<PAGE>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
FINANCIAL SUPPLEMENT AND FORM 10-Q
CONTENTS Page
_____________________________________________________________________
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>
- --------------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------------
June March December September June
(Dollars in millions, except per share data) 1996 1996 1995 1995 1995
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA FOR THE QUARTER
<S> <C> <C> <C> <C> <C>
Net interest income..................................... $ 910 $ 885 $ 834 $ 796 $ 784
Tax-equivalent adjustment............................... 25 28 30 28 24
-------- -------- -------- -------- --------
Net interest income--tax-equivalent basis............... 935 913 864 824 808
Provision for credit losses............................. 185 175 210 125 90
Noninterest income...................................... 643 626 655 702 631
Merger-related charges.................................. - - 267 - -
Other noninterest expense............................... 814 828 821 827 821
Net income.............................................. 361 340 126 357 331
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Net income - Primary.................................... $ 1.10 $ 1.04 $ 0.37 $ 1.07 $ 0.99
Net income - Fully diluted.............................. 1.09 1.03 0.37 1.06 0.98
- --------------------------------------------------------------------------------------------------------------------------------
AT QUARTER-END
Assets.................................................. $113,714 $115,465 $122,002 $124,056 $123,180
Loans................................................... 66,431 64,253 64,434 61,076 58,484
Deposits................................................ 64,593 64,243 69,106 66,934 66,319
Long-term debt.......................................... 7,951 8,011 8,163 8,445 8,065
Common stockholders' equity............................. 8,339 8,135 7,961 7,954 7,749
Stockholders' equity.................................... 8,827 8,624 8,450 8,445 8,360
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Assets.................................................. $116,280 $120,708 $123,773 $124,738 $123,795
Loans................................................... 64,534 63,790 62,258 59,661 57,727
Earning assets.......................................... 100,564 104,629 106,187 107,731 104,536
Deposits................................................ 65,162 65,922 68,552 68,619 66,971
Common stockholders' equity............................. 8,183 8,053 7,998 7,934 7,669
Stockholders' equity.................................... 8,672 8,543 8,488 8,504 8,280
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on stockholders' equity.......................... 16.7% 16.0% 5.9% 16.7% 16.0%
Return on common stockholders' equity................... 17.4 16.6 5.9 17.4 16.8
Return on assets........................................ 1.25 1.13 0.40 1.14 1.07
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL DATA (1)
Common-equity-to-assets ratio........................... 7.6% 7.3% 6.9% 6.8% 6.7%
Regulatory leverage ratio............................... 7.6 7.3 6.9 6.9 7.0
Risk-based capital
Tier 1 ratio.......................................... 8.1 8.1 7.8 8.2 8.5
Total capital ratio................................... 12.2 12.3 11.8 12.4 12.8
- --------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE AND STOCKHOLDER DATA FOR THE QUARTER ENDED
Market price (at quarter-end)........................... $ 39 1/8 $ 41 1/2 $ 39 1/2 $ 38 1/4 $ 32
Book value (at quarter-end)............................. 26.31 25.70 25.25 24.96 24.25
Dividends declared per common share..................... 0.36 0.36 0.36 0.33 0.33
Common dividends........................................ 115 113 113 107 101
Preferred dividends..................................... 8 8 7 10 10
Dividend payout ratio................................... 32.7% 34.6% 97.3% 30.8% 33.3%
Average number of common and common-equivalent
shares (in millions).................................. 320.2 319.2 320.0 324.4 322.8
Average number of shares, assuming full dilution (in 326.9 326.2 326.9 331.8 329.9
millions)..............................................
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net of investment in First Chicago Capital Markets, Inc.
<PAGE>
BUSINESS SEGMENTS
OVERVIEW
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 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................. $ 82 $ 82 $ 146 $ 123 $ 61 $ 57 $ 67 $ 51 $ 5 $ 18
Return on equity........... 30% 40% 17% 15% 7% 8% 59% 36% N/M N/M
Average assets
(presecuritized)
(in billions)............ $17.6 $13.4 $38.2 $35.2 $ 47.5 $ 56.6 $20.5 $25.0 $ - $ 0.5
Average common equity (in
billions)............... 1.1 0.8 3.5 3.2 3.2 2.7 0.4 0.6 - 0.4
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 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................. $ 157 $ 169 $ 286 $ 242 $ 123 $ 130 $ 122 $ 103 $ 13 $ 23
Return on equity........... 29% 42% 17% 15% 7% 9% 54% 36% N/M N/M
Average assets
(presecuritized)
(in billions)............ $17.6 $13.0 $38.4 $34.6 $ 49.7 $ 53.6 $20.3 $25.2 $ 0.2 $ 0.5
Average common equity (in
billions)............... 1.1 0.8 3.4 3.1 3.2 2.7 0.4 0.6 - 0.4
- ------------------------------------------------------------------------------------------------------------------------------
</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.
<PAGE>
Earnings Contribution by Business Lines
For the Six Months Ended June 30, 1996
[PIE CHARTS]
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C> <C>
Credit card = 23% Credit Card = 25%
Retail = 18% Retail = 15%
Middle Market = 23% Middle Market = 21%
Corporate & Institutional = 17% Corporate & Institutional = 20%
Corporate Investments = 17% Corporate Investments = 16%
Other = 2% Other = 3%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Credit Card
- --------------------------------------------------------------------------------
(Presecuritized) Three Months Ended Six Months Ended
(Dollars in millions, except June 30 June 30
where noted) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<C> <C> <C> <C>
Net interest income--
tax-equivalent basis......... $ 366 $ 280 $ 731 $ 550
Provision for credit losses... 262 143 481 264
Noninterest income............ 157 133 286 254
Noninterest expense........... 131 137 287 267
Net income.................... 82 82 157 169
Return on equity.............. 30% 40% 29% 42%
Efficiency ratio (1).......... 25% 33% 28% 33%
Average loans (in billions)... $17.4 $13.5 $17.4 $13.2
Average common equity
(in billions)................ 1.1 0.8 1.1 0.8
- --------------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
The Corporation reaches consumers nationally through its Credit Card business,
known nationally as First Card, which is one of the largest issuers of bank
credit cards in the U.S.
Net income in the Credit Card business was $82 million for the second quarter of
1996. For six months, net income was $157 million, or 23% of corporate earnings.
Return on equity year-to-date declined to 29%, reflecting the substantial
increase in credit costs. The efficiency ratio for the Credit Card business, at
28%, remains excellent.
<PAGE>
Revenue growth in this business over the past year has been offset by increased
credit costs as the net charge-off rate increased to 5.9% in the second quarter
of 1996 from 4.8% in the first quarter and 4.0% a year ago. The Corporation
expects the trend in charge-offs for the Credit Card business to continue in the
near term. The timing of the peak level of charge-offs is uncertain at this
time.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Regional Banking
- ---------------------------------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
(Dollars in millions, except Retail Middle Market Retail Middle Market
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......... $300 $294 $209 $201 $591 $587 $420 $398
Provision for credit losses... 18 10 6 11 32 17 21 23
Noninterest income............ 142 113 48 48 284 225 97 87
Noninterest expense........... 319 317 121 121 640 632 241 235
Net income.................... 64 49 82 74 127 99 159 143
Return on equity.............. 17% 12% 17% 17% 17% 13% 17% 17%
Efficiency ratio (1).......... 72% 78% 47% 49% 73% 78% 47% 48%
Average loans (in billions)... $17.0 $15.4 $16.5 $15.1 $17.0 $15.2 $16.4 $14.8
Average assets (in billions).. 20.0 17.9 18.2 17.3 20.2 17.6 18.2 17.0
Average common equity
(in billions)................ 1.5 1.5 2.0 1.7 1.5 1.5 1.9 1.6
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
REGIONAL BANKING
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 41% of the
Corporation's earnings for the first half of 1996. Net income of $146 million
for the second quarter was up 19% from a year earlier. Return on equity for
this segment grew to 17% for both the quarter and six-month periods.
Retail Banking
For the second quarter of 1996, Retail Banking's earnings increased over 30% to
$64 million from $49 million in the second quarter of 1995. Return on equity
improved to 17% from 12%.
A similar positive trend is represented in the year-to-date results -- 28% net
income improvement and a 17% return on equity. Growth in noninterest income is
the principal reason for this earnings improvement. Strong deposit fees reflect
successful implementation of the deposit account repricing strategy initiated
one year ago.
Middle Market Banking
Middle Market Banking's net income increased to $82 million for the second
quarter of 1996 and $159 million for the six-month period. Return on equity was
17% in both periods. The increase in net income reflects an 11% year-to-date
increase in average loans. Credit quality and efficiency ratios in Middle Market
Banking were excellent.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Corporate and Institutional Banking
- ----------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in millions, except June 30 June 30
where noted) 1996 1995 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis......... $192 $173 $371 $341
Provision for credit losses... 17 5 41 13
Noninterest income............ 145 154 308 331
Noninterest expense........... 226 232 444 455
Net income.................... 61 57 123 130
Return on equity.............. 7% 8% 7% 9%
Efficiency ratio (1).......... 67% 71% 65% 68%
Average loans (in billions)... $19.7 $19.3 $19.6 $18.8
Average assets (in billions).. 47.5 56.6 49.7 53.6
Average common equity
(in billions)................ 3.2 2.7 3.2 2.7
- ----------------------------------------------------------------------
</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 $61 million in the second quarter of
1996 and generated a 7% return on equity. For the first six months, net income
was $123 million, and return on equity was 7%. This business receives the
largest allocation of the Corporation's equity.
Revenues from the major product sets within Corporate and Institutional
Banking are presented in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Total Revenue Three Months Ended Six Months Ended
June 30 June 30
(In millions) 1996 1995 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Trading........ $ 33 $ 19 $ 85 $ 78
Servicing...... 145 142 275 274
Lending........ 98 107 193 207
Financing...... 29 26 56 54
Other.......... 32 33 70 59
----- ----- ----- -----
Total....... $ 337 $ 327 $ 679 $ 672
===== ===== ===== =====
- -----------------------------------------------------------
</TABLE>
Lending and servicing contribute roughly two-thirds of Corporate and
Institutional Banking's total revenue; both declined slightly from 1995 levels.
Revenue from trading activities (trading profits and related net interest
income), although higher than in 1995, remain below the Corporation's
expectations.
The 3% decline in expenses for the quarter resulted primarily from lower
headcount. Average assets for the quarter declined by $9 billion from last
year as a result of the merger-related asset reduction program.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Corporate Investments
- ----------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in millions, except June 30 June 30
where noted) 1996 1995 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis......... $30 $29 $68 $62
Provision for credit losses... - - - -
Noninterest income............ 96 61 158 118
Noninterest expense........... 14 14 27 28
Net income.................... 67 51 122 103
Return on equity.............. 59% 36% 54% 36%
Average assets (in billions).. $20.5 $25.0 $20.3 $25.2
Average common equity
(in billions)................ 0.4 0.6 0.4 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 second quarter of 1996, Corporate Investments contributed $67 million in
net income and generated a robust 59% return on equity. Equity securities gains
of $79 million contributed to the strong performance. Similarly, Corporate
Investments was a significant earnings contributor for the first half of 1996.
Average assets for the quarter declined by more than $4 billion as part of the
merger-related program to reduce low margin assets by $25 billion.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Other Activities
- ----------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in millions) June 30 June 30
1996 1995 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue................. $ 9 $ 32 $ 19 $ 43
Noninterest expense........... 2 - 3 3
Net income.................... 5 18 13 23
Average assets (in billions).. $ - $ 0.5 $ 0.2 $ 0.5
- ----------------------------------------------------------------------
</TABLE>
Net income for Other Activities was $5 million in the second quarter of 1996.
The 1995 second-quarter results included $25 million in gains from the
accelerated disposition portfolio.
STAFFING LEVELS
The following table shows average staff levels for the Corporation for the past
five quarters.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1996 1996 1995 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average Full-Time-Equivalent
Staff........................ 34,079 34,512 35,220 35,678 35,180
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EARNINGS ANALYSIS
SUMMARY
The Corporation reported net income of $361 million, or $1.09 per share, for the
second quarter of 1996, up from $331 million, or $0.98 per share, in the second
quarter of 1995. For the first six months of 1996, the Corporation earned net
income of $701 million, or $2.12 per share, compared with $667 million, or $1.97
per share, in 1995.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in millions, June 30 June 30
except per share data) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis.. $935 $808 $1,848 $1,623
Provision for credit losses................ 185 90 360 175
Noninterest income......................... 643 631 1,269 1,234
Noninterest expense........................ 814 821 1,642 1,620
Net income................................. 361 331 701 667
Common Share Data
Primary
Net income............................... $ 1.10 $ 0.99 $ 2.14 $ 2.00
Average common and common-equivalent
shares (in millions).................... 320.2 322.8 319.7 323.5
Fully diluted
Net income............................... $ 1.09 $ 0.98 $ 2.12 $ 1.97
Average shares, assuming full dilution
(in millions)........................... 326.9 329.9 326.4 330.5
Return on assets........................... 1.25% 1.07% 1.19% 1.12%
Return on common stockholders' equity...... 17.4 16.8 17.0 17.3
- -------------------------------------------------------------------------------------------
</TABLE>
Quarterly highlights:
. Net interest income increased 16% from a year ago, reflecting loan growth in
both the credit card and regional banking businesses.
. Market-driven revenues were $110 million, exceeding $100 million for the
fourth consecutive quarter. Securities gains increased $28 million from a year
ago while combined trading profits were unchanged.
. The provision for credit losses was $185 million, up significantly from the
$90 million reported a year ago. Receivables growth and increased credit
losses in the credit card business primarily accounted for the increase.
. Operating expenses were 1% below 1995 levels, and the operating efficiency
ratio improved to 51.6%.
. The Corporation remained on track or ahead of schedule in achieving its
merger-related initiatives, including asset reduction targets, appropriate
staffing levels and cost reduction goals. See Merger-Related Initiatives,
beginning on page 13, for more details.
<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 $7.5
billion in the second quarter of 1996, compared with $6.9 billion in the second
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 second quarter of 1996 was $1.1 billion, up
13% from a year ago. The rise was attributable to loan growth in both the credit
card (29%) and regional banking (10%) businesses.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Adjusted Average Loans Three Months Ended Six Months Ended
June 30 June 30
(In millions) 1996 1995 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate and Institutional.. $19,698 $19,250 $19,642 $18,846
Middle Market................ 16,558 15,118 16,399 14,761
Retail....................... 17,045 15,457 17,028 15,247
Credit Card.................. 17,432 13,473 17,373 13,152
Corporate Investments/Other.. 1,406 1,385 1,486 1,443
------- ------- ------- -------
Total................... $72,139 $64,683 $71,928 $63,449
======= ======= ======= =======
- ----------------------------------------------------------------------
</TABLE>
On an adjusted basis, net interest margin for the second quarter of 1996 was
4.38%. This compares with 3.87% in the year-ago quarter. The increase was due to
a more profitable earning asset mix, primarily driven by increased credit card
receivables and middle market loans coupled with the effects of the
Corporation's program to reduce low margin earning assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Adjusted Average Earning Assets Three Months Ended Six Months Ended
June 30 June 30
(In millions) 1996 1995 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans............................ $ 72,139 $ 64,683 $ 71,928 $63,449
Securities....................... 7,689 14,092 8,290 14,507
Trading assets................... 11,374 10,238 11,063 9,518
Other short-term investments..... 9,733 11,737 10,446 11,560
-------- -------- -------- -------
Total....................... $100,935 $100,750 $101,727 $99,034
======== ======== ======== =======
- -------------------------------------------------------------------------
</TABLE>
<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>
Net Interest Income Net Interest Margin
$ Millions
[BAR GRAPH] [LINE GRAPH]
Net Interest Adjusted Net Interest Adjusted Net Net Interest
Income-TEA Income-TEA Interest Margin Margin
------------ --------------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
2Q95 $ 808 $ 971 2Q95 3.87% 3.10%
3Q95 $ 824 $ 1,003 3Q95 3.79% 3.03%
4Q95 $ 864 $ 1,033 4Q95 3.93% 3.23%
1Q96 $ 913 $ 1,078 1Q96 4.23% 3.51%
2Q96 $ 935 $ 1,100 2Q96 4.38% 3.74%
</TABLE>
PROVISION FOR CREDIT LOSSES
Details of the Corporation's credit risk management and performance during the
quarter ended June 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 second quarter and the first six months of 1996 as compared with a year
ago.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Three Months Ended Percent Six Months Ended Percent
June 30 Increase June 30 Increase
(In millions) 1996 1995 (Decrease) 1996 1995 (Decrease)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Combined trading profits..... $ 22 $ 22 -% $ 58 $ 77 (25)%
Equity securities gains...... 85 60 42 134 115 17
Investment securities gains.. 3 - N/M 25 1 N/M
---- ---- ------ ------
Market-driven revenue...... 110 82 34 217 193 12
Credit card fee revenue...... 220 224 (2) 427 425 -
Fiduciary and investment
management fees............. 98 97 1 198 193 3
Service charges on deposits.. 101 97 4 202 190 6
Other service charges and
commissions................. 94 90 4 182 171 6
Other........................ 20 41 (51) 43 62 (31)
---- ---- ------ ------
Total...................... $643 $631 2 $1,269 $1,234 3
==== ==== ====== ======
- -------------------------------------------------------------------------------------------------------
N/M--Not Meaningful.
</TABLE>
<PAGE>
Combined trading profits were $22 million in the second quarter of 1996,
essentially unchanged from 1995 levels. For the first half of 1996, combined
trading profits were $19 million below 1995 levels, reflecting difficult trading
in both the interest rate and foreign exchange trading businesses. In both
periods, trading results were also affected by a reduced level of customer
transaction activity.
Equity securities gains were $85 million during the second quarter of 1996,
compared with $60 million in the second quarter of 1995, an increase of 42%. The
second quarter of 1996 includes a $51 million gain on the sale of an investment
in the aviation maintenance business.
Investment securities gains totaled $3 million in the second quarter of 1996,
compared with less than $1 million in the year-ago period. As part of the
Corporation's asset reduction program, the investment securities portfolio has
been reduced by $6.2 billion over the past year to $7.5 billion at June 30,
1996.
Adjusted for credit card securitizations, credit card fee revenue was $169
million in the second quarter of 1996, up 23% from a year ago and up 23% from
the first quarter of 1996. The increases primarily reflect higher transaction
volume.
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 $25 million in the second quarter and $33 million for the first six
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>
Noninterest Income
$ Millions
[BAR GRAPH]
Other Fiduciary & Serv. Chgo & Credit Market-Driven
Revenue Inv. Mgmt. Fees Commissions Card Revenue Total
------- --------------- ------------ ------ ------------- -----
<S> <C> <C> <C> <C> <C> <C>
2Q95 $ 41 $ 97 $ 187 $ 224 $ 82 $ 631
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
</TABLE>
<PAGE>
NONINTEREST EXPENSE
Operating expense in the second quarter of 1996 was $814 million, its lowest
level in the past five quarters. Operating expense in the second quarter of
1995 was $821 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>
Operating Expense Operating Efficiency (1)
$ Millions
[BAR GRAPH] [LINE GRAPH]
Salaries & Other Operating
Benefits Expense Total
---------- --------------- -----
<S> <C> <C> <C> <C> <C>
2Q95 $414 $407 $821 2Q95 57.0%
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%
</TABLE>
(1) Operating expense
as a percentage
of total revenue.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Salaries and Employee Benefits Three Months Ended Percent Six Months Ended Percent
June 30 Increase June Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries...................... $355 $344 3% $711 $681 4%
Employee benefits............. 71 70 1 151 142 6
---- ----- ------ ----
Total....................... $426 $414 3 $862 $823 5
==== ===== ====== ====
Average full-time-
equivalent staff............ 34,079 35,180 (3) 34,317 35,230 (3)
====== ====== ======= ======
- ------------------------------------------------------------------------------------------------------
</TABLE>
Second-quarter 1996 salary costs increased by only 3% from a year ago. Annual
salary increases and higher incentive compensation expense accruals were
partially offset by the effects of planned headcount reductions.
Employee benefit costs in the 1996 second quarter increased slightly when
compared with 1995 as increased pension costs were partially offset by lower
medical and other benefit costs.
The increase in employee benefits for the first six months of 1996 also
reflected higher FICA tax expense related to incentive compensation payments
made in the first quarter of 1996.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Other Operating Expense Three Months Ended Percent Six Months Ended Percent
June 30 Increase June 30 Increase
(In millions) 1996 1995 (Decrease) 1996 1995 (Decrease)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Occupancy expense of premises,
net............................. $ 64 $ 65 (2)% $131 $ 129 2%
Equipment rentals, depreciation
and maintenance................. 55 55 - 110 109 1
Marketing and public relations... 28 44 (36) 70 87 (20)
FDIC insurance expense........... 2 26 (92) 4 52 (92)
Amortization of intangible
assets.......................... 18 23 (22) 36 46 (22)
Telephone........................ 20 20 - 40 37 8
Freight and postage.............. 22 20 10 44 39 13
Travel and entertainment......... 14 13 8 26 24 8
Stationery and supplies.......... 12 11 9 23 21 10
Other............................ 153 130 18 296 253 17
----- ----- ----- -----
Total.......................... $ 388 $ 407 (5) $ 780 $ 797 (2)
===== ===== ===== =====
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Other operating expense was $388 million in the second quarter of 1996,
representing a decline of 5% from 1995 levels. A portion of this decline
reflected a reduction in marketing and solicitation costs in the credit card
business.
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.
Intangible amortization expense decreased $5 million year over year as certain
core deposit intangibles became fully amortized in 1995.
<TABLE>
<CAPTION>
APPLICABLE INCOME TAXES
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(In millions) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes......... $ 554 $ 504 $1,062 $1,017
Applicable income taxes............ 193 173 361 350
Effective tax rate................. 34.8% 34.3% 34.0% 34.4%
- --------------------------------------------------------------------------------
</TABLE>
Tax expense in the second 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.
<PAGE>
MERGER-RELATED INITIATIVES
The Corporation remained on track, or ahead of schedule, in achieving its
merger-related initiatives in the second quarter. 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. This progress was evidenced by the successful consolidation and
integration in July of the Corporation's Illinois banking businesses.
The asset reduction program targets reductions in specific asset categories
while allowing for growth in other categories such as loans. The following table
shows the components of the $15.3 billion decrease in the targeted assets using
average assets for the first half of 1995 as a baseline.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Asset Reduction Initiative
Actual Average Increase
(In millions) June 30, 1996 1st Half 1995 (Decrease)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Loans.................... $ 66,431 $ 56,927 $ 9,504
Targeted items
Deposit placements..... 7,348 9,715 (2,367)
Federal funds sold..... 1,104 1,846 (742)
Trading assets......... 15,492 20,659 (5,167)
Investment securities.. 7,507 14,507 (7,000)
-------- -------- --------
Subtotal............ 31,451 46,727 (15,276)
Other assets............. 15,832 16,830 (998)
-------- -------- --------
Total assets........ $113,714 $120,484 $ (6,770)
======== ======== ========
- ------------------------------------------------------------------
</TABLE>
It is expected that the targeted reductions of $25 billion will be achieved by
the end of the third quarter, well ahead of schedule.
The Corporation continued to make significant progress toward its headcount
reduction goals. At June 30, 1996, severance payments had been initiated for
more than 1,000 positions. The remaining planned staff reductions will occur as
integration efforts are completed.
The Corporation established a reserve for direct merger and restructuring-
related charges totaling $225 million at the time of the merger.
At June 30, 1996, the merger restructuring reserve totaled $162 million. The
table below details the components of the reserve and related balances at June
30, 1996, and March 31, 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
June 30, March 31, 2nd Quarter 1996
(In millions) 1996 1996 Transactions
- -----------------------------------------------------------------
<S> <C> <C> <C>
Direct merger costs....... $ 1 $ 1 $ -
Severance................. 60 73 (13)
Facilities and equipment.. 92 93 (1)
Other..................... 9 11 (2)
----- ----- -----
Total................ $ 162 $ 178 $(16)
===== ===== =====
- -----------------------------------------------------------------
</TABLE>
As the Corporation's planned merger integration activities are completed, it is
expected that the reduction in the above balances will accelerate. For example,
the facilities and equipment portion will be reduced dramatically when the
Illinois banking business integration is completed in the third quarter of this
year.
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 new business with new
customers.
<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 June 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
for the use of wholesale funds for funding core assets. As of June 30, 1996, its
major banking subsidiaries collectively funded 76% of core assets with core
liabilities, accessing the wholesale market for only 24% of core asset funding
needs.
The following table shows the total funding source mix for the past five
quarters.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Deposits and Other Purchased Funds
June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1996 1996 1995 1995 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic offices
Demand........................................... $14,482 $13,566 $ 15,234 $ 13,286 $ 13,747
Savings.......................................... 20,890 19,912 20,180 19,785 19,897
Time
Under $100,000................................. 9,952 10,008 9,972 10,309 9,914
$100,000 and over.............................. 5,864 6,263 5,947 5,647 5,403
Foreign offices.................................... 13,405 14,494 17,773 17,907 17,358
------- ------- -------- -------- --------
Total deposits............................ 64,593 64,243 69,106 66,934 66,319
- ---------------------------------------------------------------------------------------------------------
Federal funds purchased and
securities under repurchase
agreements........................................ 11,630 13,110 15,711 20,031 19,665
Commercial paper................................... 743 742 288 740 620
Other short-term borrowings........................ 11,754 10,777 9,514 8,517 8,310
Long-term debt..................................... 7,951 8,011 8,163 8,445 8,065
------- ------- -------- -------- --------
Total other purchased funds.................... 32,078 32,640 33,676 37,733 36,660
------- ------- -------- -------- --------
Total.......................................... $96,671 $96,883 $102,782 $104,667 $102,979
======= ======= ======== ======== ========
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<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 second quarter of 1996 as well as for the preceding four quarters,
and the actual trading revenue for each quarter.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Daily Value at Risk June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1996 1996 1995 1995 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average..................................................... $ 32 $ 32 $ 28 $ 36 $ 34
Maximum..................................................... 37 38 35 42 45
Minimum..................................................... 28 25 24 27 27
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Quarter Ended June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1996 1996 1995 1995 1995
- -----------------------------------------------------------------------------------------------------------
Trading revenue*............................................ $ 58 $ 68 $ 60 $ 108 $ 43
- -----------------------------------------------------------------------------------------------------------
*Includes trading profits and related net interest income.
</TABLE>
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.
<PAGE>
The following table details the Corporation's interest rate gap analysis as of
June 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>
June 30, 1996 0-90 91-180 181-365 1-5 Beyond
(Dollars in millions) days days days years 5 years Total
- ----------------------------------------------------------------------------------------------------
Loans.................................. $45,712 $ 3,066 $ 4,297 $12,615 $ 2,757 $ 68,447
Investment securities.................. 1,473 357 966 3,715 1,783 8,294
Other earning assets................... 26,664 1,013 - - - 27,677
Nonearning assets...................... 13,058 97 204 1,597 1,676 16,632
------- ------- -------- ------- ------- --------
Total assets........................ $86,907 $ 4,533 $ 5,467 $17,927 $ 6,216 $121,050
- ----------------------------------------------------------------------------------------------------
Deposits............................... $29,133 $ 3,477 $ 4,247 $13,562 $ 992 $ 51,411
Other interest-bearing liabilities..... 42,597 2,535 3,250 2,939 2,563 53,884
Noninterest-bearing liabilities........ 5,693 1 104 308 822 6,928
Equity................................. 399 208 417 3,435 4,368 8,827
------- ------- -------- ------- ------- --------
Total liabilities and equity........ $77,822 $ 6,221 $ 8,018 $20,244 $ 8,745 $121,050
- ----------------------------------------------------------------------------------------------------
Balance sheet sensitivity gap.......... $ 9,085 $(1,688) $ (2,551) $(2,317) $(2,529) -
- ----------------------------------------------------------------------------------------------------
Cumulative gap as a % of total assets.. 7.5% 6.1% 4.0% 2.1% 0.0% 0.0%
- ----------------------------------------------------------------------------------------------------
Effect of off-balance-sheet ALM
derivative transactions:
Specific transactions................ $(3,861) $ 513 $ 1,089 $ 818 $ 1,441 $ -
Specific asset or liability pools.... (4,323) 215 1,574 2,408 126 -
- ----------------------------------------------------------------------------------------------------
Interest rate sensitivity gap.......... $ 901 $ (960) $ 112 $ 909 $ (962) $ -
- ----------------------------------------------------------------------------------------------------
Cumulative gap......................... $ 901 $ (59) $ 53 $ 962 $ - $ -
- ----------------------------------------------------------------------------------------------------
Cumulative gap as a % of total assets.. 0.7% 0.0% 0.0% 0.8% 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 June 30, 1996, the cumulative one-year gap position was
0.0% 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 4.0% to 0.0% of total assets.
<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 June 30, 1996, the Corporation had the
following estimated earnings sensitivity profile.
<TABLE>
<CAPTION>
- ---------------------------------------------------
Immediate Change in Rates
<S> <C> <C>
(In millions) +200 bp -200 bp
-------------------------
- ---------------------------------------------------
Pretax earnings change... $2 $1
- ---------------------------------------------------
</TABLE>
Access to the derivatives market is an important element in maintaining the
interest rate risk position within policy guidelines. At June 30, 1996, the
notional principal amount of ALM interest rate swaps totaled $10.2 billion,
including $4.9 billion against specific transactions and $5.3 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
- --------------------------------------------------------------------------------------------------------
June 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............................... $ - $1,006 $ 92 $ - $ - $ 1,098
Investment securities............... - - 240 - - 240
Securitized credit card
receivables........................ - 662 - - - 662
Deposits............................ 35 3,181 - - - 3,216
Funds borrowed (including
long-term debt).................... 4,514 - - 200 240 4,954
------ ------ ---- ---- ---- -------
Total............................. $4,549 $4,849 $332 $200 $240 $10,170
====== ====== ==== ==== ==== =======
- --------------------------------------------------------------------------------------------------------
</TABLE>
<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 June 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>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in millions) 1996 1997 1998 1999 2000 Thereafter Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay
floating swaps
Notional amount..... $1,571 $3,782 $1,083 $ 419 $ 278 $2,265 $ 9,398
Weighted average
Receive rate...... 5.93% 5.96% 6.29% 6.32% 5.70% 7.03% 6.26%
Pay rate.......... 5.61% 5.61% 5.68% 5.76% 5.68% 5.65% 5.64%
Pay fixed/receive
floating swaps
Notional amount..... $ 122 $ 97 $ 57 $ 83 $ 110 $ 63 $ 532
Weighted average
Receive rate...... 5.58% 5.67% 5.78% 5.78% 5.56% 5.84% 5.68%
Pay rate.......... 6.92% 7.22% 8.07% 7.99% 7.74% 8.01% 7.56%
Basis swaps
Notional amount..... $ - $ - $ 215 $ 25 $ - $ - $ 240
Weighted average
Receive rate...... -% -% 5.69% 5.58% -% -% 5.68%
Pay rate.......... -% -% 5.61% 5.58% -% -% 5.61%
- ----------------------------------------------------------------------------------------
Total notional
amount................ $1,693 $3,879 $1,355 $ 527 $ 388 $2,328 $10,170
- ----------------------------------------------------------------------------------------
</TABLE>
<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
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in millions) 1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At period-end
Loans outstanding.................... $66,431 $64,253 $64,434 $61,076 $58,484
Nonperforming loans.................. 356 391 363 296 289
Other real estate, net............... 33 39 34 36 36
Nonperforming assets................. 389 430 397 332 325
Allowance for credit losses.......... 1,430 1,383 1,338 1,230 1,159
Nonperforming assets/loans
outstanding and other
real estate, net.................... 0.6% 0.7% 0.6% 0.5% 0.6%
Allowance for credit losses/
loans outstanding................... 2.2 2.2 2.1 2.0 2.0
Allowance for credit losses/
nonperforming loans................. 402 354 369 416 401
For the quarter ended
Average loans........................ $64,534 $63,790 $62,258 $59,661 $57,727
Net charge-offs...................... 153 145 107 60 53
Net charge-offs/average loans........ 0.9% 0.9% 0.7% 0.4% 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 June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial risk
Domestic
Commercial......................... $26,237 $25,220 $25,551 $24,818 $24,826
Real estate
Construction..................... 1,193 1,191 1,151 1,116 1,103
Other............................ 5,665 5,897 6,103 6,107 5,885
Lease financing.................... 1,644 1,505 1,588 1,434 1,434
Foreign.............................. 3,790 3,487 3,726 3,605 3,683
------- ------- ------- ------- -------
Total commercial............. 38,529 37,300 38,119 37,080 36,931
------- ------- ------- ------- -------
Consumer risk
Credit cards......................... 10,441 9,722 9,649 7,597 6,198
Secured by real estate (1)........... 9,231 9,228 8,933 8,816 8,095
Automotive........................... 4,463 4,546 4,477 4,390 4,171
Other................................ 3,767 3,457 3,256 3,193 3,089
------- ------- ------- ------- -------
Total consumer............... 27,902 26,953 26,315 23,996 21,553
------- ------- ------- ------- -------
Total........................ $66,431 $64,253 $64,434 $61,076 $58,484
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes home equity loans.
<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 June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1996 1996 1995 1995 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter............. $1,383 $1,338 $1,230 $1,159 $1,212
- ----------------------------------------------------------------------------------------------------
Provision for credit losses............... 185 175 210 125 90
- ----------------------------------------------------------------------------------------------------
Charge-offs
Commercial
Domestic
Commercial............................. 21 43 43 11 11
Real estate............................ 7 4 2 6 10
Lease financing........................ 2 2 1 1 -
Foreign................................. - - - - -
Consumer
Credit card............................ 141 104 76 53 54
Other.................................. 20 21 23 18 15
------ ------ ------ ------ ------
Total charge-offs..................... 191 174 145 89 90
- ----------------------------------------------------------------------------------------------------
Recoveries
Commercial
Domestic
Commercial............................. 9 12 16 10 15
Real estate............................ 9 1 1 4 5
Lease financing........................ - - 1 - -
Foreign................................. 2 1 5 1 1
Consumer
Credit card............................ 10 7 8 8 9
Other.................................. 8 8 7 6 7
------ ------ ------ ------ ------
Total recoveries...................... 38 29 38 29 37
- ----------------------------------------------------------------------------------------------------
Net charge-offs........................... 153 145 107 60 53
- ----------------------------------------------------------------------------------------------------
Transfers related to securitized
credit card receivables.................. 15 15 5 - (90)
Other..................................... - - - 6 -
- ----------------------------------------------------------------------------------------------------
Balance, end of quarter................... $1,430 $1,383 $1,338 $1,230 $1,159
====== ====== ====== ====== ======
====================================================================================================
Reserve related to securitized
credit card receivables.................. $ 256 $ 277 $ 302 $ 313 $ 319
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------
</TABLE>
<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 June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1996 1996 1995 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Commercial real estate......... $ 102 $ 117 $ 91 $ 108 $ 128
Other.......................... 254 274 272 188 161
----- ----- ----- ----- -----
Total nonperforming loans.... 356 391 363 296 289
----- ----- ----- ----- -----
Other real estate, net........... 33 39 34 36 36
----- ----- ----- ----- -----
Total nonperforming assets... $ 389 $ 430 $ 397 $ 332 $ 325
===== ===== ===== ===== =====
- --------------------------------------------------------------------------------
</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 $38.5 billion at June 30, 1996, up 1% from December 31,
1995, and up 4% from June 30, 1995.
During the second quarter, charge-offs net of recoveries were $10 million in the
commercial portfolio and total nonperforming assets totaled $389 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 $6.9 billion at June 30, 1996, down 5% from
December 31, 1995. Commercial real estate loans totaled $7.0 billion at
June 30, 1995.
During the second quarter, net recoveries in the commercial real estate
portfolio were $2 million, and nonperforming commercial real estate assets,
including other real estate, totaled $135 million at June 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 $27.9 billion at June 30, 1996, up
29% from $21.6 billion a year ago. Including securitized credit card
receivables, these loans totaled $35.2 billion at June 30, 1996, up 19% from a
year ago.
Total managed credit card receivables (i.e. those held in the portfolio and
those sold to investors through securitization) were $17.8 billion at June 30,
1996, up 25% from a year earlier.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Consumer Loans June 30 March 31 Dec. 31 Sept. 30 June 30
(In millions) 1996 1996 1995 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans................ $10,441 $ 9,722 $ 9,649 $ 7,597 $ 6,198
Securitized credit card
receivables..................... 7,336 7,553 7,877 7,986 7,986
------- ------- ------- ------- -------
Total managed credit card
receivables.................. 17,777 17,275 17,526 15,583 14,184
Other consumer loans
Secured by real estate (1)..... 9,231 9,228 8,933 8,816 8,095
Automotive..................... 4,463 4,546 4,477 4,390 4,171
Other.......................... 3,767 3,457 3,256 3,193 3,089
------- ------- ------- ------- -------
Other consumer loans......... 17,461 17,231 16,666 16,399 15,355
------- ------- ------- ------- -------
Total....................... $35,238 $34,506 $34,192 $31,982 $29,539
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
(1) Includes home equity loans.
Credit card receivables represent the most significant risk element in the
consumer portfolio. There has been a significant increase in credit card net
charge-off rates as presented in the table below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Credit Card Receivables For the Quarter Ended
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in millions) 1996 1996 1995 1995 1995
- -------------------------------------------------------------------------------
Average balances:
<S> <C> <C> <C> <C> <C>
Credit card loans............ $ 9,814 $ 9,380 $ 8,034 $ 6,772 $ 6,485
Securitized credit card
receivables................. 7,544 7,867 7,986 7,808 6,896
------- ------- ------- ------- -------
Total average managed credit
card receivables.......... $17,358 $17,247 $16,020 $14,580 $13,381
======= ======= ======= ======= =======
Total net charge-offs
(including securitizations).. $254 $206 $176 $144 $132
==== ==== ==== ==== ====
Net charge-offs/average
total managed receivables... 5.9% 4.8% 4.4% 3.9% 4.0%
=== === === === ===
- -------------------------------------------------------------------------------
</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.
<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
consistency of the Corporation's net interest margin reflects the effective use
of these derivatives. Without their use, net interest income would have been
lower by $15.2 million in the second quarter of 1996, and by $17.6 million in
the first six months of 1996; net interest income in the second quarter and
first six months of 1995 would have increased by $12.1 million and $2.9 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 $2.3 million in the second quarter
of 1996, and by $4.3 million in the first six months of 1996. Credit card fee
revenue in the second quarter and first six months of 1995 would also have been
reduced by $1.6 million and $4.5 million, respectively.
Deferred gains and losses on the early termination of interest rate swaps
totaled a net deferred gain of $2.3 million as of June 30, 1996. A significant
portion of these deferred gains was related to securitized credit card
receivables. This amount is scheduled to be amortized into income in the
following periods: $5.2 million in the remainder of 1996, $(0.8) million in
1997, $(0.7) million in 1998, $(0.3) million in 1999, and $(1.1) 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>
- ------------------------------------------------------------------------
June 30, 1996 (In billions)
- ------------------------------------------------------------------------
<S> <C>
Gross credit exposure............................................ $20.9
Less additional exposure based on estimate of potential adverse
position exposure.............................................. 8.8
-----
Gross fair value exposure........................................ $12.1
=====
- ------------------------------------------------------------------------
Gross fair value exposure........................................ $12.1
Less netting adjustments due to master netting agreements........ 6.9
Plus unrecognized net loss due to nontrading activities.......... -
-----
Balance sheet exposure........................................... $ 5.2
=====
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
At December 31, 1995, the gross credit exposure and the gross fair value
exposure resulting from derivative financial instruments were $19.8 billion and
$13.0 billion, respectively. At March 31, 1996, the gross credit exposure was
$21.2 billion and the gross fair value exposure was $12.3 billion. The increase
in gross credit exposure and incremental potential adverse position exposure
during the first six months of 1996 was primarily a result of new activity. In
the first six months of 1996, there were no charge-offs associated with
derivative financial instruments.
<TABLE>
<CAPTION>
CAPITAL MANAGEMENT
Selected Capital Ratios
- ------------------------------------------------------------------------------------------------------------------
June 30 March 31 Dec. 31 Sept. 30 June 30 Corporate
Quarter Ended 1996 1996 1995 1995 1995 Guideline
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common equity/total assets (1)..... 7.6% 7.3% 6.9% 6.8% 6.7% N/A
Tangible common equity ratio (1)... 7.1 6.9 6.4 6.3 6.3 N/A
Stockholders' equity/total assets.. 7.8 7.5 6.9 6.8 6.8 N/A
Risk-based capital ratios (1)
Tier 1.......................... 8.1 8.1 7.8 8.2 8.5 7-8%
Total........................... 12.2 12.3 11.8 12.4 12.8 11-12%
Leverage ratio (1)................. 7.6 7.3 6.9 6.9 7.0 5.5-7.0%
Double leverage ratio.............. 114 115 115 114 112 less than or equal to 120%
Dividend payout ratio (2).......... 33 35 29 31 33 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.
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. Total economic capital will vary
proportionately with the level and risk of its businesses and products. During
the second 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's average common equity during the second 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. During the first six months of 1996, there was minimal excess
capital, primarily due to the impact of merger-related charges taken in the
fourth quarter of 1995.
<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.
RESCISSION OF PRE-MERGER STOCK REPURCHASE PROGRAMS
In July 1996, the Corporation rescinded remaining authorizations to repurchase
common shares established under pre-merger programs of both First Chicago
Corporation and NBD Bancorp, Inc. Since the merger, the Corporation has
repurchased approximately 400,000 shares, all of which relate to shares issued
in a purchase business combination completed in the second quarter of 1996.
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.
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.
The following table shows the components of regulatory risk-based capital and
risk-weighted assets.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
June 30 Dec. 31 June 30
(In millions) 1996 1995 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Regulatory Risk-Based Capital
Tier 1 capital.................................... $ 8,260 $ 7,750 $ 7,852
Tier 2 capital.................................... 4,093 4,017 4,019
-------- ------- -------
Total capital............................... $ 12,353 $11,767 $11,871
======== ======= =======
Regulatory Risk-Weighted Assets
Balance sheet risk-weighted assets................ $ 71,937 $71,040 $65,540
Off-balance-sheet risk-weighted assets............ 29,634 28,403 27,124
-------- ------- -------
Total risk-weighted assets.................. $101,571 $99,443 $92,664
======== ======= =======
- ---------------------------------------------------------------------------------------
</TABLE>
<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>
June 30, 1996
Risk-based capital ratios
Tier 1 capital.......... 7.0% 8.6% 8.9% 8.9% 10.6%
Total capital........... 10.5 11.5 11.2 12.6 11.8
Leverage ratio............. 5.8 9.4 9.4 9.5 8.7
- -----------------------------------------------------------------------
NBD NBD
FNBC FCCNB ANB Michigan Indiana
- -----------------------------------------------------------------------
March 31, 1996
Risk-based capital ratios
Tier 1 capital.......... 7.8% 9.7% 9.2% 8.1% 10.6%
Total capital........... 11.6 13.0 11.6 11.5 11.8
Leverage ratio............. 6.2 9.7 9.4 8.1 8.7
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
</TABLE>
It is important to note that by maintaining regulatory well-capitalized status,
these banks benefit from lower FDIC deposit premiums.
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- ----------------------------------------------------------------------------------------------------------------------------
June 30 December 31 June 30
(Dollars in millions) 1996 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks................................................................ $ 6,898 $ 7,297 $ 6,021
Interest-bearing due from banks........................................................ 7,348 10,241 10,063
Federal funds sold and securities under resale agreements.............................. 9,908 11,698 14,412
Trading assets......................................................................... 6,688 8,150 7,849
Derivative product assets.............................................................. 5,165 6,713 8,966
Investment securities (fair values--$7,507, $9,449 and $13,811, respectively).......... 7,507 9,449 13,675
Loans (net of unearned income--$664, $610 and $498, respectively)...................... 66,431 64,434 58,484
Allowance for credit losses............................................................ (1,430) (1,338) (1,159)
Premises and equipment................................................................. 1,416 1,423 1,348
Customers' acceptance liability........................................................ 721 729 721
Other assets........................................................................... 3,062 3,206 2,800
-------- -------- --------
Total assets................................................................. $113,714 $122,002 $123,180
======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Demand............................................................................... $ 14,482 $ 15,234 $ 13,747
Savings.............................................................................. 20,890 20,180 19,897
Time................................................................................. 15,816 15,919 15,317
Foreign offices...................................................................... 13,405 17,773 17,358
-------- -------- --------
Total deposits............................................................... 64,593 69,106 66,319
Federal funds purchased and securities under repurchase agreements..................... 11,630 15,711 19,665
Other short-term borrowings............................................................ 12,497 9,802 8,930
Long-term debt......................................................................... 7,951 8,163 8,065
Acceptances outstanding................................................................ 721 729 721
Derivative product liabilities......................................................... 5,213 6,723 8,639
Other liabilities...................................................................... 2,282 3,318 2,481
-------- -------- --------
Total liabilities............................................................ 104,887 113,552 114,820
- ----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock........................................................................ 488 489 611
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--318,920,406; 318,535,798; and 329,996,101, respectively
Number of shares outstanding--316,998,429; 315,241,109; and 319,535,900, respectively
Surplus................................................................................ 2,176 2,185 2,543
Retained earnings...................................................................... 5,954 5,497 5,250
Fair value adjustment on investment securities available-for-sale...................... 17 112 (39)
Deferred compensation.................................................................. (58) (39) (40)
Accumulated translation adjustment..................................................... 7 8 10
Treasury stock at cost--1,921,977; 3,294,689; and 10,460,201 shares, respectively...... (76) (121) (305)
-------- -------- --------
Stockholders' equity......................................................... 8,827 8,450 8,360
-------- -------- --------
Total liabilities and stockholders' equity................................... $113,714 $122,002 $123,180
======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(In millions, except per share data) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees....................................................... $1,416 $1,292 $2,828 $2,544
Bank balances............................................................... 123 162 269 305
Federal funds sold and securities under resale agreements................... 163 241 340 486
Trading assets.............................................................. 104 104 227 194
Investment securities--taxable.............................................. 94 184 203 385
Investment securities--tax-exempt........................................... 22 28 47 56
-------- -------- -------- --------
Total............................................................. 1,922 2,011 3,914 3,970
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits.................................................................... 545 653 1,137 1,240
Federal funds purchased and securities under repurchase agreements.......... 190 296 415 602
Other short-term borrowings................................................. 139 132 292 265
Long-term debt.............................................................. 138 146 275 285
-------- -------- -------- --------
Total............................................................. 1,012 1,227 2,119 2,392
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME......................................................... 910 784 1,795 1,578
Provision for credit losses................................................. 185 90 360 175
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....................... 725 694 1,435 1,403
- -------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits.................................................... 22 22 58 77
Equity securities gains..................................................... 85 60 134 115
Investment securities gains................................................. 3 - 25 1
-------- -------- -------- --------
Market-driven revenue..................................................... 110 82 217 193
Credit card fee revenue..................................................... 220 224 427 425
Fiduciary and investment management fees.................................... 98 97 198 193
Service charges and commissions............................................. 195 187 384 361
Other....................................................................... 20 41 43 62
-------- -------- -------- --------
Total............................................................. 643 631 1,269 1,234
- -------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits.............................................. 426 414 862 823
Occupancy expense of premises, net.......................................... 64 65 131 129
Equipment rentals, depreciation and maintenance............................. 55 55 110 109
FDIC insurance expense...................................................... 2 26 4 52
Amortization of intangible assets........................................... 18 23 36 46
Other....................................................................... 249 238 499 461
-------- -------- -------- --------
Total............................................................. 814 821 1,642 1,620
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES.................................................. 554 504 1,062 1,017
Applicable income taxes..................................................... 193 173 361 350
-------- -------- -------- --------
NET INCOME.................................................................. $ 361 $ 331 $ 701 $ 667
======== ======== ======== ========
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY...................... $ 353 $ 321 $ 685 $ 647
======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
NET INCOME-PRIMARY........................................................ $1.10 $0.99 $2.14 $2.00
NET INCOME-FULLY DILUTED.................................................. $1.09 $0.98 $2.12 $1.97
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First Chicago NBD Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
- -------------------------------------------------------------------------------------------------------
Six Months Ended June 30
(In millions) 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, beginning of period.............................................. $ 489 $ 611
Conversion of preferred stock............................................. (1) -
-------- --------
Balance, end of period.................................................... 488 611
-------- --------
COMMON STOCK
Balance, beginning of period.............................................. 319 329
Issuance of stock......................................................... - 1
-------- --------
Balance, end of period.................................................... 319 330
-------- --------
CAPITAL SURPLUS
Balance, beginning of period.............................................. 2,185 2,555
Issuance of common stock.................................................. - 10
Issuance of treasury stock................................................ (40) (11)
Acquisition of subsidiaries............................................... 17 (6)
Cancellation of shares held in treasury................................... - (8)
Common stock subscribed................................................... - 3
Other..................................................................... 14 -
-------- --------
Balance, end of period.................................................... 2,176 2,543
-------- --------
RETAINED EARNINGS
Balance, beginning of period.............................................. 5,497 4,808
Net income................................................................ 701 667
Cash dividends declared on common stock................................... (228) (205)
Cash dividends declared on preferred stock................................ (16) (20)
-------- --------
Balance, end of period.................................................... 5,954 5,250
-------- --------
FAIR VALUE ADJUSTMENT ON INVESTMENT SECURITIES
AVAILABLE-FOR-SALE
Balance, beginning of period.............................................. 112 (158)
Change in fair value, net of taxes........................................ (95) 119
-------- --------
Balance, end of period.................................................... 17 (39)
-------- --------
DEFERRED COMPENSATION
Balance, beginning of period.............................................. (39) (33)
Awards granted............................................................ (31) (14)
Amortization of deferred compensation..................................... 11 10
Other..................................................................... 1 (3)
-------- --------
Balance, end of period.................................................... (58) (40)
-------- --------
ACCUMULATED TRANSLATION ADJUSTMENT
Balance, beginning of period.............................................. 8 7
Translation gain (loss), net of taxes..................................... (1) 3
-------- --------
Balance, end of period.................................................... 7 10
-------- --------
TREASURY STOCK
Balance, beginning of period.............................................. (121) (310)
Purchase of common stock.................................................. (17) (197)
Acquisition of subsidiaries............................................... - 154
Cancellation of shares held in treasury................................... - 8
Issuance of stock......................................................... 62 40
-------- --------
Balance, end of period.................................................... (76) (305)
-------- --------
TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD................................... $ 8,827 $ 8,360
======== ========
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended June 30 (In millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................................ $ 701 $ 667
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization....................................................... 125 137
Provision for credit losses......................................................... 360 175
Equity securities gains............................................................. (134) (115)
Net (increase) decrease in net derivative product balances.......................... 38 (51)
Net (increase) decrease in trading assets........................................... 1,479 (2,760)
Net (increase) in loans held for sale............................................... (13) (16)
Net (increase) decrease in accrued income receivable................................ 80 (70)
Net increase (decrease) in accrued expenses payable................................. (37) 7
Net (increase) decrease in other assets............................................. (113) 181
Other noncash adjustments........................................................... (183) (20)
-------- --------
Total adjustments................................................................... 1,602 (2,532)
Net cash provided by (used in) operating activities................................... 2,303 (1,865)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold and securities under resale agreements.. 1,790 (711)
Purchase of investment securities--available-for-sale................................. (2,164) (2,266)
Purchase of debt investment securities--held-to-maturity.............................. - (116)
Purchase of equity securities--fair value............................................. (49) (118)
Proceeds from maturities of debt securities--available-for-sale....................... 1,825 1,644
Proceeds from maturities of debt securities--held-to-maturity......................... - 615
Proceeds from sales of investment securities--available-for-sale...................... 2,090 1,892
Proceeds from sales of equity securities--fair value.................................. 78 326
Net (increase) in loans............................................................... (2,461) (2,963)
Loan recoveries....................................................................... 67 77
Net proceeds from sales of assets held for accelerated disposition.................... - 51
Purchases of premises and equipment................................................... (148) (139)
Proceeds from sales of premises and equipment......................................... 56 35
Net cash and cash equivalents due to acquisitions and dispositions.................... (250) 25
-------- --------
Net cash provided by (used in) investing activities................................... 834 (1,648)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits................................................... (3,745) 507
Net increase (decrease) in federal funds purchased and securities under repurchase
agreements........................................................................... (4,081) 2,747
Net increase in other short-term borrowings........................................... 2,695 498
Proceeds from issuance of long-term debt.............................................. 1,291 1,199
Repayment of long-term debt........................................................... (1,534) (415)
Net (decrease) in other liabilities................................................... (437) (229)
Dividends paid........................................................................ (243) (225)
Proceeds from issuance of common and treasury stock................................... 17 29
Repurchase of common stock............................................................ (17) (197)
-------- --------
Net cash provided by (used in) financing activities................................... (6,054) 3,914
- ---------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents.......................... (375) 134
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents.................................. (3,292) 535
Cash and cash equivalents at beginning of period...................................... 17,538 15,549
-------- --------
Cash and cash equivalents at end of period............................................ $ 14,246 $16,084
======== ========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this statement, cash and cash equivalents consist of cash and
due from banks--noninterest-bearing and interest-bearing.
<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>
- ----------------------------------------------------------
Six Months Ended
(In millions) June 30
1996 1995
- ----------------------------------------------------------
<S> <C> <C>
PRIMARY
Net income............................ $ 701 $ 667
Preferred stock dividends............. 16 20
------ ------
Net income attributable to common
stockholders' equity................ $ 685 $ 647
====== ======
Average number of common and
common-equivalent shares............ 319.7 323.5
====== ======
FULLY DILUTED
Net income............................ $ 701 $ 667
Preferred stock dividends, excluding
convertible Series B................ 10 14
------ ------
Fully diluted net income.............. $ 691 $ 653
====== ======
Average number of shares,
assuming full dilution.............. 326.4 330.5
====== ======
- ----------------------------------------------------------
</TABLE>
<PAGE>
Note 3
- ------
At June 30, 1996, credit card receivables aggregated $10.4 billion. These
receivables are available for sale at face value through credit card
securitization programs.
Note 4
- ------
The accelerated asset disposition portfolio was established in September 1992.
Nonperforming assets in this portfolio totaled $22 million at June 30, 1996,
compared with $22 million at year-end 1995 and $27 million a year ago.
Note 5
- ------
Nonperforming loans are generally identified as "impaired loans." At June 30,
1996, the recorded investment in loans considered impaired was $356 million,
which required a related allowance for credit losses of $77 million.
Substantially all of the $356 million in impaired loans required the
establishment of an allocated reserve. The average recorded investment in
impaired loans was approximately $371 million for the quarter ended June 30,
1996. The Corporation recognized interest income associated with impaired loans
of $4 million during the quarter.
Loans 90 days or more past due and still accruing interest amounted to $197
million at June 30, 1996, compared with $197 million at December 31, 1995, and
$105 million at June 30, 1995.
Note 6
- ------
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 has also 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 No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which
primarily establishes a new approach for determining whether a transfer of
assets is recorded as a sale or a secured borrowing. The new Statement is not
expected to have a significant effect on the Corporation's financial position or
results of operations.
Note 7
- ------
The ratio of income to fixed charges for the six months ended June 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.
<PAGE>
Note 8
- ------
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 9
- ------
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.
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- ---------------------------------------------------------------------------------------
Investment Securities--Available-for-Sale
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Value
June 30, 1996 (In millions) Cost Gains Losses (Book Value)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury.......................... $1,881 $ 1 $ 18 $1,864
U.S. government agencies
Mortgage-backed securities........... 3,039 49 57 3,031
Collateralized mortgage obligations.. 3 - - 3
Other................................ 58 1 - 59
States and political subdivisions...... 1,267 57 5 1,319
Other debt securities.................. 146 2 - 148
Equity securities (1)(2)............... 978 177 72 1,083
------ ---- ---- ------
Total.............................. $7,372 $287 $152 $7,507
====== ==== ==== ======
- ---------------------------------------------------------------------------------------
</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 June 30, 1996 Three Months Ended June 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.. $935 $168 $1,103 $808 $166 $974
Provision for credit
losses................ 185 117 302 90 78 168
Noninterest income...... 643 (51) 592 631 (88) 543
Noninterest expense..... 814 - 814 821 - 821
Net income.............. 361 - 361 331 - 331
Assets--quarter-end..... $113,714 $7,336 $121,050 $123,180 $7,986 $131,166
--average......... 116,280 7,544 123,824 123,795 6,896 130,691
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1996 Six Months Ended June 30, 1995
------------------------------------ -------------------------------------
Credit Card Credit Card
(In millions) Reported Securitizations Adjusted Reported Securitizations Adjusted
- -----------------------------------------------------------------------------------------------------
Net interest income--
tax-equivalent basis.. $ 1,848 $ 336 $ 2,184 $ 1,623 $ 304 $ 1,927
Provision for credit
losses................ 360 215 575 175 140 315
Noninterest income...... 1,269 (121) 1,148 1,234 (164) 1,070
Noninterest expense..... 1,642 - 1,642 1,620 - 1,620
Net income.............. 701 - 701 667 - 667
Assets--quarter-end..... $113,714 $7,336 $121,050 $123,180 $7,986 $131,166
--average......... 118,494 7,706 126,200 120,484 6,461 126,945
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
FIVE-QUARTER CONSOLIDATED INCOME STATEMENT
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
June 30 March 31 Dec. 31 Sept. 30 June 30
(Dollars in millions, except per share data) 1996 1996 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees................................................ $1,416 $1,412 $1,398 $1,318 $1,292
Bank balances........................................................ 123 146 154 161 162
Federal funds sold and securities under resale agreements............ 163 177 206 230 241
Trading assets....................................................... 104 123 132 141 104
Investment securities--taxable....................................... 94 109 133 176 184
Investment securities--tax-exempt.................................... 22 25 43 28 28
------ ------ ------ ------ ------
Total...................................................... 1,922 1,992 2,066 2,054 2,011
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits............................................................. 545 592 664 677 653
Federal funds purchased and securities under repurchase
agreements.......................................................... 190 225 286 304 296
Other short-term borrowings.......................................... 139 153 142 131 132
Long-term debt....................................................... 138 137 140 146 146
------ ------ ------ ------ ------
Total...................................................... 1,012 1,107 1,232 1,258 1,227
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME.................................................. 910 885 834 796 784
Provision for credit losses.......................................... 185 175 210 125 90
------ ------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES................ 725 710 624 671 694
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits............................................. 22 36 48 85 22
Equity securities gains.............................................. 85 49 72 66 60
Investment securities gains (losses)................................. 3 22 (19) 2 -
------ ------ ------ ------ ------
Market-driven revenue........................................... 110 107 101 153 82
Credit card fee revenue.............................................. 220 207 228 248 224
Fiduciary and investment management fees............................. 98 100 114 97 97
Service charges and commissions...................................... 195 189 190 184 187
Other................................................................ 20 23 22 20 41
------ ------ ------ ------ ------
Total...................................................... 643 626 655 702 631
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits....................................... 426 436 432 437 414
Occupancy expense of premises, net................................... 64 67 54 69 65
Equipment rentals, depreciation and maintenance...................... 55 55 63 53 55
FDIC insurance expense............................................... 2 2 4 2 26
Amortization of intangible assets.................................... 18 18 21 21 23
Other................................................................ 249 250 247 245 238
------ ------ ------ ------ ------
Subtotal................................................... 814 828 821 827 821
Merger-related charges............................................... - - 267 - -
------ ------ ------ ------ ------
Total...................................................... 814 828 1,088 827 821
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES........................................... 554 508 191 546 504
Applicable income taxes.............................................. 193 168 65 189 173
------ ------ ------ ------ ------
NET INCOME........................................................... $ 361 $ 340 $ 126 $ 357 $ 331
====== ====== ====== ====== ======
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY............... $ 353 $ 332 $ 119 $ 347 $ 321
====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
NET INCOME - PRIMARY............................................... $1.10 $1.04 $0.37 $1.07 $0.99
NET INCOME - FULLY DILUTED......................................... $1.09 $1.03 $0.37 $1.06 $0.98
- ----------------------------------------------------------------------------------------------------------------------------------
Average number of common and common-equivalent shares (in millions).. 320.2 319.2 320.0 324.4 322.8
Average number of shares, assuming full dilution (in millions)....... 326.9 326.2 326.9 331.8 329.9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- ------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 1996 March 31, 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.......................... $ 8,765 $ 123 5.64% $ 9,686 $ 146 6.06%
Federal funds sold and securities under resale
agreements.............................................. 12,264 163 5.35 13,465 177 5.29
Trading assets........................................... 7,312 105 5.78 8,797 124 5.67
Investment securities
U.S. government and federal agency..................... 5,171 87 6.77 6,197 105 6.81
States and political subdivisions...................... 1,354 30 8.91 1,428 32 9.01
Other.................................................. 1,164 18 6.22 1,266 17 5.40
-------- ------ ---- -------- ------ ----
Total investment securities.......................... 7,689 135 7.06 8,891 154 6.97
Loans (1)(2)
Domestic offices....................................... 60,981 1,361 9.09 60,315 1,358 9.17
Foreign offices........................................ 3,553 60 6.79 3,475 61 7.06
-------- ------ ---- -------- ------ ----
Total loans.......................................... 64,534 1,421 8.96 63,790 1,419 9.05
-------- ------ ---- -------- ------ ----
Total earning assets (3)............................. 100,564 1,947 7.79 104,629 2,020 7.77
Cash and due from banks.................................. 6,330 6,081
Allowance for credit losses.............................. (1,378) (1,335)
Other assets............................................. 10,764 11,333
-------- --------
Total assets......................................... $116,280 $120,708
======== ========
- ------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings................................................ $ 11,184 $ 59 2.12% $ 11,273 $ 64 2.28%
Money market........................................... 9,910 91 3.69 8,645 84 3.91
Time................................................... 15,881 213 5.39 16,941 234 5.56
Foreign offices........................................ 14,324 182 5.11 15,707 210 5.38
-------- ------ ---- -------- ------ ----
Total deposits--interest-bearing..................... 51,299 545 4.27 52,566 592 4.53
Federal funds purchased and securities under repurchase
agreements............................................. 14,622 190 5.23 17,076 225 5.30
Other short-term borrowings.............................. 10,947 139 5.11 11,774 153 5.23
Long-term debt........................................... 8,197 138 6.77 8,079 137 6.82
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities................... 85,065 1,012 4.78 89,495 1,107 4.97
Demand deposits.......................................... 13,863 13,356
Other liabilities........................................ 8,680 9,314
Preferred stock.......................................... 489 490
Common stockholders' equity.............................. 8,183 8,053
-------- --------
Total liabilities and stockholders' equity........... $116,280 $120,708
======== ========
- ------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (3)....................... $1,947 7.79% $2,020 7.77%
Interest expense/earning assets.......................... 1,012 4.05 1,107 4.26
------ ---- ------ ----
Net interest margin...................................... $ 935 3.74% $ 913 3.51%
====== ==== ====== ====
- ------------------------------------------------------------------------------------------------------------------------
</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.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
December 31, 1995 September 30, 1995 June 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>
$ 10,155 $ 154 6.02% $ 10,460 $ 161 6.11% $ 10,117 $ 162 6.42%
13,911 206 5.88 15,789 230 5.78 16,043 241 6.03
8,742 132 5.99 8,554 142 6.59 6,557 104 6.36
8,356 143 6.79 9,842 167 6.73 10,583 180 6.82
1,457 34 9.26 1,500 35 9.26 1,583 35 8.87
1,308 21 6.37 1,925 22 4.53 1,926 14 2.92
- -------- ------ ---- -------- ------ ---- -------- ------ ----
11,121 198 7.06 13,267 224 6.70 14,092 229 6.52
58,537 1,343 9.22 56,260 1,261 9.02 54,412 1,237 9.24
3,721 63 6.72 3,401 64 7.47 3,315 62 7.50
- -------- ------ ---- -------- ------ ---- -------- ------ ----
62,258 1,406 9.07 59,661 1,325 8.93 57,727 1,299 9.14
- -------- ------ ---- -------- ------ ---- -------- ------ ----
106,187 2,096 7.83 107,731 2,082 7.66 104,536 2,035 7.81
6,141 5,992 6,862
(1,234) (1,179) (1,193)
12,679 12,194 13,590
- -------- -------- --------
$123,773 $124,738 $123,795
======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
$ 11,221 $ 72 2.55% $ 11,335 $ 73 2.56% $ 11,342 $ 76 2.69%
8,979 90 3.98 9,564 97 4.02 9,759 97 3.99
18,529 271 5.80 17,368 260 5.94 16,886 250 5.94
16,365 231 5.60 17,194 247 5.70 15,740 230 5.86
- -------- ------ ---- -------- ------ ---- -------- ------ ----
55,094 664 4.78 55,461 677 4.84 53,727 653 4.87
19,003 286 5.97 20,443 304 5.90 19,622 296 6.05
8,986 142 6.27 8,962 131 5.80 9,550 132 5.54
8,275 140 6.71 8,238 146 7.03 7,840 146 7.47
- -------- ------ ---- -------- ------ ---- -------- ------ ----
91,358 1,232 5.35 93,104 1,258 5.36 90,739 1,227 5.42
13,458 13,158 13,244
10,469 9,972 11,532
490 570 611
7,998 7,934 7,669
- -------- -------- --------
$123,773 $124,738 $123,795
======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
$2,096 7.83% $2,082 7.66% $2,035 7.81%
1,232 4.60 1,258 4.63 1,227 4.71
------ ---- ------ ---- ------ ----
$ 864 3.23% $ 824 3.03% $ 808 3.10%
====== ==== ====== ==== ====== ====
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- ----------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1996 June 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.......................... $ 9,226 $ 269 5.86% $ 9,715 $ 305 6.33%
Federal funds sold and securities under resale
agreements.............................................. 12,864 340 5.32 16,552 486 5.92
Trading assets........................................... 8,054 229 5.72 5,953 195 6.61
Investment securities
U.S. government and federal agency..................... 5,684 192 6.79 10,948 371 6.83
States and political subdivisions...................... 1,391 62 8.96 1,613 72 9.00
Other.................................................. 1,215 35 5.79 1,946 28 2.90
-------- ------ ---- -------- ------ ----
Total investment securities.......................... 8,290 289 7.01 14,507 471 6.55
Loans (1)(2)
Domestic offices....................................... 60,649 2,719 9.13 53,658 2,439 9.29
Foreign offices........................................ 3,513 121 6.93 3,269 119 7.34
-------- ------ ---- -------- ------ ----
Total loans.......................................... 64,162 2,840 9.01 56,927 2,558 9.18
-------- ------ ---- -------- ------ ----
Total earning assets (3)............................. 102,596 3,967 7.77 103,654 4,015 7.81
Cash and due from banks.................................. 6,206 6,589
Allowance for credit losses.............................. (1,357) (1,188)
Other assets............................................. 11,049 11,429
-------- --------
Total assets......................................... $118,494 $120,484
======== ========
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings................................................ $ 11,228 $ 123 2.20% $ 11,495 $ 153 2.68%
Money market........................................... 9,278 175 3.79 9,272 182 3.96
Time................................................... 16,411 447 5.48 16,743 477 5.75
Foreign offices........................................ 15,015 392 5.25 14,862 428 5.81
-------- ------ ---- -------- ------ ----
Total deposits--interest-bearing..................... 51,932 1,137 4.40 52,372 1,240 4.77
Federal funds purchased and securities under repurchase
agreements............................................. 15,849 415 5.27 20,359 602 5.96
Other short-term borrowings.............................. 11,361 292 5.17 9,361 265 5.71
Long-term debt........................................... 8,138 275 6.80 7,626 285 7.54
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities................... 87,280 2,119 4.88 89,718 2,392 5.38
Demand deposits.......................................... 13,609 13,200
Other liabilities........................................ 8,998 9,392
Preferred stock.......................................... 489 611
Common stockholders' equity.............................. 8,118 7,563
-------- --------
Total liabilities and stockholders' equity........... $118,494 $120,484
======== ========
- ----------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (3)....................... $3,967 7.77% $4,015 7.81%
Interest expense/earning assets.......................... 2,119 4.15 2,392 4.65
------ ---- ------ ----
Net interest margin...................................... $1,848 3.62% $1,623 3.16%
====== ==== ====== ====
- ----------------------------------------------------------------------------------------------------------------------------
</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.
<PAGE>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
June 30 March 31 December 31 September 30 June 30
(Dollars in millions, except per share data) 1996 1996 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME DATA
For the Quarter Ended
Actual
Net interest income--tax-equivalent basis.......................... $ 935 $ 913 $ 864 $ 824 $ 808
Average earning assets............................................. 100,564 104,629 106,187 107,731 104,536
Net interest margin................................................ 3.74% 3.51% 3.23% 3.03% 3.10%
Adjusted (1)
Net interest income--tax-equivalent basis.......................... $ 1,100 $ 1,078 $ 1,033 $ 1,003 $ 971
Average earning assets............................................. 100,935 102,518 104,143 104,962 100,750
Net interest margin................................................ 4.38% 4.23% 3.93% 3.79% 3.87%
- ----------------------------------------------------------------------------------------------------------------------------------
AT QUARTER-END
BALANCE SHEET DATA
Assets............................................................... $113,714 $115,465 $122,002 $124,056 $123,180
Loans................................................................ 66,431 64,253 64,434 61,076 58,484
Deposits............................................................. 64,593 64,243 69,106 66,934 66,319
Long-term debt....................................................... 7,951 8,011 8,163 8,445 8,065
Common stockholders' equity.......................................... 8,339 8,135 7,961 7,954 7,749
Stockholders' equity................................................. 8,827 8,624 8,450 8,445 8,360
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL DATA (2)
Common equity/assets................................................. 7.6% 7.3% 6.9% 6.8% 6.7%
Regulatory leverage ratio............................................ 7.6 7.3 6.9 6.9 7.0
Risk-based capital
Tier 1 capital ratio............................................... 8.1 8.1 7.8 8.2 8.5
Total capital ratio................................................ 12.2 12.3 11.8 12.4 12.8
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
FOR THE QUARTER ENDED
Net income as a percentage of:
Average stockholders' equity....................................... 16.7% 16.0% 5.9% 16.7% 16.0%
Average common stockholders' equity................................ 17.4 16.6 5.9 17.4 16.8
Average total assets............................................... 1.25 1.13 0.40 1.14 1.07
Average earning assets............................................. 1.44 1.31 0.47 1.31 1.27
Stockholders' equity as a percentage of:
Total assets....................................................... 7.8 7.5 6.9 6.8 6.8
Total loans........................................................ 13.3 13.4 13.1 13.8 14.3
Total deposits..................................................... 13.7 13.4 12.2 12.6 12.6
Average stockholders' equity as a percentage of:
Average assets..................................................... 7.5 7.1 6.9 6.8 6.7
Average loans...................................................... 13.4 13.4 13.6 14.3 14.3
Average deposits................................................... 13.3 12.9 12.4 12.4 12.4
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
FOR THE QUARTER ENDED
Market price
High............................................................... $ 45 1/2 $ 44 1/4 $ 42 1/2 $ 39 1/4 $ 33 1/4
Low................................................................ 38 5/8 34 3/4 36 1/2 31 1/2 30 1/8
At quarter-end..................................................... 39 1/8 41 1/2 39 1/2 38 1/4 32
Book value........................................................... $ 26.31 $ 25.70 $ 25.25 $ 24.96 $ 24.25
Dividends declared on common stock................................... $ 0.36 $ 0.36 $ 0.36 $ 0.33 $ 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.
<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 June 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 July 31, 1996.
Class Number of Shares Outstanding
- ------------------------- ----------------------------
Common Stock $1 par value 317,038,967
<PAGE>
FORM 10-Q CROSS-REFERENCE INDEX
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
- ----------------------------
Page
----
Consolidated Balance Sheet --
June 30, 1996 and 1995, and December 31, 1995 27
Consolidated Income Statement --
Three and Six Months Ended June 30, 1996 and 1995 28
Consolidated Statement of Stockholders' Equity --
Six Months Ended June 30, 1996 and 1995 29
Consolidated Statement of Cash Flows --
Six Months Ended June 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 43
- ----------------------------------------
Signatures 44
<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
- -----------------------------------------------------------
First Chicago NBD Corporation held its Annual Meeting of Stockholders on
May 10, 1996. A total of 278,862,862 shares were represented in person
or by proxy, or nearly 88% of the total shares outstanding.
Stockholders elected the 6 Class I Director nominees named in the Proxy
Statement. Each of the nominees received more than 273.6 million votes,
in excess of 98% of the shares voted at the meeting. The particulars
are:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Maureen A. Fay, O.P. 273,778,818 5,084,044
Charles T. Fisher III 273,737,347 5,125,515
William T. McCormick, Jr. 274,190,906 4,671,956
James J. O'Connor 273,682,088 5,180,774
Patrick G. Ryan 273,830,746 5,032,116
David J. Vitale 274,180,564 4,682,298
</TABLE>
Stockholders approved the Corporation's Director Stock Plan. Of the
shares present and entitled to vote, 241,920,232 (93.5%) were voted for;
13,913,023 (5.4%) were voted against; and 2,951,831 (1.1%) abstained.
Stockholders approved the Corporation's Stock Performance Plan. Of the
shares present and entitled to vote, 166,431,731 (64.3%) were voted for;
89,863,294 (34.7%) were voted against; and 2,707,320 (1.0%) abstained.
Stockholders approved the Corporation's Employee Stock Purchase and
Savings Plan. Of the shares present and entitled to vote, 234,683,288
(90.7%) were voted for; 22,254,291 (8.6%) were voted against; and
1,938,159 (0.7%) abstained.
Stockholders approved the Corporation's Senior Management Annual
Incentive Plan. Of the shares present and entitled to vote, 264,060,063
(94.8%) were voted for; 11,294,387 (4.0%) were voted against; and
3,299,153 (1.2%) abstained. There were 174,608 broker non-votes.
Stockholders ratified the appointment of Arthur Andersen LLP as the
Corporation's independent auditors for 1996. Of the shares present and
entitled to vote, 276,556,116 (99.2%) were voted for; 974,542 (0.3%)
were voted against; and 1,254,833 (0.3%) abstained.
ITEM 5. Other Information
- -------------------------
None
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibit 12 Statement re computation of ratio
Exhibit 27 Financial Data Schedules
(b) The Registrant filed the following Current Reports on Form 8-K during
the quarter ended June 30, 1996.
Date Item Reported
---- -------------
4/15/96 The Registrant's earnings for the quarter ended March 31, 1996.
6/7/96 The Registrant's announcement of the completion of the
acquisition of Barrington Bancorp, Inc., and its wholly owned
subsidiary, First Federal Savings Bank of Barrington.
6/27/96 The Registrant's announcement regarding its anticipated
second-quarter earnings.
<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 August 9, 1996 /s/ Verne G. Istock
--------------------- ------------------------------
Verne G. Istock
Principal Executive Officer
Date August 9, 1996 /s/ William J. Roberts
--------------------- ------------------------------
William J. Roberts
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Page
- -------------- ---------------------- ----
<S> <C> <C>
12 - Statement re computation of ratio 46
27 - Financial Data Schedules 47
</TABLE>
<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 7 of Notes to Consolidated Financial Statements on page 32 of the Form
10-Q.
<TABLE> <S> <C>
<PAGE>
<CAPTION>
<ARTICLE> 9
<S> <C>
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,898
<INT-BEARING-DEPOSITS> 7,348
<FED-FUNDS-SOLD> 9,908
<TRADING-ASSETS> 6,688
<INVESTMENTS-HELD-FOR-SALE> 7,507
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 66,431
<ALLOWANCE> (1,430)
<TOTAL-ASSETS> 113,714
<DEPOSITS> 64,593
<SHORT-TERM> 24,127
<LIABILITIES-OTHER> 7,495
<LONG-TERM> 7,951
<COMMON> 319
0
488
<OTHER-SE> 8,020<F1>
<TOTAL-LIABILITIES-AND-EQUITY> 113,714
<INTEREST-LOAN> 2,828
<INTEREST-INVEST> 250
<INTEREST-OTHER> 609
<INTEREST-TOTAL> 3,914
<INTEREST-DEPOSIT> 1,137
<INTEREST-EXPENSE> 2,119
<INTEREST-INCOME-NET> 1,795
<LOAN-LOSSES> 360
<SECURITIES-GAINS> 25<F2>
<EXPENSE-OTHER> 1,642<F3>
<INCOME-PRETAX> 1,062
<INCOME-PRE-EXTRAORDINARY> 701
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 701
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 2.12
<YIELD-ACTUAL> 3.62
<LOANS-NON> 338
<LOANS-PAST> 197
<LOANS-TROUBLED> 18
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,383
<CHARGE-OFFS> 191
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 1,430
<ALLOWANCE-DOMESTIC> 0<F4>
<ALLOWANCE-FOREIGN> 0<F4>
<ALLOWANCE-UNALLOCATED> 0<F4>
<FN>
<F1> Treasury stock of $76 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 $134 million.
<F3> Other expense includes: Salaries and employees benefits of $862 million,
Occupancy of $131 million, Equipment rentals, depreciation and maintenance
of $110 million, Amortization of intangible assets of $36 million, FDIC
insurance of $4 million, and Other expenses which totaled $499 million.
<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>
