<PAGE>
First Chicago NBD Corporation and Subsidiaries
Financial Supplement and Form 10-Q
Contents Page
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Five-Quarter Summary of Selected Financial Information 1
Business Segments 2
Earnings Analysis 7
Merger-Related Initiatives 13
Liquidity Risk Management 14
Market Risk Management 15
Credit Risk Management 19
Derivative Financial Instruments 23
Capital Management 24
Consolidated Financial Statements 27
Notes to Consolidated Financial Statements 31
Selected Statistical Information 34
Form 10-Q 40
<PAGE>
<TABLE>
<CAPTION>
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F I V E - Q U A R T E R S U M M A R Y O F S E L E C T E D F I N A N C I A L I N F O R M A T I O N
First Chicago NBD Corporation and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------------------
September June March December September
(Dollars in millions, except per share data) 1996 1996 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA FOR THE QUARTER
Net interest income................................... $ 942 $ 910 $ 885 $ 834 $ 796
Tax-equivalent adjustment............................. 25 25 28 30 28
-------- -------- -------- -------- --------
Net interest income--tax-equivalent basis............. 967 935 913 864 824
Provision for credit losses........................... 185 185 175 210 125
Noninterest income.................................... 597 643 626 655 702
Operating expense..................................... 798 814 828 821 827
Merger-related charges................................ - - - 267 -
FDIC special assessment............................... 18 - - - -
Net income............................................ 358 361 340 126 357
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Net income - Primary.................................. $ 1.09 $ 1.10 $ 1.04 $ 0.37 $ 1.07
Net income - Fully diluted............................ 1.08 1.09 1.03 0.37 1.06
- ---------------------------------------------------------------------------------------------------------------------------
AT QUARTER-END
Assets................................................ $106,694 $113,714 $115,465 $122,002 $124,056
Loans................................................. 66,602 66,431 64,253 64,434 61,076
Deposits.............................................. 63,679 64,593 64,243 69,106 66,934
Long-term debt........................................ 7,967 7,951 8,011 8,163 8,445
Common stockholders' equity........................... 8,612 8,339 8,135 7,961 7,954
Stockholders' equity.................................. 9,087 8,827 8,624 8,450 8,445
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Assets................................................ $110,715 $116,280 $120,708 $123,773 $124,738
Loans................................................. 65,962 64,534 63,790 62,258 59,661
Earning assets........................................ 96,123 100,564 104,629 106,187 107,731
Deposits.............................................. 63,482 65,162 65,922 68,552 68,619
Common stockholders' equity........................... 8,352 8,183 8,053 7,998 7,934
Stockholders' equity.................................. 8,839 8,672 8,543 8,488 8,504
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FINANCIAL RATIOS
Return on stockholders' equity........................ 16.1% 16.7% 16.0% 5.9% 16.7%
Return on common stockholders' equity................. 16.7 17.4 16.6 5.9 17.4
Return on assets...................................... 1.29 1.25 1.13 0.40 1.14
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL DATA (1)
Common-equity-to-assets ratio......................... 8.1% 7.6% 7.3% 6.9% 6.8%
Regulatory leverage ratio............................. 8.1 7.6 7.3 6.9 6.9
Risk-based capital
Tier 1 ratio........................................ 8.4 8.1 8.1 7.8 8.2
Total capital ratio................................. 12.4 12.2 12.3 11.8 12.4
- ---------------------------------------------------------------------------------------------------------------------------
COMMON SHARE AND STOCKHOLDER DATA FOR THE QUARTER ENDED
Market price (at quarter-end)......................... $ 45 1/4 $ 39 1/8 $ 41 1/2 $ 39 1/2 $ 38 1/4
Book value (at quarter-end)........................... 27.11 26.31 25.70 25.25 24.96
Dividends declared per common share................... 0.36 0.36 0.36 0.36 0.33
Common dividends...................................... 115 115 113 113 107
Preferred dividends................................... 8 8 8 7 10
Dividend payout ratio................................. 33.0% 32.7% 34.6% 97.3% 30.8%
Average number of common and common-equivalent
shares (in millions)................................ 320.2 320.2 319.2 320.0 324.4
Average number of shares, assuming full dilution (in
millions)........................................... 327.5 326.9 326.2 326.9 331.8
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</TABLE>
(1) Net of investment in First Chicago Capital Markets, Inc.
1
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
OVERVIEW
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Three Months Ended September 30
Corporate and
Regional Institutional Corporate Other
Credit Card Banking Banking Investments Activities
(Dollars in millions, ------------ ------------- ------------ ------------ --------------
except where noted) 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income....................... $ 94 $ 81 $ 157 $ 134 $ 62 $ 74 $ 41 $ 56 $ 4 $ 12
Return on equity................. 34% 40% 17% 17% 8% 9% 36% 40% N/M N/M
Average assets (presecuritized)
(in billions).................. $17.9 $14.6 $38.2 $37.4 $43.6 $56.2 $18.2 $23.8 $ - $ 0.5
Average common equity (in
billions)..................... 1.1 0.8 3.6 3.0 3.1 3.1 0.4 0.6 0.2 0.4
- ----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30
Corporate and
Regional Institutional Corporate Other
Credit Card Banking Banking Investments Activities
(Dollars in millions, ------------ ------------- ------------ ------------ -------------
except where noted) 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Net income....................... $ 249 $ 250 $ 448 $ 372 $ 188 $ 200 $ 162 $ 156 $ 12 $ 46
Return on equity................. 30% 41% 17% 15% 8% 9% 46% 36% N/M N/M
Average assets (presecuritized)
(in billions).................. $17.5 $13.5 $38.1 $35.5 $47.8 $54.9 $19.8 $24.4 $ 0.2 $ 0.5
Average common equity (in
billions)..................... 1.1 0.8 3.4 3.1 3.2 2.9 0.5 0.6 - 0.3
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/M - Not meaningful.
Financial results are reported by major business lines, principally
structured around the customer segments served. These major business
segments are: Credit Card, Regional Banking (retail and middle market),
Corporate and Institutional Banking, and Corporate Investments. Investment
management activities, while managed separately, serve customers in both
the Regional and Corporate and Institutional Banking segments and,
therefore, investment management's financial results are captured within
those businesses. Certain corporate revenues and expenses, generally
unusual or one time in nature, are included in Other Activities.
Information for 1995 has been restated to reflect the management of
activities consistent with the major business segments.
Results are derived from the internal profitability reporting systems and
reflect full allocation of all institutional and overhead items. These
systems use a detailed funds transfer methodology and a common equity
allocation based on risk elements. Credit Card results are presented before
the securitization of credit card receivables ("presecuritized") to
facilitate analysis of trends. See the discussion of net interest income on
page 8 and a reconciliation of reported to presecuritized results on page
34.
2
<PAGE>
Earnings Contribution by Business Lines
For the Nine Months Ended September 30, 1996
[PIE CHART] [PIE CHART]
Credit Card 23% Credit Card 24%
Retail 19% Retail 16%
Middle Market 24% Middle Market 20%
Corporate & Institutional 18% Corporate & Institutional 20%
Corporate Investments 15% Corporate Investments 15%
Other 1% Other 5%
1996 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Credit Card
- ---------------------------------------------------------------------------------------------------------------
(Presecuritized) Three Months Ended Nine Months Ended
(Dollars in millions, except September 30 September 30
where noted) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis.............................................. $ 380 $ 306 $1,110 $ 854
Provision for credit losses........................................ 269 189 750 452
Noninterest income................................................. 174 152 457 407
Noninterest expense................................................ 135 138 421 406
Net income......................................................... 94 81 249 250
Return on equity................................................... 34% 40% 30% 41%
Efficiency ratio (1)............................................... 24% 30% 27% 32%
Average loans (in billions)........................................ $17.8 $14.6 $ 17.5 $13.6
Average common equity
(in billions)..................................................... 1.1 0.8 1.1 0.8
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</TABLE>
(1) Noninterest expense as a percentage of total revenue.
The Corporation reaches consumers nationally through its Credit Card business,
known as First Card, which is one of the largest issuers of bank credit cards in
the U.S.
Net income for Credit Card was $94 million for the third quarter of 1996 -- a
record level. For the first nine months of 1996, net income was $249 million, or
23% of corporate earnings; and flat with 1995's nine-month results. Return on
equity year-to-date declined from 41% to 30%.
Total revenue growth year-to-date was 24%, driven by an increase of almost 29%
in managed receivables. However, this revenue growth has been offset by a
significant rise in credit costs. The 1996 nine-month provision increased nearly
$300 million from the year-earlier period. The trend of rising charge-offs for
the Credit Card business is expected to continue in the near term.
3
<PAGE>
<TABLE>
<CAPTION>
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Regional Banking
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30 Nine Months Ended September 30
Retail Middle Market Retail Middle Market
(Dollars in millions, except -------------------------------------- --------------------------------------
where noted) 1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis........ $ 323 $ 304 $ 203 $ 200 $ 922 $ 897 $ 619 $ 586
Provision for credit losses.. 17 13 (3) 14 49 32 18 37
Noninterest income........... 145 120 47 44 430 345 145 134
Noninterest expense.......... 343 306 113 118 988 938 351 352
Net income................... 68 64 89 70 197 165 251 207
Return on equity............. 16% 17% 19% 17% 16% 14% 18% 16%
Efficiency ratio (1)......... 73% 72% 45% 49% 73% 76% 46% 49%
Average loans (in billions).. $18.3 $16.8 $15.5 $15.4 $17.5 $15.9 $16.1 $14.9
Average assets (in billions). 21.1 19.5 17.1 17.9 20.4 18.3 17.7 17.2
Average common equity
(in billions)............... 1.7 1.4 1.9 1.6 1.6 1.5 1.8 1.6
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
The Corporation's Regional Banking business serves local consumers, small
businesses and middle market customers through more than 700 banking offices in
Michigan, Indiana and Illinois. Regional Banking contributed 43% of the
Corporation's earnings for the nine months ended September 30, 1996. Net income
of $157 million for the third quarter was up 17% from a year earlier. Return on
equity for this segment was 17% for both the quarter and nine-month periods.
Retail Banking
For the third quarter of 1996, Retail Banking's earnings were $68 million, a 6%
increase from the third quarter of 1995. Return on equity was 16%. Included in
these results is a charge of $18 million for the recapitalization of the Savings
Association Insurance Fund (SAIF).
A similar positive trend is represented in the year-to-date results--19% net
income improvement. Growth in noninterest income is the principal reason for
this earnings increase. Strong deposit fees reflect successful implementation of
the deposit account repricing strategy initiated in 1995.
Middle Market Banking
Middle Market Banking's net income increased to $89 million for the third
quarter of 1996 and $251 million for the nine-month period. Return on equity was
19% for the quarter and 18% for the nine-month period. Loan growth of 8% year-
to-date was the primary driver in this earnings improvement. Credit quality and
efficiency ratios in Middle Market Banking were excellent.
4
<PAGE>
<TABLE>
<CAPTION>
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Corporate and Institutional Banking
- -------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(Dollars in millions, except September 30 September 30
where noted) 1996 1995 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis......... $180 $158 $ 553 $ 486
Provision for credit losses... 8 3 49 13
Noninterest income............ 134 212 443 547
Noninterest expense........... 209 245 651 702
Net income.................... 62 74 188 200
Return on equity.............. 8% 9% 8% 9%
Efficiency ratio (1).......... 67% 66% 65% 68%
Average loans (in billions)... $20.1 $19.5 $20.0 $19.1
Average assets (in billions).. 43.6 56.2 47.8 54.9
Average common equity
(in billions)................ 3.1 3.1 3.2 2.9
- -------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
Through its Corporate and Institutional Banking business, the Corporation is the
leading provider of banking services to large corporations, governments,
institutions and investors in the Midwest. It is also among the top U.S. banking
companies serving national and international customers.
Corporate and Institutional Banking earned $62 million in the third quarter of
1996 and generated an 8% return on equity. For the first nine months of 1996,
net income was $188 million, and return on equity was 8%. This business receives
the largest allocation of the Corporation's capital, approximately $3.1 billion
in common equity.
Average assets have declined significantly in this business as part of the
Corporation's asset reduction program.
Revenues from the major product sets within Corporate and Institutional Banking
are presented in the following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Total Revenue Three Months Ended Nine Months Ended
September 30 September 30
(In millions) 1996 1995 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Trading........ $ 8 $ 87 $ 94 $ 165
Servicing...... 148 128 421 403
Lending........ 96 101 290 308
Financing...... 34 31 90 84
Other.......... 28 23 101 73
---- ---- ---- ------
Total....... $314 $370 $996 $1,033
==== ==== ==== ======
- -------------------------------------------------------------
</TABLE>
Lending and servicing contributed roughly 71% of Corporate and Institutional
Banking's total revenue thus far for 1996. Revenues from trading activities
(trading profits and related net interest income) were particularly weak in the
third quarter, and for the year remain below the Corporation's expectations.
Improving performance in this area is a top priority.
Expenses in Corporate and Institutional Banking continue to track favorably
against 1995. The principal causes are continued merger-related consolidation,
resulting in lower staff levels, and reduced incentive compensation costs.
5
<PAGE>
<TABLE>
<CAPTION>
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Corporate Investments
- -------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(Dollars in millions, except September 30 September 30
where noted) 1996 1995 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis......... $ 30 $ 26 $ 97 $ 83
Provision for credit losses... - - - -
Noninterest income............ 48 69 207 188
Noninterest expense........... 14 13 42 41
Net income.................... 41 56 162 156
Return on equity.............. 36% 40% 46% 36%
Average assets (in billions).. $18.2 $23.8 $19.8 $24.4
Average common equity
(in billions)................ 0.4 0.6 0.5 0.6
- -------------------------------------------------------------------------
</TABLE>
Many of the Corporation's business activities that are not specifically oriented
to its customers are combined in Corporate Investments. Included in this segment
are the venture capital portfolio, leveraged leasing, funding and arbitrage, the
investment account, and assorted other investment and trading activities. Due to
the nature of these activities, this segment is likely to be a more variable
component of earnings from period to period.
In the third quarter of 1996, Corporate Investments contributed $41 million in
net income and generated a 36% return on equity. Equity securities gains of $44
million contributed to the strong performance. Similarly, Corporate Investments
was a significant earnings contributor for the nine month period ended September
30, 1996, with $162 million in net income.
The decline in average assets reflects the successful completion of the merger-
related program to reduce low margin assets by $25 billion.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Other Activities
- ----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
(Dollars in millions) 1996 1995 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue................. $ 7 $29 $ 21 $ 90
Noninterest expense........... 2 7 5 8
Net income.................... 4 12 12 46
Average assets (in billions).. - $0.5 $0.2 $0.5
- ----------------------------------------------------------------------
</TABLE>
Net income for Other Activities was $4 million in the third quarter of 1996. The
1995 results included significant gains from the accelerated asset disposition
portfolio.
STAFFING LEVELS
The following table shows average staff levels for the Corporation for the past
five quarters.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1996 1996 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average Full-Time-Equivalent
Staff........................ 33,617 34,079 34,512 35,220 35,678
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
EARNINGS ANALYSIS
Summary
The Corporation reported net income of $358 million, or $1.08 per share, for the
third quarter of 1996, relatively unchanged from $357 million, or $1.06 per
share, in the third quarter of 1995. Net income for the third quarter of 1996
was a record $369 million before a one-time charge of $18 million, or 4 cents
per share, for the recapitalization of the Savings Association Insurance Fund
(SAIF). For the first nine months of 1996, the Corporation earned net income of
$1.059 billion, or $3.19 per share, compared with $1.024 billion, or $3.03 per
share, in 1995.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(Dollars in millions, September 30 September 30
except per share data) 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis.. $ 967 $ 824 $2,815 $2,447
Provision for credit losses................ 185 125 545 300
Noninterest income......................... 597 702 1,866 1,936
Operating expense.......................... 798 827 2,440 2,447
FDIC special assessment.................... 18 - 18 -
Net income................................. 358 357 1,059 1,024
Common Share Data
Primary
Net income............................... $ 1.09 $ 1.07 $ 3.24 $ 3.07
Average common and common-equivalent
shares (in millions).................... 320.2 324.4 319.8 323.8
Fully diluted
Net income............................... $ 1.08 $ 1.06 $ 3.19 $ 3.03
Average shares, assuming full dilution
(in millions)........................... 327.5 331.8 327.2 331.2
Return on assets........................... 1.29% 1.14% 1.22% 1.12%
Return on common stockholders' equity...... 16.7 17.4 16.9 17.3
- -----------------------------------------------------------------------------------------------------
</TABLE>
Third-quarter 1996 highlights:
. The adjusted net interest margin continued to improve during the quarter,
rising 13 basis points to 4.51%. In the quarter, the Corporation completed
its $25 billion asset reduction program, well ahead of schedule. (See Merger-
Related Initiatives, beginning on page 13, for more details.) Growth in
average credit card receivables also contributed to this improvement.
. The provision for credit losses was $185 million, up considerably from the
$125 million reported a year ago. Increased credit losses in the credit card
business were only partially offset by reduced provisions associated with the
large corporate and middle market commercial loan portfolios.
. Market-driven revenues were $40 million, well below the $111 million average
reported for the past five quarters. Combined trading losses of $12 million
were primarily responsible for this below-average performance.
. Operating expenses of $798 million were the lowest in five quarters.
Operating expenses for the first nine months of 1996 were essentially flat
with 1995 levels. These results reflect the Corportion's focus on expense
control as well as the timely implementation of merger-related initiatives.
7
<PAGE>
NET INTEREST INCOME
Net interest income includes fundamental spreads on earning assets as well as
such items as loan fees, cash interest collections on problem loans, dividend
income, interest reversals, and income or expense on interest rate derivatives
used to manage interest rate risk. Net interest margin measures the efficiency
of the use of the Corporation's earning assets and its underlying capital.
In order to analyze fundamental trends in net interest margin, it is useful to
adjust for securitization of credit card receivables and the activities of First
Chicago Capital Markets, Inc. (FCCM).
When credit card receivables are sold in securitization transactions, the
Corporation's earnings are unchanged. However, the net interest income related
to these high-yield assets is replaced by increased servicing fees, net of
related credit losses. The average levels of securitized receivables were $7.2
billion in the third quarter of 1996, compared with $7.8 billion in the third
quarter of 1995.
FCCM is the Corporation's wholly owned subsidiary engaged in permissible
investment banking activities. Because capital requirements for FCCM are risk-
exposure driven rather than based on asset levels, FCCM can generate substantial
volumes of relatively riskless, thin-spread earning assets that require little
additional capital. The Corporation's net interest margin trends can be better
analyzed if these earning assets and related margins are excluded.
Adjusted net interest income in the third quarter of 1996 was $1.1 billion, up
11% from a year ago. The rise was attributable to loan growth in both the
credit card (22%) and regional banking (5%) businesses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Adjusted Average Loans Three Months Ended Nine Months Ended
September 30 September 30
(In millions) 1996 1995 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate and Institutional...... $20,101 $19,487 $20,010 $19,061
Middle Market.................... 15,489 15,350 16,108 14,868
Retail........................... 18,336 16,774 17,494 15,883
Credit Card...................... 17,793 14,642 17,470 13,648
Corporate Investments/Other...... 1,522 1,280 1,287 1,350
------- ------- ------- -------
Total....................... $73,241 $67,533 $72,369 $64,810
======= ======= ======= =======
- ---------------------------------------------------------------------------
</TABLE>
On an adjusted basis, net interest margin for the third quarter of 1996 was
4.51%. This compares with 3.79% in the year-ago quarter. The increase was due
to a more profitable earning asset mix, primarily driven by increased credit
card receivables coupled with the effects of the Corporation's program to reduce
low margin earning assets.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Adjusted Average Earning Assets Three Months Ended Nine Months Ended
September 30 September 30
(In millions) 1996 1995 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans............................ $73,241 $ 67,533 $ 72,369 $ 64,810
Securities....................... 7,291 13,262 7,955 14,092
Trading assets................... 8,971 12,167 10,360 10,401
Other short-term investments..... 8,843 12,000 9,908 11,707
------- -------- -------- --------
Total....................... $98,346 $104,962 $100,592 $101,010
======= ======== ======== ========
- ---------------------------------------------------------------------------
</TABLE>
8
<PAGE>
The following charts illustrate the trends of net interest income, including a
tax-equivalent adjustment (TEA), and net interest margin for the past five
quarters.
<TABLE>
<CAPTION>
[Bar Graph] [Line Graph]
Net Interest Income
$ Millions Net Interest Margin
Net Interest Adjusted Net Interest Adjusted Net Net Interest
Income - TEA Income - TEA Interest Margin Margin
------------ --------------------- --------------- ------------
<S> <C> <C> <C> <C>
3Q95 $824 $1,003 3.79% 3.03%
4Q95 $864 $1,033 3.93% 3.23%
1Q96 $913 $1,078 4.23% 3.51%
2Q96 $935 $1,100 4.38% 3.74%
3Q96 $967 $1,115 4.51% 4.00%
</TABLE>
PROVISION FOR CREDIT LOSSES
Details of the Corporation's credit risk management and performance during the
quarter ended September 30, 1996, are presented in the Credit Risk Management
section, beginning on page 19.
NONINTEREST INCOME
The following table provides a breakdown of the components of noninterest income
for the third quarter and the first nine months of 1996 as compared with a year
ago.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Three Months Ended Percent Nine Months Ended Percent
September 30 Increase September 30 Increase
(In millions) 1996 1995 (Decrease) 1996 1995 (Decrease)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Combined trading profits (losses).. $(12) $ 85 N/M $ 46 $ 162 (72)%
Equity securities gains............ 50 66 (24)% 184 181 2
Investment securities gains........ 2 2 - 27 3 N/M
---- ----- ------ ------
Market-driven revenue............. 40 153 (74) 257 346 (26)
Credit card fee revenue............ 228 248 (8) 655 673 (3)
Fiduciary and investment
management fees................... 100 97 3 298 290 3
Service charges on deposits........ 104 97 7 306 287 7
Other service charges and
commissions....................... 97 87 11 279 258 8
Other.............................. 28 20 40 71 82 (13)
---- ---- ------ ------
Total............................ $597 $702 (15) $1,866 $1,936 (4)
==== ==== ====== ======
- -----------------------------------------------------------------------------------------------------
</TABLE>
N/M--Not Meaningful.
9
<PAGE>
Combined trading activities generated losses of $12 million in the third quarter
of 1996. For the first nine months of 1996, combined trading profits were
significantly below 1995 levels, reflecting poor trading results in both the
global derivatives and foreign exchange trading businesses.
Equity securities gains were $50 million during the third quarter of 1996,
compared with $66 million in the third quarter of 1995. Gains from the sale of
venture capital investments totaled $48 million in the third quarter of 1996,
and $47 million in the third quarter of 1995.
For the first nine months of 1996, investment securities gains totaled $27
million, up significantly from the $3 million reported in the same period a year
ago. As part of the Corporation's asset reduction program, the investment
securities portfolio has been reduced by $4.8 billion over the past year to $7.1
billion at September 30, 1996.
Adjusted for credit card securitizations, credit card fee revenue was $183
million in the third quarter of 1996, up 15% from $159 million in the year-
earlier period. The increase primarily reflects higher transaction activity,
including credit card enhancement fees.
The Corporation's gain of $7 million on the sale of its Ohio banking network in
the first quarter of 1996 is included in other noninterest income.
Gains from the sale of assets held in the accelerated disposition portfolio
totaled nearly $4 million in the third quarter of 1995 and $37 million for the
first nine months of 1995.
The following chart compares market-driven revenue and the significant
components of fee-based revenue for the past five quarters. Fee-based revenue
continues to be a significant contributor to overall profitability, with some
seasonal effects associated with credit card fee revenue.
<TABLE>
<CAPTION>
[Bar Graph]
Noninterest Income
$ Millions
Other Fiduciary & Serv. Chgs. & Credit Market-Driven
Revenue Inv. Mgmt Fees Commissions Card Revenue Total
------- -------------- ------------- ------ ------------- -----
<S> <C> <C> <C> <C> <C> <C>
3Q95 $20 $ 97 $184 $248 $153 $702
4Q95 $22 $114 $190 $228 $101 $655
1Q96 $23 $100 $189 $207 $107 $626
2Q96 $20 $ 98 $195 $220 $110 $643
3Q96 $28 $100 $201 $228 $ 40 $597
</TABLE>
10
<PAGE>
NONINTEREST EXPENSE
Operating expense in the third quarter of 1996 was $798 million, its lowest
level in the past five quarters. Operating expense in the third quarter of 1995
was $827 million.
Over the past five quarters, overall expense levels have been maintained within
a narrow range, with resultant operating efficiency ratios showing marked
improvement, as indicated by the following charts.
<TABLE>
<CAPTION>
[Bar Graph] [Line Graph]
Operating Expense Operating Efficiency (1)
$ Millions
Salaries & Other Operating
Benefits Expense Total
---------- --------------- -----
<S> <C> <C> <C> <S> <C>
3Q95 $437 $390 $827 3Q95 54.2%
4Q95 $432 $389 $821 4Q95 54.0%
1Q96 $436 $392 $828 1Q96 53.8%
2Q96 $426 $388 $814 2Q96 51.6%
3Q96* $419 $379 $798 3Q96* 51.0%
(1) Operating expense as a percentage of total revenue.
* Excludes FDIC Special Assessment of $18 million.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Salaries and Employee Benefits Three Months Ended Percent Nine Months Ended Percent
September 30 Increase September 30 Increase
(Dollars in millions) 1996 1995 (Decrease) 1996 1995 (Decrease)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries........................ $ 354 $ 373 (5)% $ 1,065 $ 1,054 1%
Employee benefits............... 65 64 2 216 206 5
------- ------- ------- -------
Total......................... $ 419 $ 437 (4) $ 1,281 $ 1,260 2
======= ======= ======= =======
Average full-time-
equivalent staff............... 33,617 35,678 (6) 34,293 35,396 (3)
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------
</TABLE>
Overall salaries and benefit costs in the third quarter of 1996 were down $18
million, or 4%, from the third quarter of 1995. Reduced staff levels, in
conjunction with merger-related and business reengineering initiatives, were the
primary reason for the reduced costs.
Employee benefit costs in the 1996 third quarter increased slightly from 1995 as
higher pension costs were partially offset by lower medical and other benefit-
related costs.
The increase in employee benefits for the first nine months of 1996 also
reflected higher FICA tax expense related to incentive compensation payments
made in the first quarter of 1996.
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Other Noninterest Expense Three Months Ended Percent Nine Months Ended Percent
September 30 Increase September 30 Increase
(In millions) 1996 1995 (Decrease) 1996 1995 (Decrease)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Occupancy expense of premises, net... $ 64 $ 69 (7)% $ 195 $ 198 (2)%
Equipment rentals, depreciation and
maintenance......................... 56 53 6 166 162 2
Marketing and public relations....... 26 42 (38) 96 129 (26)
FDIC insurance expense............... 2 2 - 6 54 (89)
Amortization of intangible assets.... 20 21 (5) 59 67 (12)
Telephone............................ 23 20 15 63 57 11
Freight and postage.................. 22 19 16 66 58 14
Travel and entertainment............. 13 12 8 39 36 8
Stationery and supplies.............. 13 11 18 36 32 13
Other................................ 140 141 (1) 433 394 10
----- ----- ------ ------
Other operating expense............ $ 379 $ 390 (3) $1,159 $1,187 (2)
FDIC special assessment.............. 18 - N/M 18 - N/M
----- ----- ------ ------
Total.............................. $ 397 $ 390 2 $1,177 $1,187 (1)
===== ===== ====== ======
-----------------------------------------------------------------------------------------------------------
</TABLE>
N/M--Not Meaningful.
Other operating expense was $379 million in the third quarter of 1996, down 3%
from 1995. Operating expenses for the first nine months of 1996 were down 2%
from a year ago. Reduced market solicitation costs in the credit card business
accounted for much of this decline.
Beginning in 1996, the FDIC insurance rate was effectively reduced to zero for
Bank Insurance Fund deposits (approximately 94% of the Corporation's insurable
deposit base). A good portion of this expense savings, however, is passed on to
business customers in the form of fee reductions.
The FDIC special assessment for the third quarter of 1996 represents a special
one-time assessment for the recapitalization of the Savings Association
Insurance Fund (SAIF), in the amount of $18 million.
<TABLE>
<CAPTION>
APPLICABLE INCOME TAXES
- ------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
(In millions) 1996 1995 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes.. $ 538 $ 546 $1,600 $1,563
Applicable income taxes..... 180 189 541 539
Effective tax rate.......... 33.5% 34.6% 33.8% 34.5%
- ------------------------------------------------------------------------
</TABLE>
Tax expense in the third quarter of 1996 and 1995 included benefits from tax-
exempt income and general business tax credits offset by the effect of
nondeductible expenses, including goodwill.
12
<PAGE>
MERGER-RELATED INITIATIVES
The Corporation remained ahead of schedule in achieving its merger-related
initiatives. Merger-related initiatives include integration of common
businesses, targeted asset reductions of $25 billion, business synergies to
generate cost savings of $200 million, and revenue enhancements of $50 million
from cross-sales of products to an expanded customer base.
In the third quarter, the Corporation completed its $25 billion targeted asset
reduction program well ahead of schedule. The following table shows the
components of the $25 billion decrease using average assets for the first half
of 1995 as a baseline.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Asset Reduction Initiative
Actual Average Increase
(In millions) Sept. 30, 1996 1st Half 1995 (Decrease)
- -------------------------------------------------------------------
<S> <C> <C> <C>
Loans.................... $ 66,602 $ 56,927 $ 9,675
Targeted items
Deposit placements..... 5,695 9,715 (4,020)
Federal funds sold..... 1,094 1,846 (752)
Trading assets......... 9,772 20,659 (10,887)
Investment securities.. 5,340 14,507 (9,167)
-------- -------- --------
Subtotal............ 21,901 46,727 (24,826)
Other assets (1)......... 18,191 16,830 1,361
-------- -------- --------
Total assets........ $106,694 $120,484 $(13,790)
======== ======== ========
- -------------------------------------------------------------------
</TABLE>
(1) Includes approximately $1.8 billion of investment securities required in
conjunction with the Corporation's government-related cash management and
payment services.
The Corporation continued to make significant progress toward its headcount
reduction goals. At September 30, 1996, severance payments had been initiated
for more than 1,500 positions. Additional staff reductions are expected as
remaining merger-related and business reengineering initiatives are implemented.
The Corporation established a reserve for direct merger and restructuring-
related charges totaling $225 million at the time of the merger. At September
30, 1996, the merger restructuring reserve totaled $142 million. The table below
details the components of the reserve and related balances at September 30,
1996, and June 30, 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Sept. 30, June 30, 3rd Quarter 1996
(In millions) 1996 1996 Transactions
- -----------------------------------------------------------------
<S> <C> <C> <C>
Direct merger costs....... $ 1 $ 1 $ -
Severance................. 50 60 (10)
Facilities and equipment.. 83 92 (9)
Other..................... 8 9 (1)
----- ----- ----
Total................ $ 142 $ 162 $(20)
===== ===== ====
- -----------------------------------------------------------------
</TABLE>
The Corporation already has realized increased revenues as a result of offering
a wider array of products to its expanded customer base. In addition, due to
improved credit ratings the Corporation has generated additional business with
new customers.
13
<PAGE>
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the possibility of being unable to meet all present and future
financial obligations in a timely manner. The Corporation considers strong
capital ratios, credit quality and core earnings as essential to retaining high
credit ratings and, thereby, cost-effective access to market liquidity.
The Statement of Cash Flows, on page 30, presents data on cash and cash
equivalents provided and used in operating, investing and financing activities.
The Corporation's ability to attract wholesale funds on a regular basis and at a
competitive cost is fostered by strong ratings from the major credit rating
agencies. As of September 30, 1996, the parent company and the major banking
subsidiaries had the following long- and short-term debt ratings.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Long-Term Debt Short-Term Debt
- -----------------------------------------------------------------------------
S&P Moody's S&P Moody's
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Chicago NBD Corporation (parent).. A+ A1 A-1 P-1
Major banking subsidiaries.............. AA- Aa3 A-1+ P-1
- -----------------------------------------------------------------------------
</TABLE>
A large customer deposit base is one of the significant strengths of the
Corporation's liquidity position. The Corporation has established a 35% limit on
the use of wholesale funds for funding core assets. As of September 30, 1996,
its major banking subsidiaries collectively funded 78% of core assets with core
liabilities, accessing the wholesale market for only 22% of core asset funding
needs.
<TABLE>
<CAPTION>
The following table shows the total funding source mix for the past five
quarters.
- -------------------------------------------------------------------------------
Deposits and Other Purchased Funds
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1996 1996 1996 1995 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic offices
Demand........................ $16,242 $14,482 $13,566 $ 15,234 $ 13,286
Savings....................... 20,882 20,890 19,912 20,180 19,785
Time
Under $100,000.............. 9,944 9,952 10,008 9,972 10,309
$100,000 and over........... 5,900 5,864 6,263 5,947 5,647
Foreign offices................. 10,711 13,405 14,494 17,773 17,907
------- ------- ------- -------- --------
Total deposits......... 63,679 64,593 64,243 69,106 66,934
- -------------------------------------------------------------------------------
Federal funds purchased and
securities under repurchase
agreements..................... 8,193 11,630 13,110 15,711 20,031
Commercial paper................ 864 743 742 288 740
Other short-term borrowings..... 8,966 11,754 10,777 9,514 8,517
Long-term debt.................. 7,967 7,951 8,011 8,163 8,445
------- ------- ------- -------- --------
Total other purchased funds. 25,990 32,078 32,640 33,676 37,733
------- ------- ------- -------- --------
Total....................... $89,669 $96,671 $96,883 $102,782 $104,667
======= ======= ======= ======== ========
- -------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
MARKET RISK MANAGEMENT
OVERVIEW
Market risk arises from changes in interest rates, exchange rates, commodity
prices and equity prices. The Corporation maintains risk management policies to
monitor and limit exposure to market risk. Through its trading activities, the
Corporation strives to take advantage of profit opportunities available in
interest and exchange rate movements. In asset and liability management
activities, policies are in place to minimize structural interest rate and
foreign exchange rate risk. The measurement of market risk associated with
financial instruments is meaningful only when all related and offsetting on-and
off-balance-sheet transactions are aggregated, and the resulting net positions
are identified.
TRADING ACTIVITIES
The Corporation maintains active trading positions in a variety of markets and
instruments, including U.S. government, municipal and money market securities.
It also maintains positions in derivative products associated with these markets
and instruments, such as interest rate and currency swaps, and commodity and
equity index options.
The Corporation's trading activities are primarily customer-oriented, and
trading positions are established as necessary for customers. In order to
accommodate customer demand for such transactions, an inventory in capital
markets instruments is carried, and access to market liquidity is maintained by
making bid-offer prices to other market makers. Although these two activities
constitute proprietary trading business, they are essential to providing
customers with capital markets products at competitive prices.
Value at risk is monitored in each significant trading portfolio on a daily
basis. The following tables show average, maximum and minimum daily value at
risk for the third quarter of 1996 as well as for the preceding four quarters,
and the actual trading revenue for each quarter.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Daily Value at Risk Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1996 1996 1996 1995 1995
- --------------------------------------------------------------------------------
Average......................... $26 $32 $32 $28 $ 36
Maximum......................... 30 37 38 35 42
Minimum......................... 23 28 25 24 27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Quarter Ended Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1996 1996 1996 1995 1995
- --------------------------------------------------------------------------------
Trading revenue*................ $19 $55 $68 $60 $108
- --------------------------------------------------------------------------------
</TABLE>
*Includes trading profits and related net interest income.
Value at risk is estimated using statistical models calibrated at a three-
standard-deviation confidence interval. The reported value at risk remains
somewhat overstated because all offsets and correlations across different
trading portfolios are not fully considered in the calculation. The Corporation
is continuing its progress toward a fully consolidated view of market risk.
STRUCTURAL INTEREST RATE RISK MANAGEMENT
Movements in interest rates can create fluctuations in the Corporation's net
interest income and economic value due to an imbalance in the repricing or
maturity of assets and liabilities. Asset and liability positions are actively
managed with the goal of minimizing the impact of interest rate volatility on
current earnings and on the market value of equity.
15
<PAGE>
The following table details the Corporation's interest rate gap analysis as of
September 30, 1996. Interest rate risks in trading and overseas asset and
liability positions are assumed to be matched and are managed principally as
trading risks. Credit card securitizations, which subject credit card servicing
fee revenue to interest rate risk, are included in the gap analysis measure.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1996 0-90 91-180 181-365 1-5 Beyond
(Dollars in millions) days days days years 5 years Total
- ----------------------------------------------------------------------------------------------------
Loans.................................. $46,207 $ 3,520 $ 3,990 $12,772 $ 2,785 $ 69,274
Investment securities.................. 844 404 826 4,239 1,368 7,681
Other earning assets................... 21,151 68 - - - 21,219
Nonearning assets...................... 13,170 99 189 1,521 1,580 16,559
------- ------- ------- ------- ------- --------
Total assets........................ $81,372 $ 4,091 $ 5,005 $18,532 $ 5,733 $114,733
- ----------------------------------------------------------------------------------------------------
Deposits............................... $29,137 $ 3,617 $ 4,956 $14,844 $ 949 $ 53,503
Other interest-bearing liabilities..... 36,011 2,234 3,166 2,341 2,567 46,319
Noninterest-bearing liabilities........ 4,852 100 23 164 685 5,824
Equity................................. 406 215 430 3,538 4,498 9,087
------- ------- ------- ------- ------- --------
Total liabilities and equity........ $70,406 $ 6,166 $ 8,575 $20,887 $ 8,699 $114,733
- ----------------------------------------------------------------------------------------------------
Balance sheet sensitivity gap.......... $10,966 $(2,075) $(3,570) $(2,355) $(2,966) -
- ----------------------------------------------------------------------------------------------------
Cumulative gap as a % of total assets.. 9.6% 7.7% 4.6% 2.6% 0.0% 0.0%
- ----------------------------------------------------------------------------------------------------
Effect of off-balance-sheet ALM
derivative transactions:
Specific transactions................ $(3,478) $ (643) $ 2,054 $ 581 $ 1,486 -
Specific asset or liability pools.... (3,747) 920 585 2,142 100 -
- ----------------------------------------------------------------------------------------------------
Interest rate sensitivity gap.......... $ 3,741 $(1,798) $ (931) $ 368 $(1,380) -
- ----------------------------------------------------------------------------------------------------
Cumulative gap......................... $ 3,741 $ 1,943 $ 1,012 $ 1,380 - -
- ----------------------------------------------------------------------------------------------------
Cumulative gap as a % of total assets.. 3.3% 1.7% 0.9% 1.2% 0.0% 0.0%
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's policy is to limit the cumulative one-year gap position,
including asset and liability management, or "ALM", derivatives, to within 4% of
total assets. As of September 30, 1996, the cumulative one-year gap position was
0.9% of total assets. The Corporation uses off-balance-sheet transactions,
principally interest rate swaps, to adjust the interest rate sensitivity of
specific transactions, as well as pools of assets or liabilities, to remain
structurally neutral to interest rate changes. As shown in the table above, the
net result of ALM derivatives was to reduce the cumulative one-year gap position
from 4.6% to 0.9% of total assets.
16
<PAGE>
In addition to static gap analysis, an earnings simulation analysis and a value-
at-risk measure are performed to identify more dynamic interest rate risk
exposures of the businesses, including embedded option positions. The earnings
simulation analysis estimates the effect that specific interest rate changes
would have on pretax earnings. The Corporation's policy is to limit the change
in annual pretax earnings to $100 million from an immediate parallel change in
interest rates of 200 basis points. As of September 30, 1996, the Corporation
had the following estimated earnings sensitivity profile.
<TABLE>
<CAPTION>
- ---------------------------------------------------
Immediate Change in Rates
(In millions) -------------------------
<S> <C> <C>
+200 bp -200 bp
- ---------------------------------------------------
Pretax earnings change.... $21 $(27)
- ---------------------------------------------------
</TABLE>
Access to the derivatives market is an important element in maintaining the
interest rate risk position within policy guidelines. At September 30, 1996, the
notional principal amount of ALM interest rate swaps totaled $9.8 billion,
including $4.7 billion against specific transactions and $5.1 billion against
specific pools of assets or liabilities. The following table summarizes the
interest rate swaps used for asset and liability management purposes.
<TABLE>
<CAPTION>
ASSET AND LIABILITY MANAGEMENT SWAPS--NOTIONAL PRINCIPAL
- -----------------------------------------------------------------------------------------
September 30, 1996
Receive Fixed Pay Fixed Basis
(In millions) Pay Floating Receive Floating Swaps Total
- -----------------------------------------------------------------------------------------
Specific Pool Specific Pool Pool
-------- ------ -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Swaps associated with:
Loans...................... $ - $ 997 $ 61 $ - $ - $1,058
Investment securities...... - - 240 - - 240
Securitized credit card
receivables............... - 581 - - - 581
Deposits................... 50 3,041 - - - 3,091
Funds borrowed (including
long-term debt)........... 4,329 - - 175 340 4,844
------ ------ ---- ---- ---- ------
Total.................... $4,379 $4,619 $301 $175 $340 $9,814
====== ====== ==== ==== ==== ======
- -----------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Substantially all ALM interest rate swaps are standard swap contracts. The table
that follows summarizes the contractual maturities and weighted average pay and
receive rates for the ALM swap position at September 30, 1996. The variable
interest rates, which generally are the one-month, three-month and six-month
LIBOR rates in effect on the date of repricing, are assumed to remain constant.
However, the variable interest rates will change and would affect the related
weighted average information presented in the table.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
(Dollars in millions) 1996 1997 1998 1999 2000 Thereafter Total
- --------------------------------------------------------------------------------------
Receive fixed/pay
floating swaps
Notional amount..... $ 836 $4,102 $1,083 $ 419 $ 278 $2,280 $8,998
Weighted average
Receive rate...... 5.98% 5.97% 6.29% 6.32% 5.70% 7.03% 6.29%
Pay rate.......... 5.70% 5.67% 5.81% 5.81% 5.82% 5.75% 5.72%
Pay fixed/receive
floating swaps
Notional amount..... $ 66 $ 97 $ 57 $ 83 $ 110 $ 63 $ 476
Weighted average
Receive rate...... 5.62% 5.68% 5.82% 5.78% 5.74% 5.85% 5.74%
Pay rate.......... 6.90% 7.22% 8.07% 7.99% 7.74% 8.01% 7.64%
Basis swaps
Notional amount..... $ - $ 50 $ 265 $ 25 $ - $ - $ 340
Weighted average
Receive rate...... -% 5.59% 5.72% 5.65% -% -% 5.70%
Pay rate.......... -% 5.48% 5.75% 5.58% -% -% 5.70%
- --------------------------------------------------------------------------------------
Total notional
amount................ $ 902 $4,249 $1,405 $ 527 $ 388 $2,343 $9,814
- --------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
CREDIT RISK MANAGEMENT
The Corporation has developed policies and procedures to manage the level and
composition of risk in its credit portfolio. The objective of this credit risk
process is to quantify and manage credit risk on a portfolio basis as well as
reduce the risk of a loss resulting from a customer's failure to perform
according to the terms of a transaction.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Selected Statistical Information
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(Dollars in millions) 1996 1996 1996 1995 1995
- --------------------------------------------------------------------------------------
At period-end
<S> <C> <C> <C> <C> <C>
Loans outstanding............... $66,602 $66,431 $64,253 $64,434 $61,076
Nonperforming loans............. 309 356 391 363 296
Other real estate, net.......... 26 33 39 34 36
Nonperforming assets............ 335 389 430 397 332
Allowance for credit losses..... 1,447 1,430 1,383 1,338 1,230
Nonperforming assets/loans
outstanding and other
real estate, net............... 0.5% 0.6% 0.7% 0.6% 0.5%
Allowance for credit losses/
loans outstanding.............. 2.2 2.2 2.2 2.1 2.0
Allowance for credit losses/
nonperforming loans............ 468 402 354 369 416
For the quarter ended
Average loans................... $65,962 $64,534 $63,790 $62,258 $59,661
Net charge-offs................. 182 153 145 107 60
Net charge-offs/average loans... 1.1% 0.9% 0.9% 0.7% 0.4%
- --------------------------------------------------------------------------------------
</TABLE>
For analytical purposes, the Corporation's portfolio is divided into commercial
(domestic and foreign) and consumer (credit card and other consumer) segments.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Loan Composition Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1996 1996 1996 1995 1995
- ------------------------------------------------------------------------------
Commercial risk
Domestic
<S> <C> <C> <C> <C> <C>
Commercial................ $27,537 $26,237 $25,220 $25,551 $24,818
Real estate
Construction............ 1,094 1,193 1,191 1,151 1,116
Other................... 5,446 5,665 5,897 6,103 6,107
Lease financing........... 1,683 1,644 1,505 1,588 1,434
Foreign..................... 3,587 3,790 3,487 3,726 3,605
------- ------- ------- ------- -------
Total commercial.... 39,347 38,529 37,300 38,119 37,080
------- ------- ------- ------- -------
Consumer risk
Credit cards................ 9,888 10,441 9,722 9,649 7,597
Secured by real estate (1).. 9,334 9,231 9,228 8,933 8,816
Automotive.................. 4,411 4,463 4,546 4,477 4,390
Other....................... 3,622 3,767 3,457 3,256 3,193
------- ------- ------- ------- -------
Total consumer...... 27,255 27,902 26,953 26,315 23,996
------- ------- ------- ------- -------
Total............... $66,602 $66,431 $64,253 $64,434 $61,076
======= ======= ======= ======= =======
- ------------------------------------------------------------------------------
</TABLE>
(1) Includes home equity loans.
19
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level that in management's
judgment is adequate to provide for estimated probable credit losses inherent in
on-and off-balance-sheet credit exposure attributable to various financial
instruments. The amount of the allowance is based on formal review and analysis
of potential credit losses, as well as prevailing economic conditions. The
Corporation also maintains a separate reserve for securitized credit card
receivables as shown in the table below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Allowance for Credit Losses Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1996 1996 1996 1995 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter..... $1,430 $1,383 $1,338 $1,230 $1,159
- ----------------------------------------------------------------------------------
Provision for credit losses....... 185 185 175 210 125
- ----------------------------------------------------------------------------------
Charge-offs
Commercial
Domestic
Commercial.................. 30 21 43 43 11
Real estate................. 2 7 4 2 6
Lease financing............. 3 2 2 1 1
Foreign....................... 2 - - - -
Consumer
Credit card................. 159 141 104 76 53
Other....................... 22 20 21 23 18
------ ------ ------ ------ ------
Total charge-offs......... 218 191 174 145 89
- ----------------------------------------------------------------------------------
Recoveries
Commercial
Domestic
Commercial.................. 13 9 12 16 10
Real estate................. 6 9 1 1 4
Lease financing............. 1 - - 1 -
Foreign....................... 1 2 1 5 1
Consumer
Credit card................. 6 10 7 8 8
Other....................... 9 8 8 7 6
------ ------ ------ ------ ------
Total recoveries.......... 36 38 29 38 29
- ----------------------------------------------------------------------------------
Net charge-offs................... 182 153 145 107 60
- ----------------------------------------------------------------------------------
Transfers related to securitized
credit card receivables......... 14 15 15 5 -
Other............................. - - - - 6
- ----------------------------------------------------------------------------------
Balance, end of quarter........... $1,447 $1,430 $1,383 $1,338 $1,230
====== ====== ====== ====== ======
==================================================================================
Reserve related to securitized
credit card receivables.......... $ 235 $ 256 $ 277 $ 302 $ 313
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
NONPERFORMING ASSETS
The following table shows the trend in commercial nonperforming assets,
including a breakdown of commercial real estate assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nonperforming Assets Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1996 1996 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Commercial real estate......... $ 121 $ 102 $ 117 $ 91 $ 108
Other.......................... 188 254 274 272 188
----- ----- ----- ----- -----
Total nonperforming loans... 309 356 391 363 296
----- ----- ----- ----- -----
Other real estate, net........... 26 33 39 34 36
----- ----- ----- ----- -----
Total nonperforming assets.. $ 335 $ 389 $ 430 $ 397 $ 332
===== ===== ===== ===== =====
- --------------------------------------------------------------------------------
</TABLE>
COMMERCIAL RISK MANAGEMENT
The commercial risk portfolio includes all domestic and foreign commercial
credit exposure. Credit exposure includes the credit risks associated with both
on- and off-balance-sheet financial instruments.
Commercial loans totaled $39.3 billion at September 30, 1996, up 3% from
December 31, 1995, and up 6% from September 30, 1995.
During the third quarter, charge-offs net of recoveries were $16 million in the
commercial portfolio and total nonperforming assets totaled $335 million.
COMMERCIAL REAL ESTATE
Commercial real estate loans include loans secured by real estate as well as
certain loans that are real estate-related. A loan is categorized as real
estate-related when 80% or more of the borrower's revenues are derived from real
estate activities and the loan is not collateralized by cash or marketable
securities.
Commercial real estate loans totaled $6.5 billion at September 30, 1996, down
10% from December 31, 1995. Commercial real estate loans totaled $7.2 billion at
September 30, 1995.
During the third quarter, net recoveries in the commercial real estate portfolio
were $4 million, and nonperforming commercial real estate assets, including
other real estate, totaled $147 million at September 30, 1996.
CONSUMER RISK MANAGEMENT
Consumer loans consist of credit card receivables as well as home mortgage
loans, home equity loans, automobile financing and other forms of consumer
installment credit. Consumer loans totaled $27.3 billion at September 30, 1996,
up 14% from $24.0 billion a year ago. Including securitized credit card
receivables, these loans totaled $35.3 billion at September 30, 1996, up 10%
from a year ago.
Total managed credit card receivables (i.e. those held in the portfolio and
those sold to investors through securitization) were $17.9 billion at September
30, 1996, up 15% from a year earlier.
21
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Consumer Loans Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(In millions) 1996 1996 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans................ $ 9,888 $10,441 $ 9,722 $ 9,649 $ 7,597
Securitized credit card
receivables..................... 8,039 7,336 7,553 7,877 7,986
------- ------- ------- ------- -------
Total managed credit card
receivables.................. 17,927 17,777 17,275 17,526 15,583
Other consumer loans
Secured by real estate (1)..... 9,334 9,231 9,228 8,933 8,816
Automotive..................... 4,411 4,463 4,546 4,477 4,390
Other.......................... 3,622 3,767 3,457 3,256 3,193
------- ------- ------- ------- -------
Other consumer loans......... 17,367 17,461 17,231 16,666 16,399
------- ------- ------- ------- -------
Total....................... $35,294 $35,238 $34,506 $34,192 $31,982
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
(1) Includes home equity loans.
Credit card receivables represent the most significant risk element in the
consumer portfolio. The credit card charge-off rate of 5.9% in the last two
quarters represents a significant increase from prior quarters. In addition,
the portfolio has experienced an increase in delinquency rates as presented in
the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Credit Card Receivables For the Quarter Ended
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(Dollars in millions) 1996 1996 1996 1995 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average balances:
Credit card loans............... $10,497 $ 9,814 $ 9,380 $ 8,034 $ 6,772
Securitized credit card
receivables.................... 7,219 7,544 7,867 7,986 7,808
------- ------- ------- ------- -------
Total average managed credit
card receivables............. $17,716 $17,358 $17,247 $16,020 $14,580
======= ======= ======= ======= =======
Total net charge-offs
(including securitizations)..... $ 265 $ 254 $ 206 $ 176 $ 144
======= ======= ======= ======= =======
Net charge-offs/average
total managed receivables...... 5.9% 5.9% 4.8% 4.4% 3.9%
======= ======= ======= ======= =======
Credit Card Delinquency Rate--
Managed Receivables-Period End
30 or more days................ 4.3% 3.8% 3.6% 3.6% 3.4%
90 or more days................ 1.6 1.4 1.4 1.3 1.2
- -------------------------------------------------------------------------------
</TABLE>
Credit card receivables are generally charged off no later than 180 days past
due, or earlier in the event of bankruptcy. Current levels of unemployment and
the increasing level of personal bankruptcy filings make reductions in the
credit card charge-off rate unlikely in the near term. In response to these
trends, the Corporation has tightened its credit management policies and
practices.
22
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation uses a variety of derivative financial instruments in its
trading, asset and liability management, and Corporate Investment activities.
These instruments include interest rate, currency, commodity and equity swaps,
forwards, futures, options, caps, floors, forward rate agreements, and other
conditional or exchange contracts, and include both exchange-traded and over-
the-counter contracts.
The Corporation uses interest rate derivative financial instruments to reduce
structural interest rate risk and the volatility of net interest margin. The
Corporation's net interest margin reflects the effective use of these
derivatives. Without their use, net interest income would have been lower by
$12.2 million in the third quarter of 1996, and by $29.8 million in the first
nine months of 1996; net interest income in the third quarter and first nine
months of 1995 would have increased by $8.7 million and $21.6 million,
respectively.
The sale of fixed- and floating-rate credit card receivables as securities to
investors subjects servicing revenue to interest rate risk. Therefore, interest
rate derivatives, whose terms match those of the credit card securitizations,
are used to reduce this volatility. Without the use of these instruments, credit
card fee revenue would have been reduced by $2.4 million in the third quarter of
1996, and by $6.7 million in the first nine months of 1996. Credit card fee
revenue in the third quarter and first nine months of 1995 would also have been
reduced by $0.6 million and $5.1 million, respectively.
Deferred gains and losses on the early termination of interest rate swaps
totaled a net deferred loss of $0.4 million as of September 30, 1996. This
amount is scheduled to be amortized into income in the following periods: $2.5
million in the remainder of 1996, $(0.7) million in 1997, $(0.7) million in
1998, $(0.3) million in 1999, and $(1.2) million thereafter.
Credit exposure resulting from derivative financial instruments is represented
by their fair value amounts, increased by an estimate of potential adverse
position exposure. The incremental amount of credit exposure for potential
adverse movement is calculated using a statistical model that estimates changes
over time in exchange rates, interest rates and other relevant factors. Credit
exposure amounts fluctuate as a function of maturity, interest rates, foreign
exchange rates, commodity prices and equity prices. Gross credit exposure may be
overstated because it does not consider collateral and other security, or the
offsetting of losses with the same counterparties based on legally enforceable
termination and netting rights. A reconciliation between gross credit exposure
and balance sheet exposure is presented in the following table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Sept. 30 Dec. 31
(In billions) 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Gross credit exposure............................................ $21.4 $19.8
Less additional exposure based on estimate of potential adverse
position exposure.............................................. 9.9 6.8
----- -----
Gross fair value exposure........................................ $11.5 $13.0
===== =====
- --------------------------------------------------------------------------------------
Gross fair value exposure........................................ $11.5 $13.0
Less netting adjustments due to master netting agreements........ 6.9 6.2
Less unrecognized net gain due to nontrading activities.......... - 0.1
----- -----
Balance sheet exposure........................................... $ 4.6 $ 6.7
===== =====
- --------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
The increase in gross credit exposure and incremental potential adverse position
exposure during the first nine months of 1996 was primarily a result of new
activity. In the first nine months of 1996, there were no charge-offs associated
with derivative financial instruments.
CAPITAL MANAGEMENT
Selected Capital Ratios
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Sept. 30 June 30 March 31 Dec. 31 Sept. 30 Corporate
Quarter Ended 1996 1996 1996 1995 1995 Guideline
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common equity/total assets (1)..... 8.1% 7.6% 7.3% 6.9% 6.8% N/A
Tangible common equity ratio (1)... 7.7 7.1 6.9 6.4 6.3 N/A
Stockholders' equity/total assets.. 8.5 7.8 7.5 6.9 6.8 N/A
Risk-based capital ratios (1)
Tier 1.......................... 8.4 8.1 8.1 7.8 8.2 7-8%
Total........................... 12.4 12.2 12.3 11.8 12.4 11-12%
Leverage ratio (1)................. 8.1 7.6 7.3 6.9 6.9 5.5-7.0%
Less than or
Double leverage ratio.............. 113 114 115 115 114 equal to 120%
Dividend payout ratio (2).......... 33 33 35 29 31 30-40%
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Net of investment in FCCM.
(2) Fourth-quarter 1995 excludes merger-related charges.
N/A - Not Applicable.
Capital represents the stockholders' investment on which the Corporation strives
to generate attractive returns. It supports business growth and provides
protection to depositors and creditors. Management believes that capital is the
foundation of a cohesive risk management framework because it links return with
risk. Capital adequacy objectives have been developed for the Corporation and
its major banking subsidiaries to meet these needs and also to maintain a well-
capitalized regulatory position.
ECONOMIC CAPITAL
An economic capital framework has been constructed to allocate capital to
business segments, products and customers based on the amount and type of risk
inherent in the activity. Once economic capital is assigned, returns can be
computed to determine if the activity earns an adequate return on risk. Total
economic capital will vary proportionately with the level and risk of the
Corporation's businesses and products. During the third quarter of 1996, credit
risk consumed the largest amount of economic capital.
The Corporation has also established a capital level that it believes is
necessary to provide management flexibility while maintaining an adequate base
for its risk profile and in relation to its peers. This target, or intermediary
capital, is expressed in terms of Tier 1 capital and ranges from 7% to 8%. The
Corporation intends to maintain capital commensurate with its risk profile and
intermediary requirements, and to deploy its capital resources in activities
that earn attractive returns for stockholders.
The Corporation's average common equity during the third quarter of 1996 and the
previous four quarters exceeded its economic capital -- that needed for current
business risks. Excess capital, defined as common equity above the intermediary
capital target, is available for core business investment and acquisitions. If
attractive long-term opportunities are not available over time in core
businesses, management intends to return any excess capital to stockholders.
24
<PAGE>
Integral to any successful capital management program is the ability to generate
acceptable returns on stockholders' capital. The Corporation has been able to
earn attractive returns on equity. Before merger-related charges, the return on
average common stockholders' equity has been consistently above 15% -- the
Corporation's minimum goal.
OTHER CAPITAL ACTIVITIES
In August 1995, the Corporation's $120.5 million issue of Preferred Stock,
Series A, was redeemed, reducing quarterly dividend requirements by $2.1
million. Regulatory total capital was increased in February 1996 through the
issuance of $150 million of subordinated debt. In October 1996, the Corporation
issued an additional $150 million of subordinated debt.
In October 1996, the Board of Directors authorized the purchase of up to 40
million shares of the Corporation's common stock over the next two to three
years. Purchases will occur periodically in open market or private transactions.
REGULATORY CAPITAL
The Corporation endeavors to maintain regulatory capital ratios, including those
of the major banking subsidiaries, in excess of the well-capitalized guidelines.
To ensure this goal is met, target ranges of 7% to 8% have been established for
Tier 1 capital and 11% to 12% for total risk-based capital. As shown in the
table on page 24, the Corporation's risk-based capital ratios for Tier 1 and
total capital exceeded the regulatory well-capitalized guidelines of 6% and 10%,
respectively.
<TABLE>
<CAPTION>
The following table shows the components of regulatory risk-based capital
and risk-weighted assets.
- -----------------------------------------------------------------------------
Sept. 30 Dec. 31 Sept. 30
(In millions) 1996 1995 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Regulatory Risk-Based Capital
Tier 1 capital.................................. $ 8,530 $ 7,750 $ 7,874
Tier 2 capital and other adjustments............ 4,036 4,017 3,998
-------- ------- -------
Total capital.............................. $ 12,566 $11,767 $11,872
======== ======= =======
Regulatory Risk-Weighted Assets
Balance sheet risk-weighted assets.............. $ 71,577 $71,040 $68,280
Off-balance-sheet risk-weighted assets.......... 29,763 28,403 27,384
-------- ------- -------
Total risk-weighted assets................. $101,340 $99,443 $95,664
======== ======= =======
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Intangible Assets Sept. 30 Dec. 31 Sept. 30
(In millions) 1996 1995 1995
- -----------------------------------------------------------------------------
Goodwill........................................ $ 404 $ 446 $ 457
Other identified intangibles.................... 79 106 118
-------- ------- -------
Total...................................... $ 483 $ 552 $ 575
======== ======= =======
- -----------------------------------------------------------------------------
</TABLE>
Tier 1 and total capital have been reduced by goodwill and other nonqualifying
intangible assets, which totaled $408 million at September 30, 1996, $458
million at December 31, 1995, and $470 million at September 30, 1995.
25
<PAGE>
The Corporation's major banking subsidiaries have exceeded the regulatory well-
capitalized guidelines as shown in the following tables. Major banking
subsidiaries include: The First National Bank of Chicago (FNBC), FCC National
Bank (FCCNB), American National Bank and Trust Company of Chicago (ANB), NBD
Bank (Michigan) (NBD Michigan), and NBD Bank, N.A. (Indiana)(NBD Indiana).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
NBD NBD
FNBC FCCNB ANB Michigan Indiana
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 30, 1996
Risk-based capital ratios
Tier 1 capital.......... 7.8% 8.9% 8.5% 9.1% 10.7%
Total capital........... 11.0 11.8 11.3 12.9 12.0
Leverage ratio............ 6.8 8.4 9.4 10.1 9.4
- ---------------------------------------------------------------------
NBD NBD
FNBC FCCNB ANB Michigan Indiana
- ---------------------------------------------------------------------
December 31, 1995
Risk-based capital ratios
Tier 1 capital.......... 7.6% 10.0% 9.2% 7.6% 10.3%
Total capital........... 11.3 12.1 11.5 10.9 11.5
Leverage ratio............. 5.9 11.7 9.2 7.4 7.9
- ---------------------------------------------------------------------
NBD NBD
FNBC FCCNB ANB Michigan Indiana
- ---------------------------------------------------------------------
September 30, 1995
Risk-based capital ratios
Tier 1 capital.......... 7.9% 12.6% 9.6% 7.4% 10.7%
Total capital........... 11.7 15.1 12.0 10.8 11.9
Leverage ratio............. 5.9 14.1 9.6 6.8 8.2
- ---------------------------------------------------------------------
</TABLE>
It is important to note that by maintaining regulatory well-capitalized status,
these banks benefit from lower FDIC deposit premiums.
In September 1996, the U.S. bank regulators amended their risk-based capital
requirements to incorporate a measure for market risk inherent in the trading
portfolio. Under the new market risk requirements, capital will be allocated to
support the amount of market risk that relates to the Corporation's trading
activities. The market risk rules are not effective until 1998 and will only
apply to institutions with significant trading activities. It is anticipated
that both the Corporation and FNBC will be subject to the new market risk
capital rules. It is currently estimated that the new rules will not
significantly affect the risk-based capital ratios of either entity.
26
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------------------------------------
September 30 December 31 September 30
(Dollars in millions) 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................................ $ 7,706 $ 7,297 $ 6,348
Interest-bearing due from banks.................................... 5,695 10,241 10,302
Federal funds sold and securities under resale agreements.......... 5,640 11,698 14,244
Trading assets..................................................... 5,226 8,150 8,116
Derivative product assets.......................................... 4,645 6,713 7,981
Investment securities (fair values--$7,140, $9,449 and $12,049,
respectively)..................................................... 7,140 9,449 11,910
Loans (net of unearned income--$681, $610 and $502, respectively).. 66,602 64,434 61,076
Allowance for credit losses........................................ (1,447) (1,338) (1,230)
Premises and equipment............................................. 1,424 1,423 1,456
Customers' acceptance liability.................................... 705 729 783
Other assets....................................................... 3,358 3,206 3,070
-------- -------- --------
Total assets............................................. $106,694 $122,002 $124,056
======== ======== ========
- --------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Demand........................................................... $ 16,242 $ 15,234 $ 13,286
Savings.......................................................... 20,882 20,180 19,785
Time............................................................. 15,844 15,919 15,956
Foreign offices.................................................. 10,711 17,773 17,907
-------- -------- --------
Total deposits........................................... 63,679 69,106 66,934
Federal funds purchased and securities under repurchase agreements. 8,193 15,711 20,031
Other short-term borrowings........................................ 9,830 9,802 9,257
Long-term debt..................................................... 7,967 8,163 8,445
Acceptances outstanding............................................ 705 729 783
Derivative product liabilities..................................... 4,589 6,723 7,609
Other liabilities.................................................. 2,644 3,318 2,552
-------- -------- --------
Total liabilities........................................ 97,607 113,552 115,611
- --------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock.................................................... 475 489 491
Common stock--$1 par value......................................... 319 319 330
Number of shares authorized--750,000,000; 750,000,000; and
500,000,000, respectively
Number of shares issued--318,920,332; 318,535,798; and
330,080,612, respectively
Number of shares outstanding--317,699,166; 315,241,109; and
318,712,027, respectively
Surplus............................................................ 2,179 2,185 2,550
Retained earnings.................................................. 6,189 5,497 5,491
Fair value adjustment on investment securities available-for-sale.. 23 112 (34)
Deferred compensation.............................................. (57) (39) (39)
Accumulated translation adjustment................................. 7 8 9
Treasury stock at cost--1,221,166; 3,294,689; and 11,368,585
shares, respectively.............................................. (48) (121) (353)
-------- -------- --------
Stockholders' equity..................................... 9,087 8,450 8,445
-------- -------- --------
Total liabilities and stockholders' equity............... $106,694 $122,002 $124,056
======== ======== ========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
(In millions, except per share data) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees.............................................. $1,482 $1,318 $4,310 $3,862
Bank balances...................................................... 112 161 381 466
Federal funds sold and securities under resale agreements.......... 113 230 453 716
Trading assets..................................................... 96 141 323 335
Investment securities--taxable..................................... 82 176 285 561
Investment securities--tax-exempt.................................. 23 28 70 84
------ ------ ------ ------
Total.................................................... 1,908 2,054 5,822 6,024
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits........................................................... 527 677 1,664 1,917
Federal funds purchased and securities under repurchase agreements. 149 304 564 906
Other short-term borrowings........................................ 156 131 448 396
Long-term debt..................................................... 134 146 409 431
------ ------ ------ ------
Total.................................................... 966 1,258 3,085 3,650
- -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME................................................ 942 796 2,737 2,374
Provision for credit losses........................................ 185 125 545 300
------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.............. 757 671 2,192 2,074
- -------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits (losses).................................. (12) 85 46 162
Equity securities gains............................................ 50 66 184 181
Investment securities gains........................................ 2 2 27 3
------ ------ ------ ------
Market-driven revenue............................................ 40 153 257 346
Credit card fee revenue............................................ 228 248 655 673
Fiduciary and investment management fees........................... 100 97 298 290
Service charges and commissions.................................... 201 184 585 545
Other.............................................................. 28 20 71 82
------ ------ ------ ------
Total.................................................... 597 702 1,866 1,936
- -------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits..................................... 419 437 1,281 1,260
Occupancy expense of premises, net................................. 64 69 195 198
Equipment rentals, depreciation and maintenance.................... 56 53 166 162
FDIC insurance expense............................................. 20 2 24 54
Amortization of intangible assets.................................. 20 21 59 67
Other.............................................................. 237 245 733 706
------ ------ ------ ------
Total.................................................... 816 827 2,458 2,447
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES......................................... 538 546 1,600 1,563
Applicable income taxes............................................ 180 189 541 539
------ ------ ------ ------
NET INCOME......................................................... $ 358 $ 357 $1,059 $1,024
====== ====== ====== ======
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY............. $ 350 $ 347 $1,035 $ 994
====== ====== ====== ======
- -------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
NET INCOME - PRIMARY............................................. $1.09 $1.07 $3.24 $3.07
NET INCOME - FULLY DILUTED....................................... $1.08 $1.06 $3.19 $3.03
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
First Chicago NBD Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
- ----------------------------------------------------------------------------------------
Nine Months Ended September 30 1996 1995
(In millions)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, beginning of period..................................... $ 489 $ 611
Redemption of preferred stock.................................... - (120)
Conversion of preferred stock.................................... (14) -
------ ------
Balance, end of period........................................... 475 491
------ ------
COMMON STOCK
Balance, beginning of period..................................... 319 329
Issuance of common stock......................................... - 1
------ ------
Balance, end of period........................................... 319 330
------ ------
CAPITAL SURPLUS
Balance, beginning of period..................................... 2,185 2,555
Issuance of common stock......................................... - 12
Issuance of treasury stock....................................... (45) (12)
Acquisition of subsidiaries...................................... 17 (3)
Cancellation of shares held in treasury.......................... - (8)
Conversion of preferred stock.................................... (5) -
Other............................................................ 27 6
------ ------
Balance, end of period........................................... 2,179 2,550
------ ------
RETAINED EARNINGS
Balance, beginning of period..................................... 5,497 4,808
Net income....................................................... 1,059 1,024
Cash dividends declared--common stock............................ (343) (311)
Cash dividends accrued--preferred stock.......................... (24) (30)
------ ------
Balance, end of period........................................... 6,189 5,491
------ ------
FAIR VALUE ADJUSTMENT ON INVESTMENT SECURITIES
AVAILABLE-FOR-SALE
Balance, beginning of period..................................... 112 (158)
Change in fair value (net of taxes) and other.................... (89) 124
------ ------
Balance, end of period........................................... 23 (34)
------ ------
DEFERRED COMPENSATION
Balance, beginning of period..................................... (39) (33)
Awards granted, net.............................................. (31) (17)
Amortization of deferred compensation............................ 18 17
Other............................................................ (5) (6)
------ ------
Balance, end of period........................................... (57) (39)
------ ------
ACCUMULATED TRANSLATION ADJUSTMENT
Balance, beginning of period..................................... 8 7
Translation gain (loss), net of taxes............................ (1) 2
------ ------
Balance, end of period........................................... 7 9
------ ------
TREASURY STOCK
Balance, beginning of period..................................... (121) (310)
Purchase of common stock......................................... (17) (360)
Acquisition of subsidiaries...................................... - 262
Cancellation of shares held in treasury.......................... - 8
Issuance of stock................................................ 90 47
------ ------
Balance, end of period........................................... (48) (353)
------ ------
TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD.......................... $9,087 $8,445
====== ======
- ----------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30 1996 1995
(In millions)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................................. $ 1,059 $ 1,024
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................................. 187 207
Provision for credit losses............................................................... 545 300
Equity securities gains................................................................... (184) (181)
Net (increase) in net derivative product balances......................................... (66) (87)
Net (increase) decrease in trading assets................................................. 2,939 (2,941)
Net (increase) in loans held for sale..................................................... (157) (407)
Net (increase) decrease in accrued income receivable...................................... 83 (177)
Net increase (decrease) in accrued expenses payable....................................... (12) 200
Net (increase) decrease in other assets................................................... (233) 93
Other noncash adjustments................................................................. (41) (274)
------- -------
Total adjustments......................................................................... 3,061 (3,267)
Net cash provided by (used in) operating activities......................................... 4,120 (2,243)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold and securities under resale agreements........ 6,058 (543)
Purchase of investment securities--available-for-sale....................................... (3,980) (2,892)
Purchase of debt investment securities--held-to-maturity.................................... - (117)
Purchase of equity securities--fair value................................................... (95) (318)
Proceeds from maturities of debt securities--available-for-sale............................. 2,107 2,236
Proceeds from maturities of debt securities--held-to-maturity............................... - 903
Proceeds from sales of investment securities--available-for-sale............................ 4,067 3,283
Proceeds from sales of equity securities--fair value........................................ 98 906
Credit card receivables securitized......................................................... 1,029 2,286
Net (increase) in loans..................................................................... (3,827) (7,017)
Loan recoveries............................................................................. 102 106
Net proceeds from sales of assets held for accelerated disposition.......................... 24 59
Purchases of premises and equipment......................................................... (206) (280)
Proceeds from sales of premises and equipment............................................... 63 63
Net cash and cash equivalents due to acquisitions and dispositions.......................... (225) 115
------- -------
Net cash provided by (used in) investing activities......................................... 5,215 (1,210)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits......................................................... (4,888) 473
Net increase (decrease) in federal funds purchased and securities under repurchase
agreements................................................................................. (7,518) 3,112
Net increase in other short-term borrowings................................................. 29 809
Proceeds from issuance of long-term debt.................................................... 1,442 1,878
Repayment of long-term debt................................................................. (1,670) (734)
Net (decrease) in other liabilities......................................................... (463) (242)
Dividends paid.............................................................................. (366) (337)
Proceeds from issuance of common and treasury stock......................................... 22 37
Repurchase of common stock.................................................................. (17) (378)
Payment for redemption of preferred stock................................................... - (121)
------- -------
Net cash provided by (used in) financing activities......................................... (13,429) 4,497
- ---------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS................................ (43) 57
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................ (4,137) 1,101
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................................ 17,538 15,549
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................................. $13,401 $16,650
======= =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this statement, cash and cash equivalents consist of cash and
due from banks--noninterest-bearing and interest-bearing.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
- ------
The consolidated financial statements for the Corporation, including its
subsidiaries, have been prepared in conformity with generally accepted
accounting principles. Such preparation requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Although the interim amounts are unaudited, they do reflect all adjustments
that, in the opinion of management, are necessary for a fair presentation of the
results of operations for the interim periods. All such adjustments are of a
normal, recurring nature. Because the results from commercial banking operations
are so closely related and responsive to changes in economic conditions, fiscal
policy and monetary policy, and because the results for the investment security
and trading portfolios are largely market-driven, the results for any interim
period are not necessarily indicative of the results that can be expected for
the entire year.
Note 2
- ------
The Corporation presents earnings per share on both a primary and a fully
diluted basis. Primary earnings per share were computed by dividing net income,
after deducting dividends on preferred stock, by the average number of common
and common-equivalent shares outstanding during the period.
Common-equivalent shares consist of shares issuable under the Employee Stock
Purchase and Savings Plan and outstanding stock options. Fully diluted shares
also include the common shares that would result from the conversion of
convertible preferred stock.
To compute fully diluted earnings per share, net income was reduced by preferred
stock dividend requirements, except those related to convertible stock.
The net income, preferred stock dividends and shares used to compute primary and
fully diluted earnings per share are presented in the following table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nine Months Ended
(In millions) September 30
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY
Net income................................................. $1,059 $1,024
Preferred stock dividends.................................. 24 30
------ ------
Net income attributable to common
stockholders' equity..................................... $1,035 $ 994
====== ======
Average number of common and
common-equivalent shares................................. 319.8 323.8
===== =====
FULLY DILUTED
Net income................................................. $1,059 $1,024
Preferred stock dividends, excluding
convertible Series B..................................... 15 21
------ ------
Fully diluted net income................................... $1,044 $1,003
====== ======
Average number of shares,
assuming full dilution................................... 327.2 331.2
===== =====
- ---------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Note 3
- ------
At September 30, 1996, credit card receivables aggregated $9.9 billion. These
receivables are available for sale at face value through credit card
securitization programs.
Note 4
- ------
Nonperforming loans are generally identified as "impaired loans." At September
30, 1996, the recorded investment in loans considered impaired was $309 million,
which required a related allowance for credit losses of $49 million.
Substantially all of the $309 million in impaired loans required the
establishment of an allocated reserve. The average recorded investment in
impaired loans was approximately $346 million for the quarter ended September
30, 1996. The Corporation recognized interest income associated with impaired
loans of $5 million during the quarter.
Loans 90 days or more past due and still accruing interest amounted to $266
million at September 30, 1996, compared with $197 million at December 31, 1995,
and $144 million at September 30, 1995.
Note 5
- ------
The Corporation adopted SFAS No. 122, "Accounting for Mortgage Servicing
Rights," on January 1, 1996. This Statement requires the capitalization of all
mortgage servicing rights, except those related to loans the Corporation
originated and has no plan to sell or securitize. Previously, only purchased
mortgage servicing rights were capitalized. Implementation of this Statement did
not have a material effect on the results of operations, nor is it expected to
have a material effect on the Corporation's business practices or continuing
results of operations.
The Corporation also has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," effective January 1, 1996. The Corporation has elected to retain
its current method of accounting for employee stock compensation plans and to
begin disclosing the effect of the valuations required by this Statement in the
annual report for the year ending December 31, 1996. Accordingly, there is no
financial statement effect related to the adoption of this Statement.
In June of 1996, the FASB issued SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
generally becomes effective on a prospective basis beginning January 1, 1997. In
October of 1996, the FASB tentatively decided to delay the effective date of
certain provisions until January 1, 1998. The new Statement primarily
establishes criteria based on legal control to determine whether a transfer of a
financial asset is a sale or a secured borrowing. The effect of the Statement is
uncertain at this time pending the resolution of various implementation issues.
Note 6
- ------
The ratio of income to fixed charges for the nine months ended September 30,
1996, excluding interest on deposits was 2.1x, and including interest on
deposits was 1.5x. The ratio has been computed on the basis of the total
enterprise (as defined by the Securities and Exchange Commission) by dividing
income before fixed charges and income taxes by fixed charges. Fixed charges
consist of interest expense on all long- and short-term borrowings, excluding or
including interest on deposits.
32
<PAGE>
Note 7
- ------
On December 1, 1995 (the "Effective Time"), First Chicago Corporation ("FCC")
merged with and into NBD Bancorp, Inc. ("NBD"), with the combined company
renamed First Chicago NBD Corporation. At the Effective Time, each share of FCC
common stock was converted into 1.81 shares of the Corporation's common stock.
In aggregate, 87.1 million shares of FCC common stock were converted into 157.7
million shares of the Corporation's common stock. Each share of NBD common stock
remained outstanding representing one share of the Corporation's common stock.
Each share of FCC preferred stock outstanding immediately prior to the merger
was converted into one share of the Corporation's preferred stock with
substantially similar terms. FCC treasury shares held at the Effective Time were
canceled. The merger was accounted for as a pooling of interests and,
accordingly, the financial statements have been restated.
Note 8
- ------
The Corporation and certain of its subsidiaries are defendants in various
lawsuits, including certain class actions, arising out of the normal course of
business, and the Corporation has received certain tax deficiency assessments.
Since the Corporation and certain of its subsidiaries, which are regulated by
one or more federal and state regulatory authorities, also are the subject of
numerous examinations and reviews by such authorities, the Corporation is and
will, from time to time, normally be engaged in various disagreements with
regulators, related primarily to banking matters. In the opinion of management
and the Corporation's general counsel, the ultimate resolution of the matters
referred to in this note will not have a material effect on the consolidated
financial statements.
33
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- ----------------------------------------------------------------------------------------
Investment Securities--Available-for-Sale
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Value
September 30, 1996 (In millions) Cost Gains Losses (Book Value)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury........................... $2,910 $ 10 $ 10 $2,910
U.S. government agencies
Mortgage-backed securities............ 1,563 19 32 1,550
Collateralized mortgage obligations... 27 - - 27
Other................................. 66 - - 66
States and political subdivisions....... 1,199 57 1 1,255
Other debt securities................... 201 3 - 204
Equity securities (1)(2)................ 1,020 185 77 1,128
------ ---- ---- ------
Total............................... $6,986 $274 $120 $7,140
====== ==== ==== ======
--------------------------------------------------------------------------------------
</TABLE>
(1) The fair values of certain securities for which market quotations were not
available were estimated. In addition, the fair values of certain
securities reflect liquidity and other market-related factors.
(2) Includes investments accounted for at fair value, in keeping with
specialized industry practice.
IMPACT OF CREDIT CARD SECURITIZATION
For analytical purposes only, the following table shows income statement line
items adjusted for the net impact of securitization of credit card receivables.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1996 Three Months Ended September 30, 1995
-------------------------------------- -------------------------------------
Credit Card Credit Card
(In millions) Reported Securitizations Adjusted Reported Securitizations Adjusted
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis.. $ 967 $ 151 $ 1,118 $ 824 $ 183 $ 1,007
Provision for credit
losses................ 185 106 291 125 94 219
Noninterest income...... 597 (45) 552 702 (89) 613
Noninterest expense..... 816 - 816 827 - 827
Net income.............. 358 - 358 357 - 357
Assets--quarter-end..... $106,694 $8,039 $114,733 $124,056 $7,986 $132,042
--average......... 110,715 7,219 117,934 124,738 7,808 132,546
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1996 Nine Months Ended September 30, 1995
------------------------------------ ------------------------------------
Credit Card Credit Card
(In millions) Reported Securitizations Adjusted Reported Securitizations Adjusted
- ------------------------------------------------------------------------------------------------------------
Net interest income--
tax-equivalent basis.. $ 2,815 $ 487 $ 3,302 $ 2,447 $ 487 $ 2,934
Provision for credit
losses................ 545 321 866 300 234 534
Noninterest income...... 1,866 (166) 1,700 1,936 (253) 1,683
Noninterest expense..... 2,458 - 2,458 2,447 - 2,447
Net income.............. 1,059 - 1,059 1,024 - 1,024
Assets--quarter-end..... $106,694 $8,039 $114,733 $124,056 $7,986 $132,042
--average......... 115,882 7,542 123,424 121,907 6,911 128,818
- ------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1996 June 30, 1996
- ----------------------------------------------------------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing due from banks.......................... $ 7,891 $ 112 5.65% $ 8,765 $ 123 5.64%
Federal funds sold and securities under resale
agreements.............................................. 8,402 113 5.35 12,264 163 5.35
Trading assets........................................... 6,577 96 5.81 7,312 105 5.78
Investment securities
U.S. government and federal agency..................... 4,778 78 6.49 5,171 87 6.77
States and political subdivisions...................... 1,265 29 9.12 1,354 30 8.91
Other.................................................. 1,248 17 5.42 1,164 18 6.22
-------- ------ ---- -------- ------ ----
Total investment securities.......................... 7,291 124 6.77 7,689 135 7.06
Loans (1)(2)
Domestic offices....................................... 62,384 1,429 9.23 60,981 1,361 9.09
Foreign offices........................................ 3,578 59 6.56 3,553 60 6.79
-------- ------ ---- -------- ------ ----
Total loans.......................................... 65,962 1,488 9.08 64,534 1,421 8.96
-------- ------ ---- -------- ------ ----
Total earning assets (3)............................. 96,123 1,933 8.00 100,564 1,947 7.79
Cash and due from banks.................................. 6,352 6,330
Allowance for credit losses.............................. (1,455) (1,378)
Other assets............................................. 9,695 10,764
-------- --------
Total assets......................................... $110,715 $116,280
======== ========
- ----------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings................................................ $ 10,940 $ 61 2.22% $ 11,184 $ 59 2.12%
Money market........................................... 10,166 92 3.60 9,910 91 3.69
Time................................................... 15,736 213 5.38 15,881 213 5.39
Foreign offices........................................ 12,898 161 4.97 14,324 182 5.11
-------- ------ ---- -------- ------ ----
Total deposits--interest-bearing..................... 49,740 527 4.22 51,299 545 4.27
Federal funds purchased and securities under repurchase
agreements............................................. 11,227 149 5.28 14,622 190 5.23
Other short-term borrowings.............................. 11,773 156 5.27 10,947 139 5.11
Long-term debt........................................... 8,122 134 6.56 8,197 138 6.77
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities................... 80,862 966 4.75 85,065 1,012 4.78
Demand deposits.......................................... 13,742 13,863
Other liabilities........................................ 7,272 8,680
Preferred stock.......................................... 487 489
Common stockholders' equity.............................. 8,352 8,183
-------- --------
Total liabilities and stockholders' equity........... $110,715 $116,280
======== ========
- ----------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (3)....................... $1,933 8.00% $1,947 7.79%
Interest expense/earning assets.......................... 966 4.00 1,012 4.05
------ ---- ------ ----
Net interest margin...................................... $ 967 4.00% $ 935 3.74%
====== ==== ====== ====
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average lease-financing receivables are reduced by related deferred tax
liabilities in calculating the average rate.
(2) Nonperforming loans are included in average balances used to determine the
average rate.
(3) Includes tax-equivalent adjustments based on a 35% federal income tax rate.
35
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
March 31, 1996 December 31, 1995 September 30, 1995
- -------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9,686 $ 146 6.06% $ 10,155 $ 154 6.02% $ 10,460 $ 161 6.11%
13,465 177 5.29 13,911 206 5.88 15,789 230 5.78
8,797 124 5.67 8,742 132 5.99 8,554 142 6.59
6,197 105 6.81 8,356 143 6.79 9,842 167 6.73
1,428 32 9.01 1,457 34 9.26 1,500 35 9.26
1,266 17 5.40 1,308 21 6.37 1,925 22 4.53
- -------- ------ ---- -------- ------ ---- -------- ------ -----
8,891 154 6.97 11,121 198 7.06 13,267 224 6.70
60,315 1,358 9.17 58,537 1,343 9.22 56,260 1,261 9.02
3,475 61 7.06 3,721 63 6.72 3,401 64 7.47
- -------- ------ ---- -------- ------ ---- -------- ------ ----
63,790 1,419 9.05 62,258 1,406 9.07 59,661 1,325 8.93
- -------- ------ ---- -------- ------ ---- -------- ------ ----
104,629 2,020 7.77 106,187 2,096 7.83 107,731 2,082 7.66
6,081 6,141 5,992
(1,335) (1,234) (1,179)
11,333 12,679 12,194
- -------- -------- --------
$120,708 $123,773 $124,738
======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
$ 11,273 $ 64 2.28% $ 11,221 $ 72 2.55% $ 11,335 $ 73 2.56%
8,645 84 3.91 8,979 90 3.98 9,564 97 4.02
16,941 234 5.56 18,529 271 5.80 17,368 260 5.94
15,707 210 5.38 16,365 231 5.60 17,194 247 5.70
- -------- ------ ---- -------- ------ ---- -------- ------ ----
52,566 592 4.53 55,094 664 4.78 55,461 677 4.84
17,076 225 5.30 19,003 286 5.97 20,443 304 5.90
11,774 153 5.23 8,986 142 6.27 8,962 131 5.80
8,079 137 6.82 8,275 140 6.71 8,238 146 7.03
- -------- ------ ---- -------- ------ ---- -------- ------ ----
89,495 1,107 4.97 91,358 1,232 5.35 93,104 1,258 5.36
13,356 13,458 13,158
9,314 10,469 9,972
490 490 570
8,053 7,998 7,934
- -------- -------- --------
$120,708 $123,773 $124,738
======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
$2,020 7.77% $2,096 7.83% $2,082 7.66%
1,107 4.26 1,232 4.60 1,258 4.63
------ ---- ------ ---- ------ ----
$ 913 3.51% $ 864 3.23% $ 824 3.03%
====== ==== ====== ==== ====== ====
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- ---------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1996 September 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(Income and rates on tax-equivalent basis) Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing due from banks.......................... $ 8,778 $ 381 5.80% $ 9,962 $ 466 6.25%
Federal funds sold and securities under resale
agreements.............................................. 11,366 453 5.32 16,296 716 5.87
Trading assets........................................... 7,558 325 5.74 6,820 337 6.61
Investment securities
U.S. government and federal agency..................... 5,380 270 6.70 10,574 538 6.80
States and political subdivisions...................... 1,349 91 9.01 1,575 107 9.08
Other.................................................. 1,226 52 5.67 1,939 50 3.45
-------- ------ ---- -------- ------ ----
Total investment securities.......................... 7,955 413 6.93 14,088 695 6.60
Loans (1)(2)
Domestic offices....................................... 61,231 4,148 9.16 54,537 3,700 9.20
Foreign offices........................................ 3,535 180 6.80 3,313 183 7.39
-------- ------ ---- -------- ------ ----
Total loans.......................................... 64,766 4,328 9.03 57,850 3,883 9.09
-------- ------ ---- -------- ------ ----
Total earning assets (3)............................. 100,423 5,900 7.84 105,016 6,097 7.76
Cash and due from banks.................................. 6,254 6,392
Allowance for credit losses.............................. (1,389) (1,186)
Other assets............................................. 10,594 11,685
-------- --------
Total assets......................................... $115,882 $121,907
======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings................................................ $ 11,131 $ 184 2.21% $ 11,441 $ 226 2.64%
Money market........................................... 9,576 267 3.72 9,370 279 3.98
Time................................................... 16,184 660 5.45 16,949 737 5.81
Foreign offices........................................ 14,305 553 5.16 15,646 675 5.77
-------- ------ ---- -------- ------ ----
Total deposits--interest-bearing..................... 51,196 1,664 4.34 53,406 1,917 4.80
Federal funds purchased and securities under repurchase
agreements............................................. 14,297 564 5.27 20,388 906 5.94
Other short-term borrowings.............................. 11,499 448 5.20 9,222 396 5.74
Long-term debt........................................... 8,133 409 6.72 7,833 431 7.36
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities................... 85,125 3,085 4.84 90,849 3,650 5.37
Demand deposits.......................................... 13,654 13,189
Other liabilities........................................ 8,417 9,585
Preferred stock.......................................... 489 597
Common stockholders' equity.............................. 8,197 7,687
-------- --------
Total liabilities and stockholders' equity........... $115,882 $121,907
======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (3)....................... $5,900 7.84% $6,097 7.76%
Interest expense/earning assets.......................... 3,085 4.10 3,650 4.65
------ ---- ------ ----
Net interest margin...................................... $2,815 3.74% $2,447 3.11%
====== ==== ====== ====
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average lease-financing receivables are reduced by related deferred tax
liabilities in calculating the average rate.
(2) Nonperforming loans are included in average balances used to determine the
average rate.
(3) Includes tax-equivalent adjustments based on a 35% federal income tax rate.
37
<PAGE>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30 June 30 March 31 December 31 September 30
(Dollars in millions, except per share data) 1996 1996 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME DATA
For the Quarter Ended
Actual
Net interest income--tax-equivalent basis.......................... $ 967 $ 935 $ 913 $ 864 $ 824
Average earning assets............................................. 96,123 100,564 104,629 106,187 107,731
Net interest margin................................................ 4.00% 3.74% 3.51% 3.23% 3.03%
Adjusted (1)
Net interest income--tax-equivalent basis.......................... $ 1 ,115 $ 1,100 $ 1,078 $ 1,033 $ 1,003
Average earning assets............................................. 98,346 100,935 102,518 104,143 104,962
Net interest margin................................................ 4.51% 4.38% 4.23% 3.93% 3.79%
- ------------------------------------------------------------------------------------------------------------------------------------
AT QUARTER-END
BALANCE SHEET DATA
Assets............................................................... $106,694 $113,714 $115,465 $122,002 $124,056
Loans................................................................ 66,602 66,431 64,253 64,434 61,076
Deposits............................................................. 63,679 64,593 64,243 69,106 66,934
Long-term debt....................................................... 7,967 7,951 8,011 8,163 8,445
Common stockholders' equity.......................................... 8,612 8,339 8,135 7,961 7,954
Stockholders' equity................................................. 9,087 8,827 8,624 8,450 8,445
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL DATA (2)
Common equity/assets................................................. 8.1% 7.6% 7.3% 6.9% 6.8%
Regulatory leverage ratio............................................ 8.1 7.6 7.3 6.9 6.9
Risk-based capital
Tier 1 capital ratio............................................... 8.4 8.1 8.1 7.8 8.2
Total capital ratio................................................ 12.4 12.2 12.3 11.8 12.4
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
FOR THE QUARTER ENDED
Net income as a percentage of:
Average stockholders' equity....................................... 16.1% 16.7% 16.0% 5.9% 16.7%
Average common stockholders' equity................................ 16.7 17.4 16.6 5.9 17.4
Average total assets............................................... 1.29 1.25 1.13 0.40 1.14
Average earning assets............................................. 1.48 1.44 1.31 0.47 1.31
Stockholders' equity as a percentage of:
Total assets....................................................... 8.5 7.8 7.5 6.9 6.8
Total loans........................................................ 13.6 13.3 13.4 13.1 13.8
Total deposits..................................................... 14.3 13.7 13.4 12.2 12.6
Average stockholders' equity as a percentage of:
Average assets..................................................... 8.0 7.5 7.1 6.9 6.8
Average loans...................................................... 13.4 13.4 13.4 13.6 14.3
Average deposits................................................... 13.9 13.3 12.9 12.4 12.4
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
FOR THE QUARTER ENDED
Market price
High............................................................... $ 45 1/4 $ 45 1/2 $ 44 1/4 $ 42 1/2 $ 39 1/4
Low................................................................ 36 5/8 38 5/8 34 3/4 36 1/2 31 1/2
At quarter-end..................................................... 45 1/4 39 1/8 41 1/2 39 1/2 38 1/4
Book value........................................................... $ 27.11 $ 26.31 $ 25.70 $ 25.25 $ 24.96
Dividends declared on common stock................................... $ 0.36 $ 0.36 $ 0.36 $ 0.36 $ 0.33
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted to exclude impact of securitization of credit card receivables
and the activities of FCCM.
(2) Net of investment in FCCM.
38
<PAGE>
First Chicago NBD Corporation and Subsidiaries
Five-Quarter Consolidated Income Statement
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Three Months Ended
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
(Dollars in millions, except per share data) 1996 1996 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income
Loans, including fees................................................ $ 1,482 $ 1,416 $ 1,412 $ 1,398 $ 1,318
Bank balances........................................................ 112 123 146 154 161
Federal funds sold and securities under resale agreements............ 113 163 177 206 230
Trading assets....................................................... 96 104 123 132 141
Investment securities--taxable....................................... 82 94 109 133 176
Investment securities--tax-exempt.................................... 23 22 25 43 28
------- ------- ------- ------- -------
Total...................................................... 1,908 1,922 1,992 2,066 2,054
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits............................................................. 527 545 592 664 677
Federal funds purchased and securities under repurchase
agreements.......................................................... 149 190 225 286 304
Other short-term borrowings.......................................... 156 139 153 142 131
Long-term debt....................................................... 134 138 137 140 146
------- ------- ------- ------- -------
Total...................................................... 966 1,012 1,107 1,232 1,258
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income.................................................. 942 910 885 834 796
Provision for credit losses.......................................... 185 185 175 210 125
------- ------- ------- ------- -------
Net Interest Income After Provision for Credit Losses................ 757 725 710 624 671
- ------------------------------------------------------------------------------------------------------------------------
Noninterest Income
Combined trading profits (losses).................................... (12) 22 36 48 85
Equity securities gains.............................................. 50 85 49 72 66
Investment securities gains (losses)................................. 2 3 22 (19) 2
------- ------- ------- ------- -------
Market-driven revenue........................................... 40 110 107 101 153
Credit card fee revenue.............................................. 228 220 207 228 248
Fiduciary and investment management fees............................. 100 98 100 114 97
Service charges and commissions...................................... 201 195 189 190 184
Other................................................................ 28 20 23 22 20
------- ------- ------- ------- -------
Total...................................................... 597 643 626 655 702
- ------------------------------------------------------------------------------------------------------------------------
Noninterest Expense
Salaries and employee benefits....................................... 419 426 436 432 437
Occupancy expense of premises, net................................... 64 64 67 54 69
Equipment rentals, depreciation and maintenance...................... 56 55 55 63 53
FDIC insurance expense............................................... 2 2 2 4 2
Amortization of intangible assets.................................... 20 19 20 21 21
Other................................................................ 237 248 248 247 245
------- ------- ------- ------- -------
Operating expenses.............................................. 798 814 828 821 827
Merger-related charges............................................... - - - 267 -
FDIC special assessment.............................................. 18 - - - -
------- ------- ------- ------- -------
Total...................................................... 816 814 828 1,088 827
- ------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes........................................... 538 554 508 191 546
Applicable income taxes.............................................. 180 193 168 65 189
------- ------- ------- ------- -------
Net Income........................................................... $ 358 $ 361 $ 340 $ 126 $ 357
======= ======= ======= ======= =======
Net Income Attributable to Common Stockholders' Equity............... $ 350 $ 353 $ 332 $ 119 $ 347
======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------
Earnings Per Share
Net Income - Primary............................................... $ 1.09 $ 1.10 $ 1.04 $ 0.37 $ 1.07
Net Income - Fully Diluted......................................... $ 1.08 $ 1.09 $ 1.03 $ 0.37 $ 1.06
- ------------------------------------------------------------------------------------------------------------------------
Average number of common and common-equivalent shares (in millions).. 320.2 320.2 319.2 320.0 324.4
Average number of shares, assuming full dilution (in millions)....... 327.5 326.9 326.2 326.9 331.8
</TABLE>
39
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ------------
Commission file number 1-7127
---------------------------------------
FIRST CHICAGO NBD CORPORATION
-------------------------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 38-1984850
-------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE FIRST NATIONAL PLAZA CHICAGO, ILLINOIS 60670
-------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
312-732-4000
-------------------------------------------------------------
(Registrant's telephone number, including area code)
NO CHANGE
-------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of October 31, 1996.
Class Number of Shares Outstanding
- ------------------------- ----------------------------
Common Stock $1 par value 318,838,372
<PAGE>
FORM 10-Q CROSS-REFERENCE INDEX
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements Page
- ---------------------------- ----
Consolidated Balance Sheet --
September 30, 1996 and 1995, and December 31, 1995 27
Consolidated Income Statement --
Three and Nine Months Ended September 30, 1996 and 1995 28
Consolidated Statement of Stockholders' Equity --
Nine Months Ended September 30, 1996 and 1995 29
Consolidated Statement of Cash Flows --
Nine Months Ended September 30, 1996 and 1995 30
Notes to Consolidated Financial Statements 31-33
Selected Statistical Information 1,
19-22,
34-39
ITEM 2. Management's Discussion and Analysis of Financial
- ---------------------------------------------------------
Condition and Results of Operations 2-26
-----------------------------------
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 42
- -------------------------
ITEM 2. Changes in Securities 42
- -----------------------------
ITEM 3. Defaults Upon Senior Securities 42
- ---------------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 42
- -----------------------------------------------------------
ITEM 5. Other Information 42
- -------------------------
ITEM 6. Exhibits and Reports on Form 8-K 42
- ----------------------------------------
Signatures 43
<PAGE>
PART II. - OTHER INFORMATION
----------------------------
ITEM 1. Legal Proceedings
- -------------------------
None
ITEM 2. Changes in Securities
- -----------------------------
None
ITEM 3. Defaults Upon Senior Securities
- ---------------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
ITEM 5. Other Information
- -------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibit 12 Statement re computation of ratio
Exhibit 27 Financial Data Schedule
(b) The Registrant filed the following Current Reports on Form 8-K during
the quarter ended September 30, 1996.
Date Item Reported
-------- -------------
7/15/96 The Registrant's earnings for the quarter ended
June 30, 1996.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST CHICAGO NBD CORPORATION
-------------------------------
(Registrant)
Date November 14, 1996 /s/ Verne G. Istock
----------------------- -------------------------------
Verne G. Istock
Principal Executive Officer
Date November 14, 1996 /s/ William J. Roberts
----------------------- -------------------------------
William J. Roberts
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit Page
- -------------- ---------------------- ----
12 - Statement re computation of ratio 45
27 - Financial Data Schedule 46
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
The computation of the ratio of income to fixed charges is set forth in
Note 6 of Notes to Consolidated Financial Statements on page 32 of the Form
10-Q.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
First Chicago NBD Corporation's Form 10Q for the period ended September 30, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,706
<INT-BEARING-DEPOSITS> 5,695
<FED-FUNDS-SOLD> 5,640
<TRADING-ASSETS> 5,226
<INVESTMENTS-HELD-FOR-SALE> 7,140
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 66,602
<ALLOWANCE> 1,447
<TOTAL-ASSETS> 106,694
<DEPOSITS> 63,679
<SHORT-TERM> 18,023
<LIABILITIES-OTHER> 7,233
<LONG-TERM> 7,967
<COMMON> 319
0
475
<OTHER-SE> 8,293<F1>
<TOTAL-LIABILITIES-AND-EQUITY> 106,694
<INTEREST-LOAN> 4,310
<INTEREST-INVEST> 355
<INTEREST-OTHER> 834
<INTEREST-TOTAL> 5,822
<INTEREST-DEPOSIT> 1,664
<INTEREST-EXPENSE> 3,085
<INTEREST-INCOME-NET> 2,737
<LOAN-LOSSES> 545
<SECURITIES-GAINS> 27<F2>
<EXPENSE-OTHER> 2,458<F3>
<INCOME-PRETAX> 1,600
<INCOME-PRE-EXTRAORDINARY> 1,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,059
<EPS-PRIMARY> 3.24
<EPS-DILUTED> 3.19
<YIELD-ACTUAL> 3.74
<LOANS-NON> 309
<LOANS-PAST> 266
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,338
<CHARGE-OFFS> 583
<RECOVERIES> 103
<ALLOWANCE-CLOSE> 1,447
<ALLOWANCE-DOMESTIC> 0<F4>
<ALLOWANCE-FOREIGN> 0<F4>
<ALLOWANCE-UNALLOCATED> 0<F4>
<FN>
<F1> Treasury stock of $48 million is included as a reduction of other
stockholders' equity.
<F2> Investment securities gains/losses do not include the Corporation's equity
securities gains which totaled $184 million.
<F3> Other expense incl.: Salaries and employee benefits, $1,281 mil.;
Occupancy, $195 mil.; Equipment rentals, depreciation and maintenance,
$166 mil.; FDIC insurance of $20 mil.; amortization of intangible assets,
$59 mil.; and other expenses totaling $733 mil.
<F4> Allowance-Domestic, Allowance-Foreign, and Allowance-Unallocated are only
disclosed on an annual basis in the Corporation's Form 10-K and are
therefore not included in this Financial Data Schedule.
</FN>
</TABLE>
