 7.16% 7.97%
Weighted Average Variable Pay
Rate.............................. 6.50 6.50 6.50 6.50 6.50 6.50
Pay Fixed Swaps:
Notional Amount..................... $508,683 $316,188 $213,387 $123,065 $75,379 $ 48,804
Weighted Average Variable Receive
Rate.............................. 6.50% 6.50% 6.50% 6.50% 6.50% 6.50%
Weighted Average Pay Rate........... 6.42 6.42 6.52 6.70 7.03 7.39
Basis Swaps:
Notional Amount..................... $370,301 $ 33,880 $ -- $ -- $ -- $ --
Weighted Average Variable Receive
Rate.............................. 6.50% 6.50% --% --% --% --%
Weighted Average Variable Pay
Rate.............................. 6.50 6.50 -- -- -- --
Net Futures Position (Pay Fixed):
Contract Amount..................... $ 10,055 $ 38,055 $ 35,589 $ 25,027 $17,877 $ 40,000
</TABLE>
The remaining customer accommodation and other contracts (interest rate
options and foreign exchange contracts) are essentially offsetting in amount, by
maturity.
12. COMMITMENTS AND CONTINGENCIES
A commitment to extend credit obligates the Corporation to advance funds in
accordance with commitment provisions. Commitments generally have fixed
expiration dates or other termination clauses, permit the customer to borrow at
an agreed upon rate of interest and require payment of a fee. There are
typically three broad types of commitments: loan commitments; standby letters of
credit; and commercial letters of credit.
Unused commitments totaled $18,930,114,000 and $14,917,545,000 at December
31, 1994 and 1993, respectively. Since many commitments typically expire without
being utilized, the total does not necessarily represent future cash
requirements. At December 31, 1994, $15,692,249,000 of the unused commitments
had variable rate terms, and $3,237,865,000 had fixed rate terms.
A standby letter of credit is a conditional commitment issued to guarantee
contractual performance by a customer to a third party. Typical uses are to back
commercial paper, bond financing or similar transactions of public and private
borrowers. Total standby letters of credit outstanding at December 31, 1994 and
1993, were $2,099,697,000 and $1,720,489,000, respectively. The Corporation does
not expect to be required to fund these commitments in the normal course of
business.
A commercial letter of credit is a commitment issued to facilitate the
shipment of goods from seller to buyer by guaranteeing payment to the seller.
Absent inability of the buyer to perform, fund disbursement to the seller occurs
simultaneously with receipt of funds from the buyer. Commercial letters of
credit outstanding were $210,223,000 and $196,654,000 at December 31, 1994 and
1993, respectively.
Collateral requirements for the above commitments are based on credit
evaluation of the customer.
Commitments to sell loans are entered into to protect against a decline in
the value of mortgage loans held for sale and of commitments to make mortgage
loans at specified fixed rates. Commitments to sell loans totaled $64,954,000 at
December 31, 1994, and $463,000,000 at December 31, 1993. The lower level of
commitments
64
<PAGE> 67
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
at year-end 1994 reflects both a lower level of mortgage origination activity
and a decision by the Corporation to hold a greater portion of originations in
its own portfolio.
The Corporation is a defendant in various legal proceedings arising in the
normal course of business. In the opinion of management, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Corporation's financial statements.
13. CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Corporation enters into transactions
exposing it to credit risk. At December 31, 1994, the maximum credit exposure
for funded transactions was $45.7 billion and for unfunded commitments was $21.2
billion. Such exposure was well diversified geographically and by industry, as
shown in the following tables.
<TABLE>
<CAPTION>
Geographic Distribution Industry Distribution
- ------------------------------------------- -------------------------------------------
<S> <C> <C> <C>
Metropolitan Detroit....................... 18% Automotive Related Manufacturing........... 6%
Indiana.................................... 16 Other Manufacturing........................ 11
Outstate Michigan.......................... 12 Financial Institutions..................... 9
Illinois................................... 10 Commercial Construction and Real Estate.... 6
Ohio....................................... 4 Wholesale Trade............................ 4
Foreign.................................... 5 Transportation Services.................... 3
All Other.................................. 35* Professional Services...................... 3
100% Other Commercial........................... 10
Residential Mortgages...................... 5
Other Consumer............................. 23
U.S. Government............................ 18
Other Government........................... 2
100%
</TABLE>
- -------------------------
* Includes securities of U.S. Government Agencies aggregating 18 percent.
Over 90 percent of the Corporation's assets, revenue, and net income are in
the banking industry; no individual customer provides 10 percent or more of the
Corporation's revenue, and total foreign assets, revenue, income before income
taxes and net income comprise less than 10 percent of the Corporation's
consolidated amounts.
14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," the Corporation is required to estimate the fair value of its
financial instruments, as defined in the standard.
For purposes of this disclosure, the estimated fair value of financial
instruments with immediate and shorter-term maturities (generally 90 days or
less) is assumed to be the same as the recorded book value. These instruments
include the balance sheet lines captioned Cash and Due From Banks,
Interest-Bearing Deposits, Federal Funds Sold and Resale Agreements, Customers'
Liability on Acceptances, Short-Term Borrowings and Liability on Acceptances.
Trading Account Securities are recorded on the balance sheet at fair value,
which is based on quoted market prices.
65
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NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The recorded book and estimated fair values of other financial instruments
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------------- ----------------------------
RECORDED ESTIMATED RECORDED ESTIMATED
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Investment Securities..................... $ 12,422,965 $ 12,195,728 $ 10,391,793 $ 10,802,287
Loans and Leases, net of allowance........ 28,794,613 28,596,466 25,127,762 25,471,167
Interest Rate and Foreign Exchange
Contracts:
Risk Management......................... 1,636 23,204 2,731 18,443
Customer Accommodation and Other........ 59,836 59,836 40,021 40,021
Commitments............................... -- 186 -- 2,537
Financial liabilities:
Deposits.................................. $(33,229,441) $(33,166,682) $(29,821,107) $(29,925,028)
Long-Term Debt............................ (2,504,348) (2,394,904) (1,434,947) (1,487,526)
Interest Rate and Foreign Exchange
Contracts:
Risk Management......................... (17,833) (34,432) (27,793) (85,429)
Customer Accommodation and Other........ (59,673) (59,673) (39,480) (39,480)
Commitments............................... (13,968) (14,555) (16,582) (18,258)
</TABLE>
Based on the valuation techniques discussed below, the excess of recorded
book values over estimated fair values was $249 million at December 31, 1994.
Estimated fair values do not recognize the potential earning power of the
corporate franchise, including customer relationships, which are inseparable
from related financial instruments. Franchise and relationship values are
reflected, at least in part, in the market value of the Corporation's common
stock, which at December 31, 1994, was $4.3 billion, or $976 million in excess
of book value.
Estimated fair values were determined as follows:
INVESTMENT SECURITIES
Fair values are based on quoted market prices or dealer quotes.
LOANS AND LEASES
The estimated fair value is determined by discounting contractual cash
flows from the loans and leases using current lending rates for new loans with
similar remaining maturities. The resulting value is reduced by an estimate of
losses inherent in the portfolio.
INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS
Risk management contracts are not recorded on the balance sheet. All other
contracts are recorded on the balance sheet at their fair value. Estimated fair
values are based on quoted market prices and rates, when available, or the
amount the Corporation would receive or pay at current rates to terminate the
contracts.
DEPOSIT LIABILITIES
The fair value of Demand, Savings, and Money Market Deposits with no
defined maturity is, by definition, the amount payable on demand at the
reporting date. The fair value of time deposits is estimated by discounting the
future cash flows to be paid, using the current rates at which similar deposits
with similar remaining maturities would be issued.
LONG-TERM DEBT
The fair value of the Corporation's long-term debt is based on quoted
market prices, where available. If quoted market prices are not available, the
fair value is estimated by discounting the future cash flows using the current
rates at which similar debt could be issued.
66
<PAGE> 69
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
COMMITMENTS
The majority of commitments to extend credit and letters of credit would
result in loans with a market rate of interest if funded. The fair value of
these commitments are the fees that would be charged customers to enter into
similar agreements with comparable pricing and maturity. The recorded book value
of deferred fee income approximates the fair value. For fixed rate commitments
and commitments to sell loans, the estimated fair value also considers the
difference between current levels of interest rates and the committed rates.
15. RESTRICTIONS ON CASH FLOWS TO THE PARENT COMPANY
National and state banking laws and regulations place certain restrictions
on loans or advances made by the banking subsidiaries to members of an
affiliated group, including the Parent, and also place restrictions on dividends
paid by the subsidiary banks. In addition, the subsidiary banks may be
restricted by the risk-based capital standards of the banking regulatory
agencies. At December 31, 1994, net assets of the subsidiary banks totaled
$3,543,958,000, of which approximately $2,574,558,000 was not available for
dividends or loans.
In 1995, bank subsidiaries may distribute to the Parent (in addition to
their 1995 net income) approximately $601,967,000 in dividends without prior
approval from bank regulatory agencies.
16. RELATED PARTY TRANSACTIONS
Certain directors and officers of the Corporation, their families, and
certain entities in which they have an ownership interest were customers of the
Corporation in 1994 and 1993. Management believes all transactions with such
parties, including loans and commitments, were in the ordinary course of
business and at normal terms prevailing at the time, including interest rates
and collateralization and did not represent more than normal risks. The amount
of such loans attributable to persons who were related parties at December 31,
1994, was $77,556,000 at the beginning and $117,137,000 at the end of 1994.
During 1994, new loans to related parties totaled $701,348,000 and repayments
aggregated $661,767,000.
17. SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following quarterly financial information, in the opinion of
management, fairly presents the results of operations for such periods.
<TABLE>
<CAPTION>
1994 QUARTER 1993 QUARTER
------------------------------------ ------------------------------------
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income................... $422.3 $414.8 $406.4 $381.3 $382.7 $395.2 $391.8 $388.5
Provision for Possible Credit
Losses.............................. 20.1 7.9 8.6 15.5 19.8 24.9 35.1 39.9
Non-Interest Income................... 136.3 136.6 133.9 138.7 156.1 141.1 143.2 145.0
Non-Interest Expenses................. 327.1 322.5 332.3 322.3 345.0 329.6 321.6 325.6
------ ------ ------ ------ ------ ------ ------ ------
Income Before Income Taxes............ 211.4 221.0 199.4 182.2 174.0 181.8 178.3 168.0
Income Tax Expense.................... 69.9 73.3 64.2 59.3 55.0 56.6 55.7 52.9
------ ------ ------ ------ ------ ------ ------ ------
Income Before Extraordinary Item and
Accounting Change................... $141.5 $147.7 $135.2 $122.9 $119.0 $125.2 $122.6 $115.1
======= ======= ======= ======= ======= ======= ======= =======
Net Income............................ $141.5 $147.7 $135.2 $107.3 $119.0 $125.2 $122.6 $119.0
======= ======= ======= ======= ======= ======= ======= =======
Net Income Per Share (on Average
Shares Outstanding)................. $ 0.91 $ 0.93 $ 0.84 $ 0.67* $ 0.74 $ 0.77 $ 0.76 $ 0.74*
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------------------
* Net income per share before an extraordinary item and a change in accounting
principle was $0.77 per share in the first quarter of 1994, and $0.71 per
share in the first quarter of 1993.
67
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NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
Following are condensed financial statements for NBD Bancorp, Inc. (Parent
Only).
NBD BANCORP, INC. (PARENT ONLY) CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS:
Cash and Due From Banks.................................................... $ 555 $ 750
Interest Bearing Deposits Placed With Subsidiary........................... -- 13,930
Resale Agreement with Subsidiary........................................... 41,685 221,115
Investment Securities Available-for-Sale................................... 17,875 13,731
Notes Receivable from Subsidiaries......................................... 356,090 515,888
Investments in Subsidiaries (principally banks)............................ 3,543,598 3,443,516
Dividends Receivable from Subsidiary....................................... 35,794 31,320
Net Premises and Equipment................................................. 52,458 55,629
Other Assets............................................................... 43,389 48,454
---------- ----------
TOTAL ASSETS.......................................................... $4,091,444 $4,344,333
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-Term Borrowings...................................................... $ 59,236 $ 158,886
Other Liabilities.......................................................... 94,665 90,863
Long-Term Debt............................................................. 646,000 845,985
---------- ----------
Total Liabilities..................................................... 799,901 1,095,734
---------- ----------
Shareholders' Equity:
Preferred Stock.......................................................... -- --
Common Stock............................................................. 160,877 160,715
Capital Surplus.......................................................... 638,652 634,167
Retained Earnings........................................................ 2,810,459 2,472,692
Fair Value Adjustment on Investment Securities Available-for-Sale........ (154,305) (7,012)
Accumulated Translation Adjustment....................................... 6,942 4,384
Deferred Compensation.................................................... (17,438) (16,347)
Less Treasury Stock...................................................... (153,644) --
---------- ----------
Total Shareholders' Equity............................................ 3,291,543 3,248,599
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $4,091,444 $4,344,333
========== ==========
</TABLE>
68
<PAGE> 71
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NBD BANCORP, INC. (PARENT ONLY) CONDENSED STATEMENT OF INCOME
(in thousands)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
OPERATING INCOME:
Income from Subsidiaries:
Dividends from Subsidiaries (principally banks)................... $319,598 $250,935 $195,342
Interest and Other................................................ 39,006 42,845 29,947
Securities Gains.................................................. -- 3,034 --
Other Interest and Other Income..................................... 1,226 1,054 1,333
-------- -------- --------
Total Operating Income......................................... 359,830 297,868 226,622
-------- -------- --------
OPERATING EXPENSES:
Interest on Short-Term Borrowings................................... 5,284 4,864 6,198
Interest on Long-Term Debt.......................................... 45,655 54,504 40,224
Other............................................................... 22,625 24,042 23,922
-------- -------- --------
Total Operating Expenses....................................... 73,564 83,410 70,344
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES..................................................... 286,266 214,458 156,278
Income Tax Benefit.................................................. 10,097 11,009 11,519
-------- -------- --------
INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES........ 296,363 225,467 167,797
Equity in Undistributed Earnings of Subsidiaries Before
Extraordinary Item and Cumulative Effect of Accounting Change..... 250,916 256,374 170,222
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE.............................................................. 547,279 481,841 338,019
Extraordinary Item (net of $4,162 income tax effect)................ (7,730) -- --
Cumulative Effect of Accounting Change (net of $4,438 and $21,039
income tax effect for 1994 and 1992, respectively)................ (7,885) 3,950 (37,885)
-------- -------- --------
NET INCOME............................................................ $531,664 $485,791 $300,134
======== ======== ========
</TABLE>
69
<PAGE> 72
NBD BANCORP, INC.
- ------------------------------
Notes to Financial Statements
18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NBD BANCORP, INC. (PARENT ONLY) CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
-----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income....................................................... $ 531,664 $ 485,791 $ 300,134
Adjustments to Reconcile Net Income to Net Cash Provided
by Operations:
Depreciation and Amortization............................... 8,922 8,632 8,118
Securities Gains............................................ -- (3,034) --
Extraordinary Item -- Redemption of Debt.................... 7,730 -- --
Equity in Earnings of Subsidiaries.......................... (563,607) (509,571) (327,679)
Cash Dividends Received from Subsidiaries................... 311,071 226,896 190,573
Decrease(Increase) in Interest Receivable................... 575 (1,739) (6,992)
(Decrease)Increase in Accrued Operating Expenses............ (3,387) (2,329) 11,979
Other, net.................................................. 13,744 2,402 3,388
--------- --------- ---------
Net Cash Provided by Operating Activities................. 306,712 207,048 179,521
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease(Increase) in Resale Agreements with Subsidiaries........ 179,430 (134,149) 38,446
Purchase of Investment Securities Available-for-Sale............. (10,247) -- --
Proceeds from Maturity of Investment Securities
Available-for-Sale............................................. 10,084 -- --
Purchase of Investment Securities Held-to-Maturity............... -- (3,506) (10,728)
Proceeds from Sale of Investment Securities Held-to-Maturity..... -- 3,879 --
Decrease(Increase) in Notes Receivable and Time Deposits Placed
with Subsidiaries.............................................. 173,728 (10,272) (370,943)
Decrease in Loans and Leases..................................... -- 1,425 1,017
Purchase of Premises and Equipment and Other Assets.............. (683) (4,154) (4,370)
Proceeds from Sale of Premises and Equipment and Other Assets.... 210 3,936 403
Purchases and Net Capital Contributions in Subsidiaries.......... -- 26,006 (42,051)
--------- --------- ---------
Net Cash Provided(Used) by Investing Activities........... 352,522 (116,835) (388,226)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease)Increase in Short-Term Borrowings...................... (99,650) (25,552) 93,891
Proceeds from the Issuance of Debt............................... -- 150,000 400,000
Principal Payments on Long-Term Debt............................. -- (30,000) (15)
Redemption of Long-Term Debt..................................... (208,734) -- --
Proceeds from Stock Option Exercises............................. 1,401 2,527 1,415
Payments to Acquire Treasury Stock............................... (166,606) (13,369) (134,222)
Dividends Paid................................................... (185,840) (173,413) (152,353)
--------- --------- ---------
Net Cash (Used)Provided by Financing Activities........... (659,429) (89,807) 208,716
--------- --------- ---------
Net (Decrease)Increase in Cash and Due From Banks.................. (195) 406 11
Cash and Due From Banks -- Beginning of Period..................... 750 344 333
--------- --------- ---------
CASH AND DUE FROM BANKS -- END OF PERIOD........................... $ 555 $ 750 $ 344
========= ========= =========
Other Cash Flow Disclosures:
Interest Paid.................................................... $ 55,163 $ 59,555 $ 35,966
Income Tax Credit Realized....................................... 13,176 13,880 14,986
</TABLE>
70
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
- ------------------------------------------------
Shareholders and Board of Directors
NBD Bancorp, Inc.
Detroit, Michigan
We have audited the accompanying consolidated balance sheet of NBD Bancorp,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of NBD Bancorp, Inc. and subsidiaries at December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Corporation adopted recently issued Statements of Financial Accounting Standards
and, accordingly, changed its method of accounting for postemployment benefits
in 1994, its method of accounting for investment securities and income taxes in
1993, and its method of accounting for postretirement benefits other than
pensions in 1992.
[Sig]
DELOITTE & TOUCHE LLP
January 17, 1995
Detroit, Michigan
71
<PAGE> 74
NBD BANCORP, INC.
- ---------------------------
SUPPLEMENTARY DATA
EARNINGS PER SHARE COMPUTATION
(in thousands except per share amounts)
<TABLE>
<CAPTION>
FOR YEAR ENDED DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
PRIMARY:
Net Income.......................................................... $531,664 $485,791 $300,134
======== ======== ========
Average Shares Outstanding.......................................... 158,480 160,568 160,304
Adjustment:
Shares Applicable to Common Stock Options......................... 328 685 412
-------- -------- --------
Shares Applicable to Primary Earnings............................... 158,808 161,253 160,716
======== ======== ========
FULLY DILUTED:
Net Income.......................................................... $531,664 $485,791 $300,134
Adjustment:
Interest on 7.25% Convertible Debentures.......................... 3,052 14,651 14,651
Interest on 8.25% Convertible Debentures.......................... -- -- 1,105
Tax Effect on Above............................................... (1,068) (5,128) (5,356)
-------- -------- --------
Net Adjustment.................................................... 1,984 9,523 10,400
-------- -------- --------
Adjusted Net Income................................................. $533,648 $495,314 $310,534
======== ======== ========
Average Shares Outstanding.......................................... 158,480 160,568 160,304
Adjustment:
Shares Applicable to Convertible Notes............................ 1,315 6,579 7,478
Shares Applicable to Common Stock Options......................... 349 704 1,090
-------- -------- --------
Shares Applicable to Fully Diluted Earnings......................... 160,144 167,851 168,872
======== ======== ========
NET INCOME PER SHARE:
Primary -- Net Income Per Share....................................... $3.35 $3.01 $1.87
Fully Diluted -- Net Income Per Share................................. $3.33 $2.95 $1.84
</TABLE>
72
<PAGE> 75
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- --------------------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
- ----------------------------------------
Not applicable.
73
<PAGE> 76
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The information set forth under the captions "Election of Directors" and
"Security Ownership Reporting" in the definitive 1995 Proxy Statement of the
Corporation to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A is incorporated by reference herein.
Reference is made to PART I of this Form 10-K for information as to the
executive officers of the Corporation.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information set forth under the captions "Director Compensation" and
"Executive Officer Compensation" in the definitive 1995 Proxy Statement of the
Corporation to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- --------------------------------------------------------
AND MANAGEMENT
--------------
The information set forth under the captions "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the 1995 definitive
Proxy Statement of the Corporation to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information set forth under the caption "Compensation Committee
Interlocks and Insider Participation" in the 1995 definitive Proxy Statement of
the Corporation to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A is incorporated by reference herein.
74
<PAGE> 77
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS:
- ------------------------
<TABLE>
<CAPTION>
PAGE*
-----
<S> <C>
Consolidated Balance Sheet -- December 31, 1994 and 1993....................................... 40
Consolidated Statement of Income -- Three Years Ended December 31, 1994........................ 42
Consolidated Statement of Shareholders' Equity -- Three Years Ended December 31, 1994.......... 43
Consolidated Statement of Cash Flows -- Three Years Ended December 31, 1994.................... 44
Notes to Financial Statements.................................................................. 45
Independent Auditors' Report................................................................... 71
</TABLE>
- -------------------------
* Refers to page number of this Form 10-K.
2. SCHEDULES:
- -------------
All schedules are omitted because they are inapplicable, not required, or
the information is included in the financial statements or notes thereto.
3. EXHIBITS:
- ------------
The Exhibits marked with one asterisk below were filed as Exhibits to the
Corporation's Form 10-K for the fiscal year ended December 31, 1993 [file number
1-7127]; the Exhibit marked with two asterisks below was filed as an Exhibit to
the Corporation's Form 10-K for the fiscal year ended December 31, 1990; the
Exhibit marked with three asterisks below was filed as an Exhibit to the
Corporation's Form S-3 Registration Statement filed on February 14, 1992; the
Exhibit marked with four asterisks below was filed as an Exhibit to the
Corporation's Form S-3 Registration Statement filed on July 15, 1992; the
Exhibit marked with five asterisks below was filed as Exhibits to the
Corporation's Form 8-K Report filed on May 11, 1993; the Exhibit marked with six
asterisks below was filed as an Exhibit to the Corporation's Form 10-K for the
fiscal year ended December 31, 1991; the Exhibits marked with seven asterisks
below were filed as Exhibits to the Corporation's Form 10-K for the fiscal year
ended December 31, 1992; the Exhibit marked with eight asterisks below was filed
as an Exhibit to the Corporation's Form S-3 Registration Statement filed on
April 9, 1993; and all such Exhibits are incorporated herein by reference, the
Exhibit numbers in brackets being those in such Forms S-3, 10-K and 8-K.
(3)* Restated Certificate of Incorporation of the Corporation, and
By-Laws of the Corporation, as amended
(4)(a)** Fiscal Agency Agreement dated as of December 18, 1985, between
the Corporation and Morgan Guaranty Trust Company of New York, as
Fiscal Agent and Paying Agent, relating to Floating Rate
Subordinated Notes Due 2005 [(4)(b)]
(4)(b)*** Indenture dated as of February 1, 1992, between the Corporation
and Bankers Trust Company, as Trustee, relating to 8.10%
Subordinated Notes Due 2002 [4(a)]
(4)(c)**** Indenture dated as of July 15, 1992, between the Corporation and
The Chase Manhattan Bank, N.A., as Trustee, relating to 7 1/4%
Subordinated Debentures due 2004 [4(a)]
(4)(d)***** Indenture and Unit Agreement dated as of April 30, 1993, between
the Corporation and Chemical Bank, as Trustee and Unit Agent,
relating to the 7 1/2% Preferred Purchase Units [(99)(a)/(b)/(c)]
(4)(e)******** Form of Certificate of Designations of 7 1/2% Cumulative
Preferred Stock of the Corporation issuable under the 7 1/2%
Preferred Purchase Units [(4)(c)]
(4)(f) The Corporation hereby agrees to furnish to the Commission upon
request copies of instruments defining the rights of holders of
nonregistered long-term debt of the Corporation's subsidiaries;
the total amount of each issue of such debt does not exceed 10%
of the total assets of the Corporation and its subsidiaries on a
consolidated basis.
(10)(a)****** Performance Incentive Plan of the Corporation, as amended
[(10)(a)]
75
<PAGE> 78
(10)(b) Executive Incentive Plan of the Corporation
(10)(c) Pension Restoration/Supplemental Plan of the Corporation
(10)(d) Retirement Plan for Non-Employee Directors of the Corporation
(10)(e) Severance Pay Plan of the Corporation
(10)(f) Form of Separation Agreement between the Corporation and listed
executive officers
(10)(g) Executive Estate Plan of the Corporation
(10)(h)******* Non-Employee Director Stock Award Plan of the Corporation
(10)(i)******* Supplemental Disability and Split-Dollar Life Insurance Policies
of NBD Indiana, Inc. covering the named executive officers
(10)(j)******* Employment Agreements dated January 15, 1992, between NBD
Indiana, Inc. and the listed executive officers
(10)(k)* Long-Term Disability Restoration Plan of the Corporation
(11) Earnings Per Share Computation (included in Item 8 of this Form
10-K)
(21) Subsidiaries of the Corporation
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule
- -------------------------
Exhibits 10(a) through 10(k) constitute the management contracts and executive
compensatory plans or arrangements of the Corporation and its subsidiaries.
(b) Reports on Form 8-K
The Corporation has not filed any reports on Form 8-K during the last
quarter of the year covered by this Form 10-K.
76
<PAGE> 79
SIGNATURES
- -----------------
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Detroit,
State of Michigan on March 1, 1995.
NBD BANCORP, INC.
/s/ VERNE G. ISTOCK
-----------------------------------------
Verne G. Istock, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 1, 1995.
<TABLE>
<CAPTION>
SIGNATURE SIGNATURE
- ------------------------------------------------- -------------------------------------------------
<S> <C>
/s/ VERNE G. ISTOCK /s/ ALFRED R. GLANCY III
- ------------------------------------------------- -------------------------------------------------
Verne G. Istock, Chairman, Chief Executive Alfred R. Glancy III, Director
Officer and Director (Principal Executive
Officer) /s/ DENNIS J. GORMLEY
-------------------------------------------------
/s/ PHILIP S. JONES Dennis J. Gormley, Director
- -------------------------------------------------
Philip S. Jones, Executive Vice President, /s/ JOSEPH L. HUDSON, JR.
Treasurer and Chief Financial Officer -------------------------------------------------
(Principal Financial Officer) Joseph L. Hudson, Jr., Director
/s/ GERALD K. HANSON /s/ THOMAS H. JEFFS II
- ------------------------------------------------- -------------------------------------------------
Gerald K. Hanson, Senior Vice President and Thomas H. Jeffs II, Director
Comptroller (Principal Accounting Officer)
/s/ JOHN E. LOBBIA
/s/ TERENCE E. ADDERLEY -------------------------------------------------
- ------------------------------------------------- John E. Lobbia, Director
Terence E. Adderley, Director
/s/ RICHARD A. MANOOGIAN
-------------------------------------------------
- ------------------------------------------------- Richard A. Manoogian, Director
James K. Baker, Director
/s/ WILLIAM T. MCCORMICK, JR.
/s/ DON H. BARDEN -------------------------------------------------
- ------------------------------------------------- William T. McCormick, Jr., Director
Don H. Barden, Director
/s/ SIEGFRIED BUSCHMANN /s/ THOMAS E. REILLY, JR.
- ------------------------------------------------- -------------------------------------------------
Siegfried Buschmann, Director Thomas E. Reilly, Jr., Director
/s/ BERNARD B. BUTCHER /s/ IRVING ROSE
- ------------------------------------------------- -------------------------------------------------
Bernard B. Butcher, Director Irving Rose, Director
/s/ JOHN W. DAY /s/ ROBERT C. STEMPEL
- ------------------------------------------------- -------------------------------------------------
John W. Day, Director Robert C. Stempel, Director
/s/ MAUREEN A. FAY, O.P. /s/ PETER W. STROH
- ------------------------------------------------- -------------------------------------------------
Maureen A. Fay, O.P., Director Peter W. Stroh, Director
/s/ CHARLES T. FISHER III /s/ ORMAND J. WADE
- ------------------------------------------------- -------------------------------------------------
Charles T. Fisher III, Director Ormand J. Wade, Director
</TABLE>
77
<PAGE> 80
[LOGO]
[RECYCLED
PAPER LOGO]
<PAGE> 81
EXHIBIT INDEX
The Exhibits marked with one asterisk below were filed as Exhibits to the
Corporation's Form 10-K for the fiscal year ended December 31, 1993 [file number
1-7127]; the Exhibit marked with two asterisks below was filed as an Exhibit to
the Corporation's Form 10-K for the fiscal year ended December 31, 1990; the
Exhibit marked with three asterisks below was filed as an Exhibit to the
Corporation's Form S-3 Registration Statement filed on February 14, 1992; the
Exhibit marked with four asterisks below was filed as an Exhibit to the
Corporation's Form S-3 Registration Statement filed on July 15, 1992; the
Exhibit marked with five asterisks below was filed as Exhibits to the
Corporation's Form 8-K Report filed on May 11, 1993; the Exhibit marked with six
asterisks below was filed as an Exhibit to the Corporation's Form 10-K for the
fiscal year ended December 31, 1991; the Exhibits marked with seven asterisks
below were filed as Exhibits to the Corporation's Form 10-K for the fiscal year
ended December 31, 1992; the Exhibit marked with eight asterisks below was filed
as an Exhibit to the Corporation's Form S-3 Registration Statement filed on
April 9, 1993; and all such Exhibits are incorporated herein by reference, the
Exhibit numbers in brackets being those in such Forms S-3, 10-K and 8-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
(3)* Restated Certificate of Incorporation of the Corporation, and
By-Laws of the Corporation, as amended
(4)(a)** Fiscal Agency Agreement dated as of December 18, 1985, between
the Corporation and Morgan Guaranty Trust Company of New York, as
Fiscal Agent and Paying Agent, relating to Floating Rate
Subordinated Notes Due 2005 [(4)(b)]
(4)(b)*** Indenture dated as of February 1, 1992, between the Corporation
and Bankers Trust Company, as Trustee, relating to 8.10%
Subordinated Notes Due 2002 [4(a)]
(4)(c)**** Indenture dated as of July 15, 1992, between the Corporation and
The Chase Manhattan Bank, N.A., as Trustee, relating to 7 1/4%
Subordinated Debentures due 2004 [4(a)]
(4)(d)***** Indenture and Unit Agreement dated as of April 30, 1993, between
the Corporation and Chemical Bank, as Trustee and Unit Agent,
relating to the 7 1/2% Preferred Purchase Units [(99)(a)/(b)/(c)]
(4)(e)******** Form of Certificate of Designations of 7 1/2% Cumulative
Preferred Stock of the Corporation issuable under the 7 1/2%
Preferred Purchase Units [(4)(c)]
(4)(f) The Corporation hereby agrees to furnish to the Commission upon
request copies of instruments defining the rights of holders of
nonregistered long-term debt of the Corporation's subsidiaries;
the total amount of each issue of such debt does not exceed 10%
of the total assets of the Corporation and its subsidiaries on a
consolidated basis.
(10)(a)****** Performance Incentive Plan of the Corporation, as amended
[(10)(a)]
</TABLE>
<PAGE> 82
<TABLE>
<S> <C>
(10)(b) Executive Incentive Plan of the Corporation
(10)(c) Pension Restoration/Supplemental Plan of the Corporation
(10)(d) Retirement Plan for Non-Employee Directors of the Corporation
(10)(e) Severance Pay Plan of the Corporation
(10)(f) Form of Separation Agreement between the Corporation and listed
executive officers
(10)(g) Executive Estate Plan of the Corporation
(10)(h)******* Non-Employee Director Stock Award Plan of the Corporation
(10)(i)******* Supplemental Disability and Split-Dollar Life Insurance Policies
of NBD Indiana, Inc. covering the named executive officers
(10)(j)******* Employment Agreements dated January 15, 1992, between NBD
Indiana, Inc. and the listed executive officers
(10)(k)* Long-Term Disability Restoration Plan of the Corporation
(11) Earnings Per Share Computation (included in Item 8 of this Form
10-K)
(21) Subsidiaries of the Corporation
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10(b)
NBD BANCORP, INC.
EXECUTIVE INCENTIVE PLAN
(As Amended March 21, 1994)
SECTION 1 - PURPOSE
The NBD BANCORP, INC. EXECUTIVE INCENTIVE PLAN (hereinafter called the
"Plan") is a plan to provide incentive compensation to senior officers and
other key employees (hereinafter together called "officers" or "senior
officers") of NBD Bancorp, Inc. (hereinafter called the "Corporation") and of
its affiliated corporations (hereinafter, including the Corporation, called
"participating affiliates"), based upon such officers' individual contributions
to the overall growth and profitability of the Corporation from year to year,
for the purpose of assisting the Corporation in attracting and retaining as
officers individuals of superior ability and in motivating their activities on
behalf of the Corporation. For purposes of the Plan, affiliated corporations
shall include only those corporations a majority of the outstanding voting
capital stock of which is directly or indirectly owned or controlled by the
Corporation.
SECTION 2 - EFFECTIVE DATE
The Plan shall be effective as of January 1, 1983.
SECTION 3 - ADMINISTRATION
The Compensation Committee of the Board of Directors of the Corporation
(the "Committee"), the members of which shall be "disinterested persons" under
Rule 16b-3 of the Securities and Exchange Commission (or any successor
regulation issued under federal securities laws) and ineligible to participate
in the Plan, shall be responsible for the general operation and administration
of the Plan and shall have the authority to interpret the Plan and to adopt
administrative rules and regulations governing its operation. The Committee
may delegate the performance of administrative functions to the Secretary of
the Committee.
SECTION 4 - PARTICIPATION
Participation in the Plan shall be limited to those officers of the
participating affiliates designated by the Committee from among the more senior
officers of the Corporation and its participating affiliates to participate in
the Plan for each fiscal year. For officers who are "covered employees" under
Section 162(m) of the Internal Revenue Code of 1986, as amended, and related
regulations, the Committee shall administer this Plan in accordance with the
provisions of Appendix A.
SECTION 5 - INCENTIVE COMPENSATION AWARDS
(a) The Committee shall determine the amount of each incentive
compensation award to be granted under the terms of the Plan for each fiscal
year and, upon the approval by the Board of Directors of the Corporation of the
individual awards, if any, for such fiscal year made to the executive officers
and of the total of all awards for such fiscal year made to all other officers,
the determination of the Committee as to each such award shall become final.
<PAGE> 2
(b) Each incentive compensation award shall be paid to a participant in
the Plan entitled thereto in cash. A participant may elect to defer the
payment of any part or all of the participant's incentive compensation award
until a future date specified by the participant. A participant's election to
defer payment of the participant's incentive compensation award shall be made
in writing and delivered to the Committee in such form and manner as is
approved for that purpose by the Committee. The Committee shall provide for
the payment of interest on the deferred portion of a participant's incentive
compensation award at such rates and at such times as it shall determine. If a
participant dies while in the employ of a participating affiliate but prior to
receipt of the participant's award, the award, if any, and the interest due
thereon, if any, shall be paid in cash to the participant's designated
beneficiary, or, in the absence of a beneficiary designation, to the
participant's estate. Payment of all awards shall be made, unless otherwise
elected by the participant, as soon as practicable following the close of the
fiscal year for which they are granted.
(c) No incentive compensation award shall be granted for a fiscal year
to any participant in the Plan who terminates employment with a participating
affiliate during such fiscal year for any reason other than death, total and
permanent disability, or retirement at normal retirement age or, with the
consent of the participating affiliate with which he or she is employed, at
early retirement age under a retirement plan maintained by the participating
affiliate. For this purpose, a participant who transfers employment between
participating affiliates shall not be considered to have terminated the
participant's employment.
SECTION 6 - LIMITATIONS ON INCENTIVE COMPENSATION AWARDS
(a) In no event shall any incentive compensation award be granted
hereunder with respect to any fiscal year during which the per share cash
dividend paid to its shareholders by the Corporation on its common capital
stock is less than the per share cash dividend so paid for the immediately
preceding fiscal year.
(b) The aggregate of all incentive compensation awards under the Plan
granted to participants in the Plan with respect to any fiscal year shall not
exceed an amount equal to three percent (3%) of the consolidated net income of
the Corporation for such year. "Consolidated Net Income" for purposes of this
subparagraph (b) for a fiscal year shall mean the consolidated net income of
the Corporation (excluding for purposes of this Plan items of extraordinary
gain or loss as determined by the Committee and the income tax effects
thereof).
(c) The aggregate of all incentive compensation awards under the Plan
and under the Key Officer Incentive Plan with respect to any fiscal year shall
not exceed an amount that would reduce the consolidated net income of the
Corporation for such year to less than eight percent (8%) of the shareholders'
equity of the Corporation as of the beginning of that fiscal year as reported
to its shareholders in its consolidated financial statements.
SECTION 7 - GENERAL
(a) Neither the establishment of the Plan nor any provisions of the Plan
or modifications thereof shall be held or construed as giving any participant
in the Plan the right to an award under the Plan or the right to be retained in
the service of any participating affiliate and each participating affiliate
expressly reserves its right to discharge any such participant whenever the
interests of such participating affiliate may so require.
(b) Notwithstanding any other provisions in the Plan, in the event of a
Change in Control (as hereinafter defined) all awards for the fiscal year in
which such Change in Control occurs shall become immediately distributable to
the participants entitled thereto. Distribution of all such awards shall be
made immediately prior to the date of the Change in Control. In addition, the
Corporation shall reimburse a participant for legal fees and expenses incurred
by such participant in successfully seeking to obtain or enforce any right to
the distribution of an award provided under this Section 7(b) and in the event
that it shall be determined that such participant is entitled to a distribution
hereunder, such participant shall also be entitled to interest thereon payable
to such participant in
- 2 -
<PAGE> 3
an amount equivalent to the prime rate of interest of NBD Bank, N.A. from time
to time during the period from the date such award should have been distributed
to the date of payment. For purposes of this Plan, a Change in Control shall
occur if (i) any "person" or "group" within the meaning of Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") becomes the "beneficial owner" as defined in Rule 13d-3 under the
Exchange Act of more than thirty percent (30%) of the then outstanding voting
securities of the Corporation otherwise than through a transaction or
transactions arranged by or consummated with the prior approval of the
Corporation's Board of Directors; or (ii) during any period of twenty-four (24)
consecutive months (not including any period prior to the adoption of this
Section 7(b)) Present Directors and/or New Directors cease for any reason to
constitute a majority of the Board. For purposes of subsection (ii) of the
preceding sentence, "Present Directors" shall mean individuals who at the
beginning of such consecutive twenty-four (24) month period were members of the
Corporation's Board and "New Directors" shall mean any director of the
Corporation whose election by the Corporation's Board or whose nomination for
election by the Corporation's shareholders was approved by a vote of at least
two-thirds of the Corporation's Directors then still in office who were Present
Directors or New Directors. Notwithstanding any other provisions of the Plan,
the provisions of this Section 7(b) may not be amended after the date a Change
in Control occurs without the written consent of a majority in number of
participants.
SECTION 8 - AMENDMENT, SUSPENSION AND TERMINATION
The Board of Directors of the Corporation reserves the right at any time
to amend, suspend, or terminate the Plan.
- 3 -
<PAGE> 4
NBD BANCORP, INC.
EXECUTIVE INCENTIVE PLAN
APPENDIX A
The following provisions have been disclosed to and approved by the
shareholders of the Corporation at the annual meeting held on May 16, 1994:
The performance-based annual incentive criteria for the chief executive
officer and the next four highest paid executive officers (the "class of
employees" covered) are based upon the Corporation's return on equity ("ROE")
for the year in relation to an ROE goal set by the Committee at the start of
each year and a comparison of NBD's ROE to average ROE at peer banking
institutions (the "performance measure"). Each participating officer is
assigned a target award at the start of each year, as a percent of base salary,
which will be payable if the ROE goal is achieved. The highest level of target
award allowable under the criteria is 65% of salary. Actual awards are a
function of NBD's ROE for the year in relation to its goal, adjusted by a
factor for NBD's ROE in comparison to peer financial institutions. If actual
ROE is below the goal, individual awards will be less than the target, down to
an ROE threshold below which no awards are earned. If actual ROE is above the
goal, individual awards will be more than the target, up to a maximum award of
100% of the salary stated in the Corporation's proxy statement for that year
(the "maximum award"). The Committee retains the right in its discretion to
reduce an officer's award if it believes that individual performance does not
warrant the original award calculated in relation to ROE performance.
DEFINITIONS. For purposes of determining awards, "Return on Equity" is
calculated by dividing "Net Income" by "Stockholders' Equity" for the year.
"Net Income" is defined as consolidated net income as reported in the
Corporation's audited financial statements for the year, before securities
transactions and before any extraordinary, unusual or non-recurring items of
gain or loss that are identified and quantified separately in the audited
financial statements, net of tax effect, and after any preferred dividends.
The Compensation Committee retains the right in its discretion to reduce Net
Income for purposes of applying the performance-based annual incentive criteria
if it believes that such Net Income produces a level of payout above the level
warranted by management performance. It may not, however, increase Net Income
or individual awards above the level produced by the calculations.
"Stockholders' Equity" is the Corporation's common stockholders' equity on its
consolidated balance sheet at the end of the preceding year.
TERM OF CRITERIA. The term of the performance-based annual incentive
criteria is five years, 1994 through 1998, unless sooner terminated or amended
by the Board. Any amendment that would materially change the "class of
employees" covered, the "performance measure," or the "maximum award" payable
is subject to stockholder approval.
- 4 -
<PAGE> 1
EXHIBIT 10(c)
PENSION RESTORATION/SUPPLEMENTAL PLAN
FOR CERTAIN OFFICERS OF
NBD BANCORP, INC.
(As Amended January 1, 1994)
Section 1 - Effective Date
This Plan is effective as of September 20, 1982.
Section 2 - Purpose
The principal purpose of this Plan is to provide for the payment of
certain pension and pension-related benefits to certain officers of NBD
Bancorp, Inc., and its affiliated corporations (hereinafter "NBD") in excess of
the limitations on benefits imposed by the Employee Retirement Income Security
Act of 1974, as amended, and specifically Sections 401(a)(4), 401(a)(17) and
415 of the Internal Revenue Code of 1986, as amended by subsequent statutes
(hereinafter the "Code"). This Plan is established to insure that the total
pension and pension-related benefits of all retired officers of NBD entitled
to receive benefits under the Employees' Retirement Plan of NBD Bancorp, Inc.
(hereinafter the "Retirement Plan") can be determined on the same basis.
Section 3 - Administration
(a) This Plan shall be administered by the Compensation Committee of the
Board of Directors of NBD as an unfunded plan that is not intended to meet the
qualification requirements of Section 401 of the Code. The Compensation
Committee's decisions in all matters involving the interpretation and
application of this Plan shall be conclusive.
(b) The Plan shall at all times be maintained by NBD and administered by
the Compensation Committee as a plan wholly separate from the Retirement Plan.
Section 4 - Eligibility
Officers whose pension or pension-related benefits under the Retirement
Plan are limited by the provisions set forth therein to conform to Sections
401(a)(17) and 415 of the Code shall be eligible for benefits provided by this
Plan. In addition, such officers as determined by the Compensation Committee
who are credited with additional service for the purpose of computing pension
or pension-related benefits as the result of a management-approved
pre-retirement administrative leave of absence arrangement shall be eligible
for benefits provided by this Plan. In no event shall an officer who is not
entitled to benefits under the Retirement Plan be eligible for any benefits
under this Plan.
Section 5 - Amount of Benefits
The benefits payable to an eligible officer or his or her beneficiary or
beneficiaries hereunder shall equal the excess, if any, of:
<PAGE> 2
(a) the benefits that would have been paid to such officer or his or her
beneficiary or beneficiaries under the Retirement Plan if the provisions of
such Plan were administered and benefits paid according to the formula
contained in such Plan and without regard to the benefit limitations contained
in such Plan to conform it to Sections 401(a)(4), 401(a)(17) and 415 of the
Code over
(b) the benefits that are payable to such officer or his or her
beneficiary or beneficiaries under the Retirement Plan.
Section 6 - Early Retirement Supplement for Certain INB Management Participants
Certain Management Participants under the former INB Financial Corporation
Supplemental Executive Retirement Plan are entitled, in the event of their
early retirement on or after attaining age 62, to a supplemental early
retirement benefit. The names of the eligible Management Participants and the
amount of the supplemental early retirement benefit to which each of them is
entitled are listed on the attached Appendix A.
Section 7 - Payment of Benefits
(a) Payment of benefits under this Plan shall be made coincident with the
payment of benefits under the Retirement Plan or as soon as practicable
thereafter.
(b) Benefits under the Plan shall be payable solely from the general
assets of NBD. The Plan shall remain unfunded during the entire period of its
existence.
Section 8 - Rights of Employees
Except to the extent provided in Section 9 hereinbelow, no officer or his
or her beneficiary or beneficiaries shall at any time have any vested right to
receive the benefits provided by this Plan.
Section 9 - Amendment and Discontinuance
NBD expects to continue this Plan indefinitely, but reserves the right to
amend or discontinue it if, in its sole judgment, such amendment of or
discontinuance is deemed necessary or desirable. However, if NBD should amend
or discontinue this Plan, NBD shall be liable for any benefits that have
accrued under this Plan as of the date of such action (determined on the basis
of each officer's presumed termination of employment as of the date of such
amendment or discontinuance).
-2-
<PAGE> 3
PENSION RESTORATION/SUPPLEMENTAL PLAN
FOR CERTAIN OFFICERS OF
NBD BANCORP, INC.
Appendix A
Early Retirement Supplement for Certain INB Management Participants
Amount of Early Retirement Supplement
Eligible Participants Accrued to December 31, 1993
-3-
<PAGE> 1
EXHIBIT 10(d)
NAME NBD BANCORP, INC. RETIREMENT PLAN FOR
NON-EMPLOYEE DIRECTORS (THE "PLAN").
EFFECTIVE DATE May 1, 1988
PURPOSE The purpose of this Plan is to recognize the value of a
Director's past service to the Corporation, to
compensate the Director for the availability of the
Director's advice and counsel to the Corporation after
retirement and to assist the Corporation in the
recruitment of new Directors.
ELIGIBILITY Each Director of the Corporation and each Advisory
Member of the Board of Directors of the Corporation, as
of the Effective Date, who has not earned an accrued
benefit under any qualified retirement plan sponsored by
the Corporation or any of its subsidiaries or affiliates
and who, upon retirement from the Board of Directors,
(i) has served at least five years on the Board of
Directors and (ii) is at least sixty-five years old on
the date of retirement from the Board of Directors,
shall be entitled to an annual retirement benefit for
life or for a period of ten years, whichever is less.
For purposes of this Plan, more than six months of
service during a twelve month period after a director's
first election to the Board of Directors will be
considered as a full year of service.
Each Director shall be fully vested in the benefits
payable under this Plan regardless of number of years of
service if the Corporation engages in a Business
Combination, as that term is defined in Article
Thirteenth of the Corporation's Restated Certificate of
Incorporation, which does not meet the conditions set
forth in paragraph (b) of said Article Thirteenth.
BENEFITS A Director who is eligible to receive benefits under the
Plan shall be entitled to receive an annual retirement
benefit, payable quarterly in advance, equal to the
amount of the annual retainer fee in effect for service
on the Board at the time of the Director's Retirement.
For purposes of this Plan, "annual retainer" shall not
include retainers, if any, paid to Board members for
service as chairpersons of committees of the Board, nor
shall it include meeting fees.
<PAGE> 2
BENEFITS Quarterly payments shall be made on March 31,
(continued) June 30, September 30 and December 31 of each calendar
year.
Notwithstanding the above, there shall be subtracted
from the amount payable on the first payment date
following an eligible Director's retirement the pro rata
portion, if any, of the annual retainer fee, paid to the
Director on account of the Director's service as such
during such calendar quarter.
An eligible Director who retires from the Board prior to
age sixty-five for any reason, other than a sickness or
disability that terminates the Director's principal
occupation, will be entitled to receive Plan benefits
commencing in the first calendar quarter subsequent to
the Director's attaining age sixty-five. An eligible
Director who retires from the Board prior to age
sixty-five due to such sickness or disability will be
entitled to receive plan benefits in the first calendar
quarter after such retirement or after attaining age
sixty, whichever occurs later.
DUTIES As a condition to the right to receive (or the
continuation of) Plan benefits, each Director shall,
from time to time, render advice to the Board of
Directors or undertake duties for the Board of Directors
as reasonably requested by the Chairman of the Board of
Directors. Direct expenses incurred in connection with
rendering such advice or performing such duties shall be
reimbursed to the Director.
No Director shall be eligible for Plan benefits (or the
continuation thereof) if, at any time subsequent to
election as a Director of the Corporation, the Director
engages in any business or activity which is directly
competitive with or contrary to the interests of the
Corporation.
NON- The interests herein and the right to receive
ASSIGNABILITY benefits hereunder may not be anticipated, alienated,
sold, transferred, assigned, pledged, encumbered or
subjected to any charge or legal process, and if any
attempt is made to do so, or if an eligible Director
becomes bankrupt, the interests under the plan of such
Director may be terminated by the Nominating Committee,
which, in its sole discretion, may cause the same to be
held or applied for the benefit of one or more of the
dependents of such person or make any other disposition
of such interests as the Committee may deem appropriate.
ADMINISTRATION The Plan shall be administered by the Nominating
Committee. The Nominating Committee shall have the
authority to interpret the Plan and any such
interpretation shall be final and binding on all
parties. The Nominating Committee shall have the
authority to delegate the Secretary of the Corporation
or others, the duties and responsibilities of
maintaining records, issuing regulations and making
distributions hereunder.
<PAGE> 3
AMENDMENT The Board of Directors may modify, amend or revoke this
Plan at any time, provided that the Plan may not be
amended with respect to the amount or treatment of
benefits already vested under the Plan after a Business
Combination without the written consent of the eligible
Directors determined as of the day preceding such
Business Combination.
FUNDING The Corporation shall pay for all distributions made
pursuant to the Plan and for all costs, charges and
expenses related to the administration of the Plan.
Plan benefits will not be funded in advance by the
Corporation.
APPLICABLE All questions pertaining to the construction,
LAW validity and effect of this Plan shall be determined in
full accordance with the laws of the State of Delaware.
<PAGE> 1
EXHIBIT 10(e)
NBD BANCORP, INC.
SEVERANCE PAY PLAN
SUMMARY PLAN DESCRIPTION
The Severance Pay Plan provides you with severance benefits in case your
employment is terminated following a change in control of NBD Bancorp, Inc.
("NBD"). This plan is established to promote and advance the performance of
NBD by encouraging employee morale, continued corporate growth and continuity
of corporate performance during a change in control of NBD and to alleviate
financial hardship in the event of termination of employment following a change
in control.
The NBD Bancorp, Inc. Severance Pay Plan:
- Is sponsored by NBD Bancorp, Inc., 611 Woodward Avenue, Detroit,
Michigan 48226. The employer identification number assigned by the
Internal Revenue Service to NBD is 38-1984850.
- Is filed with the United States Department of Labor as Plan Number
515.
- Is a welfare benefit plan.
- Is unfunded, with benefits to be paid from the general assets of NBD
Bancorp, Inc.
- Was established on December 18, 1989.
The plan year ends on December 31.
The Plan Administrator is Fred J. Johns, Senior Vice President and Director of
Human Resources, NBD Bank, N.A., 611 Woodward Avenue, Detroit, Michigan 48226
(phone 313-225-1000). The agent for Service of Legal Process is the Plan
Administrator.
ELIGIBILITY
You are eligible to participate in the plan if you are a full-time
employee or officer of NBD or an affiliated company and (i) have completed at
least 12 months of employment with NBD and/or one or more of its affiliated
companies and (ii) work an average of at least 40 hours per week at the time of
termination of employment. Eligibility for participation is based on your full
years of service since your hire date or adjusted hire date as used to
determine your vacation eligibility. Designated executive officers are not
eligible for benefits under the plan.
YOUR CONTRIBUTION OR COST
NBD pays the entire cost of your coverage.
WHEN BENEFITS ARE PAID
Change in Control
Benefits under the plan are payable only following a change
<PAGE> 2
in control of NBD and supersede any other severance benefits. For purposes of
the plan, a change in control of NBD means a change in ownership of NBD common
stock resulting in beneficial ownership of more than 30% of the stock by any
"person" or "group" as defined in the Securities Exchange Act of 1934 or a
change in Board membership within 24 months such that present directors (and
their successors, provided that the successors are nominated and elected
following approval by at least two-thirds of the directors then in office)
cease to be a majority of the Board.
Termination of Employment
Benefits under the plan are payable only if an involuntary termination of
employment (other than for cause) occurs within two (2) years following a
change in control. For purposes of the plan, termination "for cause" means
discharge because of embezzlement of funds of NBD or an affiliated company,
engagement in dishonest or fraudulent acts in connection with employment,
conviction of a felony, creation or permitting the creation of falsified
corporate records, possession or use of illegal drugs or corporate premises, or
willful gross misconduct demonstrably injurious to NBD or an affiliated
company.
An involuntary termination of employment does not occur under the plan if
your employment is discontinued due to voluntary resignation (unless such
voluntary resignation is for good reason as described below), voluntary
retirement, death, a physical or mental condition resulting in the inability to
perform substantially your employment duties, your refusal to accept
substantially similar employment (for substantially similar compensation) at
your then current place of employment or at another facility of NBD or an
affiliated company that is 50 miles or less from your then current place of
employment, or divestiture of a facility of NBD or an affiliated company where
you work if you are offered employment by the successor company (provided you
continue in the employ of the purchaser and the purchaser agrees to assume
NBD's responsibilities under the plan with respect to the participant).
An involuntary termination does occur under the plan if your employment
is discontinued due to voluntary resignation for good reason. For purposes of
the plan, "good reason" means a significant adverse change in your title,
authority, duties, responsibilities or status from those that existed
immediately prior to the change in control, a change of more than 50 miles in
your assigned place of employment requiring physical relocation, failure by NBD
or the affiliated company employing you to pay you a monthly base salary at
least as great as that paid before the change in control, a change (other than
as a result of a change in governing law) in your eligibility for any bonus,
restricted stock, performance award and other incentive compensation or benefit
program or for NBD's retirement plan on terms less favorable than those in
effect prior to the change in control, or failure by NBD to provide you with
the number of paid vacation days to which you were entitled immediately prior
to the change in control.
2
<PAGE> 3
BENEFITS
If you experience an involuntary termination of employment under the plan
within two (2) years following a change in control of NBD, you are entitled to
severance benefits under the plan. Participants whose employment positions are
categorized by NBD prior to their involuntary termination as in Grades 1
through 15 are entitled only to guaranteed severance benefits described in the
following schedule. Participants whose employment positions are categorized by
NBD prior to their involuntary termination as in Grades 16 and above are
entitled to both guaranteed severance benefits and to conditional severance
benefits.
<TABLE>
<CAPTION>
Group Severance Benefit Method of Payment
----- ----------------- -----------------
<S> <C> <C>
Above 12 months salary guaranteed Salary Continuation
Grade 25 12 months salary conditional
Grades 12 months salary guaranteed Salary Continuation
24-25 6 months salary conditional
Grades 6 months salary guaranteed Salary Continuation
21-23 6 months salary conditional
Grades 6 months salary guaranteed Salary Continuation
16-20 3 months salary conditional
Grades 1 week of compensation for each full year of Single Sum
1-15 and Full- service with a minimum of 4 weeks and a maximum
time Hourly of 26 weeks
</TABLE>
Severance benefits are based on the greater of your base annual salary on
your employment severance date or immediately prior to the change in control.
Benefits are payable from the general assets of NBD. NBD will withhold all
applicable federal, state or local taxes from each severance benefit payment.
Conditional severance benefits are payable only after final payment of your
guaranteed severance benefit has been made.
CONTINUATION OF FRINGE BENEFIT COVERAGES
If your employment position on the date of change in control is
categorized by NBD as in Grades 16 or above, NBD will continue to provide, for
as long as severance benefits under the plan are payable, substantially the
same medical, dental, life insurance and accidental death and dismemberment
insurance benefits to the extent and at the level that you are receiving at
termination. NBD will withhold any applicable pre-tax or after-tax employee
contributions for such benefits from your severance benefit.
DUTY TO SEEK EMPLOYMENT
Participants receiving guaranteed severance benefits under the plan are
not required to mitigate damages by seeking other employment or otherwise. In
the event you begin employment with a new employer before the final payment of
your guaranteed severance benefits, the balance shall be paid to you in a
single sum as soon thereafter as is practicable.
3
<PAGE> 4
Participants receiving conditional severance benefits under the plan are
required to mitigate damages by seeking other employment for which they are
suited by education and training. In the event you begin employment with a new
employer before the final payment of your conditional severance benefits, you
are to notify NBD within 10 days of beginning the new employment. Payments of
conditional severance benefits to, and continuation of fringe benefit coverages
for, newly employed participants shall cease as of the first day of the new
employment.
ADMINISTRATION
Fred J. Johns, Senior Vice President and Director of Human Resources, NBD
Bank, is the Plan Administrator, and is responsible for the general operation
and administration of the plan and has the authority to interpret the plan and
to determine eligibility.
BENEFICIARY DESIGNATION AND PAYMENT
You may designate a beneficiary or beneficiaries to receive amounts
payable under the plan upon your death. You may designate one or more
individuals, trusts or organizations as beneficiary or beneficiaries on the
appropriate designation form. A beneficiary designation may be changed at any
time without the consent of any previously designated beneficiary by completing
a new designation form and delivering it to NBD's Human Resources Division.
The new beneficiary designation becomes effective when the completed form is
received by the Human Resources Division. If you fail to designate a
beneficiary, guaranteed severance payments shall be paid to your estate in the
case of your death. Any amounts payable under the plan following your death
shall begin to be paid within 60 days of receipt by the Human Resources
Division of a certified copy of your death certificate. NBD will withhold from
the payment any applicable federal, state or local taxes.
DURATION, AMENDMENT OR TERMINATION
Prior to a change in control, the Board of Directors of NBD reserves the
right at any time to amend, suspend or terminate this plan without the consent
of or prior notification to any person. After a change in control, the plan
shall continue in effect for two (2) years and during that period shall not be
subject to amendment or termination in any manner adverse to the participants.
GENERAL
The establishment of this plan and its provisions are not to be construed
as giving any participant the right to be retained in the service of NBD or its
affiliated companies. NBD and its affiliated companies expressly reserve the
right to discharge any participant before or after a change in control whenever
the interests of NBD and its affiliated companies may require, subject to
providing the benefits specified under the plan if termination of employment
occurs after a change in control.
4
<PAGE> 5
To the extent permitted by law, a participant's or beneficiary's interest
and rights under the plan are not assignable in law or in equity or subject in
any way to alienation, sale, transfer, claims of creditors, pledge, attachment,
garnishment, levy, execution, or encumbrances of any kind.
The plan and all determinations made and action taken under it are
governed by and construed under Michigan law unless preempted by federal law
which shall otherwise control.
The full text of this plan is on file in NBD's Human Resources Division
and is available upon request.
HOW TO FILE A CLAIM
You or your beneficiary should contact NBD's Human Resources Division.
Beneficiaries will be required to provide proof of the death of the plan
participant.
IF YOUR CLAIM IS DENIED
If any claim for benefits is denied, you or your beneficiary will receive
a written explanation from the Plan Administrator indicating the reason for the
denial. If you or your beneficiary do not agree, you or your beneficiary may
request a review. Send your written request for review to the Plan
Administrator. The request for review should be made within 60 days of
receiving the denial explanation.
Notification of the decision on the appeal should normally be made within
60 days (but not later than 120 days) after receipt of the request for review.
HOW YOU COULD LOSE COVERAGE
Your coverage under this plan will end:
- When your employment terminates or you transfer to a classification
of employees that is not covered by the plan.
- If the plan is terminated, modified, amended or changed to end such
coverage.
YOUR RIGHTS UNDER ERISA
As a participant in the plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 (ERISA),
as amended. ERISA provides that all plan participants shall be entitled to:
1. Examine without charge, at the plan administrator's office, all plan
documents and copies of all documents filed by the plan with the U.S.
Department of Labor (such as detailed annual reports and plan
descriptions).
5
<PAGE> 6
2. Obtain copies of all plan documents and other plan information upon
written request to the plan administrator. The administrator may
make a reasonable charge for the copies.
3. Receive a summary of the plan's annual financial report. The plan
administrator is required by law to furnish each participant with a
copy of this summary annual report.
In addition to creating rights for plan participants, ERISA imposes
duties upon the persons who are responsible for the operation of the employee
benefit plans. The people who operate your plans, called "fiduciaries" of the
plans, have a duty to do so prudently and in the interests of you and other
plan participants and beneficiaries. No one, including your employer, may fire
you or otherwise discriminate against you in any way to prevent you from
obtaining a pension or welfare benefit or exercising your rights under ERISA.
If your claim for a pension or welfare benefit is denied in whole or in part,
you must receive a written explanation of the reason for the denial. You have
the right to have the plan review and reconsider your claim.
Under ERISA, there are steps you can take to enforce the above rights.
For instance, if you request materials from the plan and do not receive them
within 30 days, you may file suit in a federal court. In such a case, the
court may require the plan administrator to provide the materials and pay you
up to $100 a day until you receive the materials, unless the materials were not
sent because of reasons beyond the control of the administrator.
If you have a claim for benefits that is denied or ignored, in whole or
in part, you may file suit in a state or federal court. If it should happen
that plan fiduciaries misuse the plan's money, or if you are discriminated
against for asserting your rights, you may seek assistance from the U.S.
Department of Labor, or you may file suit in a federal court. The court will
decide who should pay court costs and legal fees. If you lose, the court may
order you to pay these costs and fees, for example, if it finds your claim is
frivolous.
If you have any questions about your plan, you should contact the plan
administrator. If you have any questions about this statement or about your
rights under ERISA, you should contact the nearest Area Office of the U.S.
Labor-Management Services Administration, Department of Labor.
This summary plan description describes the main features of the plan.
It is not an employment or a benefits contract. Benefits from any plan covered
by this summary plan description will be determined in accordance with the
provisions of the plan document at the time of payment.
6
<PAGE> 1
EXHIBIT 10(f)
NBD BANCORP, INC.
Separation Agreement
With
______________________
THIS AGREEMENT dated as of ______________, 19__ by and between NBD
BANCORP, INC., a Delaware corporation of Detroit, Michigan (the "Corporation"),
and _________________ (the "Officer").
WITNESSETH:
WHEREAS, the Corporation's Board of Directors considers continuity of
competent management essential to protecting and enhancing the best interests
of the Corporation, its affiliates and its shareholders; and
WHEREAS, the Corporation's Board of Directors recognizes that in the
current environment the possibility of a change in control may exist with
respect to the Corporation as with many other publicly-held corporations, and
that the uncertainty posed by such a possibility may prove distracting to the
Officer to the detriment of the Corporation, its affiliates and its
shareholders; and
WHEREAS, the Corporation's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication
of the Officer to his assigned duties without distraction in the potentially
disturbing circumstances arising from the possibility of a change in control of
the Corporation;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the Corporation and the Officer have agreed to
certain additional separation compensation to be paid by the Corporation to the
Officer following a Change in Control of the Corporation as defined in Section
2 of this Agreement, upon and subject to all the terms and conditions
hereinafter set forth in this Agreement.
1. Term. The term of this Agreement shall be for three (3) years
commencing on the date hereof. This agreement shall be automatically renewed
for successive one (1)-year terms unless at least six (6) months prior to the
end of the original three (3)-year term or any subsequent one (1)-year term the
Corporation gives written notice to the Officer that this Agreement shall
terminate at the end of its then current term and shall not be renewed. This
Agreement will terminate prior to the expiration of such three (3)-year term or
any renewals thereof if, prior to a Change in Control, the Officer shall die,
become disabled or retire, or the Officer's employment shall otherwise
terminate. In the event that a Change in Control of the Corporation as defined
in Section 2 hereof occurs during the term of this Agreement, this
<PAGE> 2
Agreement shall continue in effect until the obligations of the parties under
this Agreement have been fully discharged.
2. Change in Control. For the purpose of this Agreement, a "Change in
Control" of the Corporation shall occur if (a) any "person" or "group" within
the meaning of Sections 13(d) and 14(d) (2) of the Exchange Act becomes the
"beneficial owner" as defined in Rule 13d-3 under the Exchange Act of more than
thirty percent (30%) of the then outstanding voting securities of the
Corporation, or (b) during any period of twenty-four (24) consecutive months
(not including any period prior to the execution of this Agreement) Present
Directors and/or New Directors cease for any reason to constitute a majority of
the Board. For purposes of subsection (b) of the preceding sentence, "Present
Directors" shall mean individuals who at the beginning of such consecutive
twenty-four (24) month period were members of the Corporation's Board and "New
Directors" shall mean any director of the Corporation whose election by the
Corporation's Board or whose nomination for election by the Corporation's
shareholders was approved by a vote of at least two-thirds of the Corporation's
Directors then still in office who were Present Directors or New Directors.
Notwithstanding the foregoing, for the purpose of this Agreement neither of the
foregoing events shall be deemed to constitute a "Change in Control" of the
Corporation if in connection therewith it shall be necessary to file a Schedule
13E-3 pursuant to the Rule 13e-3 under the Securities Exchange Act of 1934,
unless immediately prior to such event the Board of Directors of the
Corporation shall determine such event to constitute a Change in Control.
3. Compensation for Separation Following a Change in Control.
(a) Entitlement. If a Change in Control occurs while this Agreement is
in effect and if within two (2) years following the Change in Control the
Officer's employment is terminated otherwise than (i) by the death, Disability
or retirement of the Officer, or (ii) by the Corporation or an affiliate for
Cause, or (iii) by the Officer other than for Good Reason, then there shall be
paid to the Officer as a separation payment the aggregate amount of
compensation ("Change in Control Compensation") payable as determined pursuant
to Section 3(b). Such separation payments shall be made in a single sum in
cash or its equivalent within ten (10) business days following such
termination. In addition, in the event of such a termination, the Officer
shall be entitled to such additional credited service in calculating his
retirement benefit as is provided in Section 3(c) and to such other obligations
of the Corporation accrued or earned and vested (if applicable) by the Officer
as of the date of his termination, including for this purpose the Officer's
full base salary through such date at the rate in effect on such date, the
distribution of awards under the Corporation's incentive plans, and any accrued
vacation pay not yet paid by the Corporation (all such amounts are hereinafter
referred to as "Accrued Obligations"). All such Accrued Obligations shall be
paid to the Officer, his estate or his beneficiary, as applicable, in a single
sum in cash or its equivalent within (10) business days of the date of the
Officer's termination.
- 2 -
<PAGE> 3
(b) Determination of Amount. The aggregate amount of Change in Control
Compensation payable pursuant to this Section 3 shall be an amount equal to the
product of (i) two (2) and (ii) the sum of the Officer's then current annual
base salary and his incentive payments for the immediately prior year for which
incentive payments were made (other than incentive payments received by reason
of deferral from a year more than (1) year prior to the Change in Control). In
the event that, following a Change in Control, the Officer's employment is
terminated in a manner entitling the Officer to Change in Control Compensation
and such termination occurs within twenty-four (24) months of the Officer's
attainment of age sixty-five (65), the amount of Change in Control Compensation
payable shall be a reduced amount calculated by multiplying the amount
determined as provided in the preceding sentence by a fraction, the numerator
of which is the number of months between the date of the Officer's termination
and his attainment of age sixty-five (65) and the denominator of which is
twenty-four (24), provided, however, that the amount of Change in Control
Compensation shall not be reduced below an amount equal to the sum of the
Officer's then current annual base salary and his incentive payments for the
immediately prior year for which incentive payments were made.
(c) Additional Credited Service for Retirement Benefit. The additional
credited service, if any, to which the Officer may be entitled pursuant to
Section 3(a) for purposes of calculating his retirement benefit under the
Employee' Retirement Plan of NBD Bancorp, Inc. (the "Retirement Plan") and the
Pension Restoration/Supplemental Plan for Certain Employees of NBD Bancorp,
Inc. (the "Restoration Plan") shall be equal to the lesser of two (2) years or
the number of years between the Officer's then current age and his attainment
of age sixty-five (65).
(d) Payment Upon Death. If a Change in Control occurs while this
Agreement is in effect and within two (2) years following the Change in Control
the Officer's employment is terminated by reason of the Officer's death, this
Agreement shall terminate without further obligations to the Officer's legal
representatives under this Agreement, other than those obligations accrued or
earned and vested (if applicable) by the Officer as of the date of his death,
including for this purpose all Accrued Obligations. All such Accrued
Obligations shall be paid to the Officer's estate or beneficiary, as
applicable, in a single sum in cash or its equivalent within ten (10) business
days of the date of the Officer's death. Anything in this Agreement to the
contrary notwithstanding, the Officer's surviving spouse and dependents, if
any, shall be entitled to receive for a period of one (1) year following the
Officer's death such health care benefits (including hospital, medical, and
dental) as the Officer, his spouse and such dependents, if any, were receiving
or entitled to receive at the date of the Officer's death. Such continued
health care benefits shall be paid for by the Corporation.
(e) Payment Upon Disability. If a Change in Control Occurs while this
Agreement is in effect and within two (2) years following the Change in Control
the Officer's employment is terminated by reason of the Officer's Disability,
this Agreement
- 3 -
<PAGE> 4
shall terminate without further obligations to the Officer, other than those
obligations accrued or earned and vested (if applicable) by the Officer as of
the date of termination, including for this purpose all Accrued Obligations.
All such Accrued Obligations shall be paid to the Officer in a single sum in
cash or its equivalent within ten (10) business days of the date of
termination. In addition, the Officer shall be entitled to receive for a
period of two (2) years following the date of his termination of employment
awards under the Corporation's incentive plans at least equal to the highest
paid to him during the thirty-six (36)-month period prior to the Change in
Control. Anything in this Agreement to the contrary notwithstanding, the
Officer shall be entitled after the effective date of his Disability to receive
disability benefits at least equal to the greater of sixty percent (60%) of his
base salary or the most favorable disability benefits provided by the
Corporation and its affiliates for disabled senior officers and to receive such
other benefits at levels at least equal to the most favorable of those provided
by the Corporation and its affiliates for disabled senior officers, their
spouses, and/or their dependents in accordance with such plans, programs,
practices, and policies relating to disability as are in effect at any time
during the thirty (30)-day period immediately preceding the effective date of
the Officer's Disability or, if more favorable to the Officer and/or the
Officer's family, as in effect at any time thereafter with respect to other
senior officers of the Corporation and their families.
(f) Payment Upon Retirement. If a Change in Control occurs while this
Agreement is in effect and within two (2) years following the Change in Control
the Officer's employment is terminated by reason of the Officer's retirement,
this Agreement shall terminate without further obligations to the Officer,
other than those obligations accrued or earned and vested (if applicable) by
the Officer as of the date of termination, including for this purpose all
Accrued Obligations. All such Accrued Obligations shall be paid to the Officer
in a single sum in cash or its equivalent within ten (10) business days of the
date of termination. Anything in this Agreement to the contrary
notwithstanding, the Officer shall be entitled after the effective date of his
retirement to receive his accrued retirement benefits under the Retirement Plan
and the Restoration Plan and health care and death benefits (such as hospital,
medical, dental, death benefits and life insurance) equal to the most favorable
of those provided by the Corporation and its affiliates for retired senior
officers, their spouses and/or their dependents under the plans, programs,
practices and policies of the Corporation in effect at any time during the
thirty (30)-day period immediately preceding the Officer's retirement.
4. Definitions Applicable to Terminations. As used in this Agreement,
the terms "Disability", "Cause", and "Good Reason" shall be defined as follows:
(a) Disability. Termination based on Disability shall mean termination
of the Officer by the Corporation or the affiliate with which he is employed
because of the Officer's incapacity due to physical or mental illness as a
result of which the Officer shall have been absent from his duties with the
Corporation or the
- 4 -
<PAGE> 5
affiliate with which he is employed on a full time basis for six (6)
consecutive months.
(b) Cause. Termination of the Officer's employment by the Corporation or
the affiliate with which he is employed for "Cause" shall mean termination for
willful gross misconduct by the Officer demonstrably injurious to the
Corporation or the affiliate with which he is employed, or an act of material
dishonesty or fraud by the Officer. Termination by the Corporation or such
affiliate for Cause shall require written notice by the Corporation or such
affiliate to the Officer describing with reasonable particularity the acts or
omissions relied on as Cause.
(c) Good Reason. Termination of employment by the Officer for "Good
Reason" shall mean termination at the initiative of the Officer based upon (i)
a significant adverse change in the Officer's title, authority, duties,
responsibilities or status within the Corporation or the affiliate with which
he is employed from those that existed immediately prior to the Change in
Control; (ii) a change of fifty (50) miles or more in the Officer's assigned
place of employment requiring physical relocation, or a material increase in
the Officer's business travel obligations; (iii) failure by the Corporation or
the affiliate with which he is employed to pay to the Officer a monthly base
salary equal to or greater than the highest monthly base salary paid to the
Officer before the Change in Control and to provide at least an annual review
of salary and increases consistent with those provided to other senior officers
of the Corporation and its affiliates; (iv) failure by the Corporation to pay
to the Officer an incentive award for any year at least equal to the highest
paid to him during the thirty-six (36)-month period prior to the Change in
Control; (v) a change, other than as a result of a change in governing law, in
the Officer's eligibility to participate in the NBD Bancorp, Inc. Employees'
Savings and Investment Plan, the Retirement Plan, the Corporation's incentive
plans and the Corporation's benefit programs on terms at least equal to the
most favorable available during the thirty (30)-day period prior to the Change
in Control; or (vi) failure by the Corporation to obtain the agreement under
Section 7 of any successor to the Corporation to assume and agree to perform
this Agreement. Termination of employment by the Officer for "Good Reason"
shall occur no later than sixty (60) days following the change in policies,
practices or procedures that is the basis for the Officer's termination.
5. Status Following Separation.
(a) Certain Benefits. If, following a Change in Control, the Officer's
employment is terminated in a manner entitling the Officer to Change in Control
Compensation, then during a period of thirty-six (36) months following such
termination the Corporation shall continue to provide the Officer substantially
the same health care and death benefits (such as hospital, medical, dental,
disability, death benefits and life insurance) that existed immediately prior
to the Change in Control; provided, however, that such benefits shall cease to
the extent the Officer becomes eligible to receive such benefits from
a new employer. In the event the Officer becomes eligible to receive such
benefits from
- 5 -
<PAGE> 6
a new employer, the Officer shall notify the Corporation within ten (10) days
of such eligibility.
(b) No Obligation to Seek Other Employment. The Officer shall not be
required to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise.
(c) Other Existing Rights Not Diminished. The provisions of this
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable or in any way diminish the Officer's existing rights under
any benefit or welfare plan or arrangement, provided, however, that Change in
Control Compensation payments made pursuant to this Agreement shall be in lieu
of any severance payment pursuant to any plan, program, practice or policy of
the Corporation or of any of its affiliates.
6. No Guaranty by Corporation of Employment. The Officer expressly
acknowledges that this Agreement does not constitute a guaranty by the
Corporation or by any affiliate to continue to employ the Officer, and that the
Corporation or any of its affiliates may terminate the Officer's employment at
any time before or after a Change in Control, subject to providing the benefits
specified hereunder in accordance with the terms hereof if such termination
occurs after a Change in Control.
7. Successors; Binding Agreement.
(a) Successors to the Corporation. The Corporation will require any
successor (whether direct or indirect) by purchase, merger, consolidation or
otherwise, to all or substantially all of the business and/or assets of the
Corporation, by agreement in form and substance satisfactory to the Officer,
expressly to assume and agree to perform this Agreement to the same extent that
the Corporation would have been required if no such succession had occurred.
Failure of the Corporation to obtain such agreement prior to the effectiveness
of any such succession shall be a breach hereof and shall entitle the Officer
to terminate his employment for Good Reason under Section 4(c). For purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination. "Corporation" shall mean
the Corporation as hereinbefore defined and any successor to its business
and/or assets that assumes and agrees to perform this Agreement as provided for
in this Section 7 or that otherwise becomes bound by the terms and provisions
of this Agreement by operation of law.
(b) Successors to the Officer. Subject to the provisions of Section 12
hereof, this agreement shall inure to the benefit of and be enforceable by the
Officer's personal or legal representative, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Officer would
die while any amounts would still be payable to the Officer hereunder if the
Officer had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
person designated in writing by the Officer, or if there be no such designee,
to the Officer's estate.
- 6 -
<PAGE> 7
8. Notices. Notices and all other communications provided for herein
shall be in writing and shall be deemed to have been duly given when delivered
or mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
Fred J. Johns
Secretary of the Compensation Committee
NBD Bancorp, Inc.
611 Woodward Avenue
Detroit, Michigan 48226
or such different address as the Corporation shall specify by written notice to
the Officer.
If to the Officer, to his last known residence address according to the
records of the Corporation.
9. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Officer and the Chairman of the Compensation Committee
or such other member of the Compensation Committee or officer of the
Corporation as may be specifically designated by the Compensation Committee.
No waiver by either party at any time of any breach by the other party of, or
compliance with, any provision of this Agreement shall be deemed a waiver of
similar or dissimilar provision at the same or at any prior or subsequent time.
No agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party that are
not set forth expressly in this Agreement.
10. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
11. Arbitration and Reimbursement. Any dispute or controversy arising
under or in connection with this Agreement shall be resolved exclusively by
binding non-appealable arbitration, in accordance with the rules of the
American Arbitration Association then in effect.
The Corporation shall reimburse the Officer for all legal fees and
expenses incurred by the Officer in seeking to obtain or enforce any right or
benefit provided by this Agreement and in the event it shall be determined that
the Officer is entitled to Change in control Compensation hereunder, the
Officer shall also be entitled to interest thereon payable to the Officer in
amounts equivalent to the prime rate of interest of NBD Bank from time to time
during the period from the date such amounts should have been paid to the date
of payment.
12. Nonassignability. The rights of the Officer under this Agreement
shall not be assigned, transferred, pledged, hypothecated or encumbered.
13. Validity and Construction. The validity, interpretation
- 7 -
<PAGE> 8
and performance of this Agreement shall be governed by the laws of the State of
Michigan.
NBD Bancorp, Inc.
Compensation Committee of
the Board of Directors
By: ________________________
Its: Chairman
And ________________________
Committee Member
(Corporate Seal)
At March 1, 1995, NBD Bancorp, Inc. was a party to separation agreements in
substantially the foregoing form with the following executive officers:
Verne G. Istock
Thomas H. Jeffs II
- 8 -
<PAGE> 1
EXHIBIT 10(g)
NBD BANCORP, INC.
EXECUTIVE ESTATE PLAN
Section 1 - Purpose
The NBD BANCORP, INC. EXECUTIVE ESTATE PLAN (hereinafter called the
"Plan") is established and maintained to promote and advance the performance of
NBD Bancorp, Inc. (hereinafter called the "Corporation") by providing
designated senior officers of the Corporation and of its affiliated companies
who have significant responsibility for such performance with competitive death
benefit coverage and to assist the Corporation in attracting and retaining as
senior officers individuals of superior ability by enhancing the value of the
death benefit coverage available.
Section 2 - Definitions
(a) The term "affiliated companies" shall mean those corporations a
majority of the outstanding voting capital stock of which is directly or
indirectly owned or controlled by the Corporation.
(b) The term "after-tax equivalent" shall mean such amount that would
provide the recipient of a taxable death benefit under the Plan with an amount,
after the payment of federal income tax, approximately equal to the death
benefit the recipient would have received if the taxable death benefit were not
subject to federal income taxation when made.
(c) The term "Committee" shall mean the Compensation Committee of the
Board of Directors of the Corporation, the members of which shall be
"disinterested persons" under Rule 16b-3 of the Securities and Exchange
Commission or any successor regulation issued under the federal securities laws
and shall be ineligible to participate in the Plan.
(d) The term "disability" shall mean the incapability of a participant to
perform the principal duties of his or her customary employment or position as
the result of a physical or mental condition that is expected to be permanent
and continuous during the remainder of the participant's life, as determined in
the sole discretion of the Committee on the basis of evidence satisfactory to
it.
(e) The term "disabled participant" shall mean a participant who incurs a
disability hereunder while a participant under the Plan from which he or she
has not recovered.
(f) The term "participant" shall mean a senior officer of the Corporation
or of one of its affiliated companies who becomes and remains a participant in
the Plan as provided in Section 6 of the Plan.
(g) The term "retired participant" shall mean a participant whose
employment with the Corporation and all its affiliated companies terminates as
the result of retirement hereunder and who does not subsequently resume such
employment.
<PAGE> 2
(h) The term "retirement" shall mean the cessation of employment with the
Corporation and all its affiliated companies on or after the date a participant
(i) attains age sixty-five (65), or (ii) completes five (5) years of service,
attains age fifty-five (55), and receives the consent of the Committee.
Section 3 - Effective Date and Duration
The Plan shall be effective as of March 1, 1989. The Plan shall continue
until it is terminated by the Board of Directors of the Corporation as provided
in Section 11.
Section 4 - Administration
The Committee shall be responsible for the general operation and
administration of the Plan and shall have the authority to interpret the Plan
and to adopt administrative rules and regulations governing its operation. The
Committee may delegate the performance of administrative functions to the
Secretary of the Committee.
Section 5 - Funding
The death benefits payable under the Plan shall be paid out of the general
assets of the Corporation.
Section 6 - Participation
(a) Eligibility for participation in the Plan shall be limited to such
senior officers of the Corporation as are designated from time to time by the
Committee.
(b) Participation in the Plan by an eligible officer shall be solely
within the discretion of the Committee. The Committee shall individually
select and designate each eligible officer for participation, who shall become
a participant as of the date specified by the Committee.
(c) A participant shall remain a participant only for so long as he
continues in the employ of the Corporation or one of its affiliated companies
or is a retired participant or a disabled participant. The Committee in its
sole discretion may terminate a participant's participation in the Plan only as
provided in Section 10.
Section 7 - Amount of Pre-retirement Death Benefit
(a) Upon the death of a participant prior to his or her retirement from
the Corporation and its affiliated companies, the Corporation shall pay to his
or her designated beneficiary an after-tax equivalent death benefit equal to
four hundred percent (400%) of the participant's base salary at the time of
death.
(b) If a disabled participant dies before attaining age sixty-five (65),
the Corporation shall pay to his or her designated beneficiary an after-tax
equivalent death benefit equal to four hundred percent (400%) of the
participant's annual
2
<PAGE> 3
base salary determined as of the date of his or her disability. If a disabled
participant attains age sixty-five (65), such participant shall thereupon be
deemed to be a retired participant and entitled to benefit coverage only in
accordance with Section 8, based on the participant's annual base salary
determined as of the date of his or her disability. If a disabled participant
recovers from disability before attaining age sixty-five (65), the participant
shall be deemed to be a retired participant as of the date he or she recovers
from the disability if such participant is at least age fifty-five (55) on that
date and does not return to employment with the Corporation or any affiliated
company. In all other cases, a disabled participant who recovers from
disability shall have no further interest or rights under the Plan, except as
may be provided by such person's subsequent participation in the Plan.
Section 8 - Amount of Post-Retirement Death Benefit
Upon the death of a retired participant (i) during the first twelve (12)
months following retirement, the Corporation shall pay to the participant's
designated beneficiary an after-tax equivalent death benefit equal to two
hundred percent (200%) of the participant's annual base salary at the time of
the participant's retirement; (ii) during the second twelve (12) month period
following retirement, the Corporation shall pay to the participant's designated
beneficiary an after-tax equivalent death benefit equal to one hundred
seventy-five percent (175%) of the participant's annual base salary at the time
of the participant's retirement; (iii) during the third twelve (12) month
period following retirement, the Corporation shall pay to the participant's
designated beneficiary an after-tax equivalent death benefit equal to one
hundred fifty percent (150%) of the participant's annual base salary at the
time of the participant's retirement; or (iv) during or subsequent to the
thirty-seventh month following retirement, the Corporation shall pay to the
participant's designated beneficiary an after-tax equivalent death benefit
equal to one hundred percent (100%) of the participant's annual base salary at
the time of the participant's retirement plus the lesser of Twenty-Five
Thousand Dollars ($25,000) or twenty-five percent (25%) of the participant's
annual base salary at the time of the participant's retirement.
Section 9 - Beneficiary Designation and Payment
(a) Each participant shall complete a beneficiary designation form as
prescribed by the Committee designating the beneficiary or beneficiaries to
receive the amounts hereunder upon the participant's death. Each participant
may designate one or more individuals, trusts or organizations as the primary
beneficiary(ies). If more than one primary beneficiary is designated, the
participant shall specify the percentage to be paid to each primary
beneficiary. Each participant shall also designate a contingent
beneficiary(ies), who shall receive payment hereunder only if the designated
primary beneficiary(ies) does not survive the participant.
(b) Unless a participant has previously made an irrevocable beneficiary
designation, a participant may change his or her
3
<PAGE> 4
beneficiary designation at any time without the consent of any previously
designated beneficiary by completing a new beneficiary designation form and
delivering such form to the Secretary of the Committee. Such new beneficiary
designation shall be effective when the completed form is received by the
Secretary of the Committee.
(c) In the event a participant failed to make a beneficiary designation,
the amount payable under Section 7 or Section 8 shall be paid to the
participant's estate. The amount payable under Section 7 or Section 8 shall be
paid within sixty (60) days of the receipt by the Secretary of the Committee of
a certified copy of the death certificate of the deceased participant. Any
amount not paid within sixty (60) days of such receipt shall bear interest at
the rate of interest announced from time to time as its prime rate by NBD Bank
or its successor by merger during the period from the date the payment should
have been made to the date it is made. The Corporation shall withhold from
such payment any applicable federal, state or local taxes thereon.
Section 10 - General
(a) Neither the establishment of the Plan nor any provisions of the Plan
or modification thereof shall be held or construed as giving any participant in
the Plan the right to be retained in the service of the Corporation or its
affiliated companies, and the Corporation and its affiliated companies
expressly reserve the right to discharge any such participant whenever the
interests of the Corporation and its affiliated companies may so require.
(b) Notwithstanding any other provision in the Plan to the contrary, but
subject to Paragraph (c) of this Section 10, and as determined solely by the
Committee, (i) no benefit or coverage shall be provided under the Plan to any
participant, including a retired participant or disabled participant, who
engages in any activity that, in the opinion of the Committee, is competitive
with any activity of the Corporation or any affiliated company (except that
employment at the request of the Corporation with an entity in which the
Corporation has, directly or indirectly, a substantial ownership interest, or
other employment specifically approved by the Committee, shall not be
considered to be an activity that is competitive with any activity of the
Corporation or any affiliated company) or otherwise acts, either prior to or
after termination of employment, in any manner inimical or in any way contrary
to the best interests of the Corporation; and (ii) no benefit or coverage under
the Plan shall be provided to any participant, including a disabled participant
or retired participant, if the participant's employment with the Corporation or
an affiliated company terminates because of dishonesty, fraud, misappropriation
of funds, the commission of a felony, or willful or gross misconduct or willful
or gross negligence in the performance of such person's duties, or if during
the course of such employment, the participant engages in, or had engaged in,
such conduct.
(c) Any right of a participant and his beneficiary hereunder shall be
that of an unsecured general creditor of the
4
<PAGE> 5
Corporation, and no participant or beneficiary shall have any preferred claims
on, or any beneficial ownership in, the assets of the Corporation, including
any assets in which the Corporation may invest to aid in meeting its
obligations under the Plan.
(d) To the maximum extend permitted by law, a participant's or
beneficiary's interest and rights shall not be assignable in law or in equity
or subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution, or encumbrances of any kind,
except that a participant shall have the right under Section 9 to designate
irrevocably a beneficiary to receive the amounts hereunder upon the
participant's death.
(e) If the Committee determines that a beneficiary is legally incompetent
to receive a distribution hereunder, the Committee may cause any distribution
due to such beneficiary to be made to the guardian or other legal
representative of such beneficiary, or in the absence of such guardian or other
legal representative, to such other person or institution who is otherwise
maintaining and has custody of such beneficiary. Such distribution, to the
extent made, shall be a valid and complete discharge of liability therefor
under the Plan.
Section 11 - Amendment, Suspension and Termination
The Board of Directors of the Corporation reserves the right any time to
amend, suspend or terminate the Plan; provided, however, no such amendment,
suspension or termination shall adversely affect the rights hereunder of any
participant in the Plan unless the prior written approval of the participant so
affected is obtained.
Section 12 - Governing Law
The Plan and all determinations made and action taken pursuant thereto
shall be governed by the laws of the State of Michigan and construed in
accordance therewith.
5
<PAGE> 1
EXHIBIT (21)
NBD BANCORP, INC. SUBSIDIARIES
(Direct and Indirect)
<TABLE>
<CAPTION>
<S> <C>
Bank Holding Company Subsidiaries Jurisdiction of Organization
- --------------------------------- ----------------------------
NBD Illinois, Inc. Delaware
NBD Indiana, Inc. Delaware
Bank Subsidiaries Jurisdiction of Organization
- ----------------- ----------------------------
NBD Bank, (Detroit, MI) Michigan
NBD Bank, N.A. (Indianapolis, IN) U.S.A.
NBD Bank (Columbus, OH) Ohio
NBD Bank (Elkhart, IN) Indiana
NBD Bank (Wheaton, IL) Illinois
NBD Bank, FSB (Venice, FL) U.S.A.
NBD Bank, Canada Canada
NBD Skokie Bank, N.A. U.S.A.
National Bank of Detroit-Dearborn U.S.A.
Bank-Related Subsidiaries Jurisdiction of Organization
- ------------------------- ----------------------------
Charter Agency, Inc. Illinois
Charter Oak Insurance Agency of Michigan, Inc. Michigan
Corporate Funding, Inc. Michigan
International Bank of Detroit U.S.A.
Midwest Commerce Investments Corp. Indiana
NBD Brokerage Services, Inc. Indiana
NBD Community Development Corporation Michigan
NBD Equipment Finance, Inc. Delaware
NBD Equity Corp. Michigan
NBD Financial Services of Michigan, Inc. Michigan
NBD Indiana Properties, Inc. Indiana
NBD Insurance Agency, Inc. Michigan
NBD Insurance Company Arizona
NBD Leasing, Inc. Indiana
NBD Mortgage Company Delaware
NBD Neighborhood Revitalization Corporation Indiana
NBD Real Estate Services, Inc. Indiana
NBD Securities, Inc. Michigan
NBD Service Corp. Delaware
NBD Transportation Company Michigan
</TABLE>
<PAGE> 1
Exhibit (23)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated January 17,
1995, included and incorporated by reference in this Annual Report on Form 10-K
of NBD Bancorp, Inc. for the year ended December 31, 1994, in the following
Registration Statements:
<TABLE>
<CAPTION>
REGISTRATION
FORM STATEMENT NO. DESCRIPTION
<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
(Post-Effective Stock Option Plan
Amendment No. 1
to Form S-4)
S-8 33-50300 NBD Indiana, Inc. Incentive
(Post-Effective Stock 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/ Deloitte & Touche LLP
Deloitte & Touche LLP
Detroit, Michigan
March 16, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,587,007
<INT-BEARING-DEPOSITS> 630,688
<FED-FUNDS-SOLD> 399,725
<TRADING-ASSETS> 122,135
<INVESTMENTS-HELD-FOR-SALE> 4,814,252
<INVESTMENTS-CARRYING> 7,608,713
<INVESTMENTS-MARKET> 7,381,476
<LOANS> 29,229,664
<ALLOWANCE> 435,051
<TOTAL-ASSETS> 47,111,133
<DEPOSITS> 33,229,441
<SHORT-TERM> 7,119,972
<LIABILITIES-OTHER> 771,963
<LONG-TERM> 2,504,348
<COMMON> 160,877
0
0
<OTHER-SE> 3,130,666
<TOTAL-LIABILITIES-AND-EQUITY> 47,111,133
<INTEREST-LOAN> 2,102,936
<INTEREST-INVEST> 764,274
<INTEREST-OTHER> 48,184
<INTEREST-TOTAL> 2,915,394
<INTEREST-DEPOSIT> 873,190
<INTEREST-EXPENSE> 1,290,626
<INTEREST-INCOME-NET> 1,624,768
<LOAN-LOSSES> 52,032
<SECURITIES-GAINS> (2,469)
<EXPENSE-OTHER> 1,304,270
<INCOME-PRETAX> 814,032
<INCOME-PRE-EXTRAORDINARY> 547,279
<EXTRAORDINARY> (7,730)
<CHANGES> (7,885)
<NET-INCOME> 531,664
<EPS-PRIMARY> 3.35
<EPS-DILUTED> 3.33
<YIELD-ACTUAL> 4.22
<LOANS-NON> 157,141
<LOANS-PAST> 44,750
<LOANS-TROUBLED> 22,900
<LOANS-PROBLEM> 30,100
<ALLOWANCE-OPEN> 423,030
<CHARGE-OFFS> 121,026
<RECOVERIES> 80,560
<ALLOWANCE-CLOSE> 435,051
<ALLOWANCE-DOMESTIC> 167,887
<ALLOWANCE-FOREIGN> 4,364
<ALLOWANCE-UNALLOCATED> 262,800
</TABLE>
