<PAGE>
First Chicago NBD Corporation and Subsidiaries
Financial Supplement and Form 10-Q
Contents Page
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Five-Quarter Summary of Selected Financial Information 1
Business Segments 2
Earnings Analysis 7
Merger-Related Initiatives 14
Liquidity Risk Management 15
Market Risk Management 16
Credit Risk Management 21
Derivative Financial Instruments 25
Capital Management 26
Consolidated Financial Statements 29
Notes to Consolidated Financial Statements 33
Selected Statistical Information 36
Form 10-Q 42
<PAGE>
<TABLE>
<CAPTION>
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F I V E - Q U A R T E R S U M M A R Y O F S E L E C T E D F I N A N C I A L I N F O R M A T I O N
First Chicago NBD Corporation and Subsidiaries
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March December September June March
(Dollars in millions, except per share data) 1996 1995 1995 1995 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA FOR THE QUARTER
Net interest income............................................. $ 885 $ 834 $ 796 $ 784 $ 794
Tax-equivalent adjustment....................................... 28 30 28 24 21
-------- -------- -------- -------- --------
Net interest income--tax-equivalent basis....................... 913 864 824 808 815
Provision for credit losses..................................... 175 210 125 90 85
Noninterest income.............................................. 626 655 702 631 603
Merger-related charges.......................................... - 267 - - -
Other noninterest expense....................................... 828 821 827 821 799
Net income...................................................... 340 126 357 331 336
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EARNINGS PER SHARE
Net income - Primary............................................ $ 1.04 $ 0.37 $ 1.07 $ 0.99 $ 1.01
Net income - Fully diluted...................................... 1.03 0.37 1.06 0.98 0.99
- -----------------------------------------------------------------------------------------------------------------------
AT QUARTER-END
Assets.......................................................... $115,465 $122,002 $124,056 $123,180 $119,915
Loans........................................................... 64,253 64,434 61,076 53,484 57,744
Deposits........................................................ 64,243 69,106 66,934 66,319 63,752
Long-term debt.................................................. 8,011 8,163 8,445 8,065 7,639
Common stockholders' equity..................................... 8,135 7,961 7,954 7,749 7,548
Stockholders' equity............................................ 8,624 8,450 8,445 8,360 8,159
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AVERAGE BALANCES
Assets.......................................................... $120,708 $123,773 $124,738 $123,795 $117,172
Loans........................................................... 63,790 62,258 59,661 57,727 56,130
Earning assets.................................................. 104,629 106,187 107,731 104,536 102,771
Deposits........................................................ 65,922 68,552 68,619 66,971 64,173
Common stockholders' equity..................................... 8,053 7,998 7,934 7,669 7,458
Stockholders' equity............................................ 8,543 8,488 8,504 8,280 8,069
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FINANCIAL RATIOS
Return on stockholders' equity.................................. 16.0% 5.9% 16.7% 16.0% 16.9%
Return on common stockholders' equity........................... 16.6 5.9 17.4 16.8 17.7
Return on assets................................................ 1.13 0.40 1.14 1.07 1.16
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CAPITAL DATA (1)
Common-equity-to-assets ratio................................... 7.3% 6.9% 6.8% 6.7% 6.7%
Regulatory leverage ratio....................................... 7.3 6.9 6.9 7.0 7.3
Risk-based capital
Tier 1 ratio.................................................. 8.1 7.8 8.2 8.5 8.4
Total capital ratio........................................... 12.3 11.8 12.4 12.8 12.7
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COMMON SHARE AND STOCKHOLDER DATA FOR THE QUARTER ENDED
Market price (at quarter-end)................................... $ 41-1/2 $ 39-1/2 $ 38-1/4 $ 32 $ 32-1/2
Book value (at quarter-end)..................................... 25.70 25.25 24.96 24.25 23.54
Dividends declared per common share............................. 0.36 0.36 0.33 0.33 0.33
Common dividends................................................ 113 113 107 101 103
Preferred dividends............................................. 8 7 10 10 10
Dividend payout ratio........................................... 34.6% 97.3% 30.8% 33.3% 32.7%
Average number of common and common-equivalent
shares (in millions).......................................... 319.2 320.0 324.4 322.8 324.1
Average number of shares, assuming full dilution (in millions).. 326.2 326.9 331.8 329.9 331.2
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</TABLE>
(1) Net of investment in First Chicago Capital Markets, Inc.
1
<PAGE>
BUSINESS SEGMENTS
OVERVIEW
<TABLE>
<CAPTION>
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Three Months Ended March 31
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 ..................... $ 77 $ 85 $ 136 $ 120 $ 64 $ 70 $ 55 $ 54 $ 8 $ 7
Return on equity ............... 28% 41% 16% 15% 7% 10% 50% 38% N/M N/M
Average assets (presecuritized)
(in billions) ................ $17.0 $12.7 $38.7 $34.1 $51.1 $51.1 $21.3 $24.9 $ 0.4 $0.4
Average common equity (in
billions) .................... 1.1 0.8 3.3 3.2 3.3 2.8 0.4 0.6 - 0.1
- ------------------------------------------------------------------------------------------------------------------------
</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.
Earnings Contribution by Business Lines
[Pie Charts]
1996 1995
Credit Card = 23% Credit Card = 25%
Retail = 18% Retail = 16%
Middle Market = 22% Middle Market = 20%
Corporate & Institutional = 19% Corporate & Institutional = 21%
Other = 2% Other = 2%
Corporate Investments = 16% Corporate Investments = 16%
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 36.
2
<PAGE>
<TABLE>
<CAPTION>
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Credit Card
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Three Months Ended
(Presecuritized) March 31
(Dollars in millions, except where noted) 1996 1995
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<S> <C> <C>
Net interest income--tax-equivalent basis .. $ 366 $ 269
Provision for credit losses ................ 220 120
Noninterest income ......................... 129 119
Noninterest expense ........................ 153 130
Net income ................................. 77 85
Return on equity ........................... 28% 41%
Efficiency ratio (1) ....................... 31% 34%
Average loans (in billions) ................ $17.3 $12.8
Average common equity (in billions) ........ 1.1 0.8
- -----------------------------------------------------------------
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
The Corporation reaches customers nationally through First Card, one of the
largest issuers of bank credit cards in the U.S.
Net income in this segment declined to $77 million in the first quarter of 1996.
However, return on equity was a healthy 28% and the efficiency ratio improved to
31%, the lowest of the Corporation's businesses. The year over year increase in
the provision for credit losses reflected both portfolio growth and an increased
net charge-off rate. The credit card business was adversely affected by
industry-wide trends, including higher credit charges, increased account
acquisition costs and tighter spreads.
This business continued to build its substantial receivables base, increasing
total average credit card loans outstanding 35% from a year earlier to $17.3
billion.
<TABLE>
<CAPTION>
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Regional Banking
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Three Months Ended March 31
Retail Middle Market
------------- -------------
(Dollars in millions, except where noted) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net interest income--tax-equivalent
basis..................................... $ 285 $ 289 $ 213 $ 194
Provision for credit losses................ 15 7 15 12
Noninterest income......................... 152 126 38 35
Noninterest expense........................ 326 319 114 109
Net income................................. 60 52 76 68
Return on equity........................... 16% 14% 17% 16%
Efficiency ratio (1)....................... 75% 77% 45% 48%
Average loans (in billions)................ $16.7 $15.0 $16.3 $14.3
Average assets (in billions)............... 20.5 17.3 18.2 16.8
Average common equity (in billions)........ 1.5 1.5 1.8 1.7
</TABLE>
(1) Noninterest expense as a percentage of total revenue.
3
<PAGE>
REGIONAL BANKING
The Corporation's Regional Banking business serves local consumers, small
businesses and middle market customers through over 700 banking offices in
Michigan, Indiana and Illinois. Regional Banking is the Corporation's largest
contributor of earnings and generated net income of $136 million in the first
quarter of 1996, 40% of the Corporation's total. Return on equity for this
segment was 16%. Regional Banking includes both the Retail and Middle Market
segments and is expected to be an important contributor to the Corporation's
earnings growth going forward.
Retail Banking
For the first quarter of 1996, Retail Banking's earnings increased over 15% to
$60 million from $52 million in the first quarter of 1995. Return on equity
improved to 16% from 14%.
The 5% growth in total revenue resulted in an improved efficiency ratio of 75%
compared to 77% in the first quarter of 1995. Noninterest income grew over 20%
as a result of higher mortgage and deposit fees. The strength in deposit fees
reflects successful implementation of the deposit account repricing strategy.
Middle Market
Middle Market's net income increased to $76 million in the first quarter of 1996
from $68 million in the year-ago period. Return on equity was 17%. The 12%
increase in net income reflects a $2 billion increase in average loans due to
strong growth in the commercial lending business. Revenue grew by almost 10%
year over year and the efficiency ratio improved to 45% in the first quarter of
1996.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Corporate and Institutional Banking
- ----------------------------------------------------------------
Three Months Ended
March 31
(Dollars in millions, except where noted) 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Net interest income--tax-equivalent basis.. $ 179 $ 160
Provision for credit losses................ 24 7
Noninterest income......................... 163 180
Noninterest expense........................ 217 226
Net income................................. 64 70
Return on equity........................... 7% 10%
Efficiency ratio(1)........................ 63% 66%
Average loans (in billions)................ $20.1 $18.5
Average assets (in billions)............... 51.1 51.1
Average common equity (in billions)........ 3.3 2.8
- ----------------------------------------------------------------
</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.
4
<PAGE>
Corporate and Institutional Banking earned $64 million in the first quarter of
1996 and generated a 7% return on equity. This business receives the largest
allocation of the Corporation's equity. Lower trading revenues and higher
credit costs contributed to the 9% decline in net income.
Revenues from the major product sets within the Corporate and Institutional
Banking segment are presented in the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Total Revenue Three Months Ended
March 31
(In millions) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Trading.............................................. $ 48 $ 60
Servicing............................................ 130 132
Lending.............................................. 92 100
Financing............................................ 30 28
Other................................................ 42 20
---- ----
Total............................................. $342 $340
==== ====
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</TABLE>
Lending and servicing contribute roughly two-thirds of Corporate and
Institutional Banking's total revenue and declined somewhat from first quarter
1995 levels. Revenue from trading activities (trading profits and related net
interest income) was $48 million in the first quarter of 1996 compared with $60
million for the first quarter of 1995. The foreign exchange segment was the
primary contributor to the decline and offset gains in derivatives and fixed
income trading. (See page 10 for additional detail on trading revenue.)
The 4% decline in expenses resulted primarily from lower headcount and is
reflected in the improved efficiency ratio, which was 63% in the first quarter
of 1996 versus 66% a year earlier.
Average loans in Corporate and Institutional Banking for the first three months
of 1996 increased more than 8% from a year earlier to $20.1 billion.
<TABLE>
<CAPTION>
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Corporate Investments
- --------------------------------------------------------------------------
Three Months Ended
March 31
(Dollars in millions, except where noted) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Net interest income--tax-equivalent basis.......... $ 40 $ 36
Provision for credit losses........................ - -
Noninterest income................................. 63 62
Noninterest expense................................ 15 15
Net income......................................... 55 54
Return on equity................................... 50% 38%
Average assets (in billions)....................... $21.3 $24.9
Average common equity (in billions)................ 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. The nature of these activities implies that Corporate Investments
will be a more variable component of earnings going forward than the other
business lines.
5
<PAGE>
In the first quarter of 1996, Corporate Investments contributed $55 million in
net income and generated a robust 50% return on equity. Equity securities gains
of $44 million contributed to the strong performance.
Average assets for the quarter declined by over $3 billion as part of the
merger-related program to reduce assets by $25 billion.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Other Activities
- ------------------------------------------------------------------------------
Three Months Ended
March 31
(Dollars in millions) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Total revenue........................................... $ 11 $ 11
Noninterest expense..................................... 3 -
Net income.............................................. 8 7
Average assets (in billions)............................ $0.4 $0.4
- ------------------------------------------------------------------------------
</TABLE>
Net income for Other Activities was $8 million in the first quarter of 1996
primarily due to a $6.9 million gain on the sale of the Ohio branch network. The
first quarter of 1995 included $8 million in gains from the accelerated
disposition portfolio.
STAFFING LEVELS
The following table lists average staff levels for the Corporation for the past
five quarters.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1996 1995 1995 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average Full-Time-Equivalent
Staff........................ 34,512 35,220 35,678 35,180 35,282
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
EARNINGS ANALYSIS
Summary
The Corporation reported net income of $340 million, or $1.03 per share, for the
first quarter of 1996, up from $336 million, or $0.99 per share, in the first
quarter of 1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Three Months Ended
(Dollars in millions, March 31
except per share data) 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Net interest income--tax-equivalent basis.. $ 913 $ 815
Provision for credit losses................ 175 85
Noninterest income......................... 626 603
Noninterest expense........................ 828 799
Net income................................. 340 336
Common Share Data
Primary
Net income............................... $ 1.04 $ 1.01
Average common and common-equivalent
shares (in millions).................... 319.2 324.1
Fully diluted
Net income............................... $ 1.03 $ 0.99
Average shares, assuming full dilution
(in millions)........................... 326.2 331.2
Return on assets........................... 1.13% 1.16%
Return on common stockholders' equity...... 16.6 17.7
- ----------------------------------------------------------------
</TABLE>
Net interest income increased 12% from the year-ago quarter. Loan growth in the
credit card and regional banking businesses generated much of this increase.
The provision for credit losses was $175 million, up substantially from the 1995
first quarter due to growth in credit card receivables and charge-offs.
Market-driven revenues, which include combined trading profits, investment
securities gains, and equity securities gains, were $107 million, down slightly
from a year earlier.
Noninterest expense growth in the first quarter of 1996 was limited to 4% over
the year-ago period.
Return on common stockholders' equity was 16.6%. Capital ratios at quarter-end
remain considerably above the regulatory "well-capitalized" guidelines.
During the quarter, significant progress was made in merger integration efforts.
The Corporation's mortgage banking, discount brokerage and international
businesses successfully completed targeted integration initiatives. The Illinois
consolidation and integration strategy is on schedule for completion in the
third quarter of 1996. See Merger-Related Initiatives, beginning on page 14, for
more details.
7
<PAGE>
Net Interest Income
Net interest income includes fundamental spreads on earning assets as well as
such items as loan fees, cash interest collections on problem loans, dividend
income, interest reversals, and income or expense on interest rate derivatives
used to manage interest rate risk. Net interest margin measures the efficiency
of the use of the Corporation's earning assets and its underlying capital.
In order to analyze fundamental trends in net interest margin, it is useful to
adjust for securitization of credit card receivables and the activities of First
Chicago Capital Markets, Inc. (FCCM).
When credit card receivables are sold in securitization transactions, the
Corporation's earnings are unchanged. However, the net interest income related
to these high-yield assets is replaced by increased servicing fees, net of
related credit losses. The average levels of securitized receivables were $7.9
billion in the first quarter of 1996, compared with $6.0 billion in the first
quarter of 1995.
FCCM is the Corporation's wholly owned subsidiary engaged in permissible
investment banking activities. Because capital requirements for FCCM are risk-
exposure driven rather than based on asset levels, FCCM can generate substantial
volumes of relatively riskless, thin-spread earning assets that require little
additional capital. The Corporation's net interest margin trends can be better
analyzed if these earning assets and related margins are excluded.
On an adjusted basis, net interest margin for the first quarter of 1996 was
4.23%. This compares with 3.96% in the year-ago quarter. The increase was due to
a more profitable earning asset mix, primarily driven by increased credit card
volumes.
The following charts illustrate the trends of net interest income, including a
tax-equivalent adjustment (TEA), and net interest margin for the past five
quarters.
<TABLE>
<CAPTION>
Net Interest Income Net Interest Margin
($ Millions) (Line Graph)
(Bar Graph)
Net Interest Adjusted Net Interest Adjusted Net Net Interest
Income-TEA Income-TEA Interest Margin Margin
------------ --------------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
1Q95 $815 $ 949 1Q95 3.96% 3.22%
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
</TABLE>
8
<PAGE>
The following tables detail the composition of adjusted average earning assets
and adjusted average loans for the current and year-ago quarters.
<TABLE>
<CAPTION>
- -----------------------------------------------------
Adjusted Average Earning Assets Three Months Ended
March 31
(In millions) 1996 1995
- -----------------------------------------------------
<S> <C> <C>
Loans............................ $ 71,717 $62,215
Securities....................... 8,891 14,921
Trading assets................... 10,751 8,798
Other short-term investments..... 11,159 11,384
-------- -------
Total....................... $102,518 $97,318
======== =======
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------
Adjusted Average Loans Three Months Ended
March 31
(In millions) 1996 1995
- -----------------------------------------------------
<S> <C> <C>
Corporate and Institutional...... $ 20,079 $18,524
Middle Market.................... 16,323 14,321
Retail........................... 16,742 15,048
Credit Card...................... 17,314 12,822
Corporate Investments/Other...... 1,259 1,500
-------- -------
Total....................... $ 71,717 $62,215
======== =======
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</TABLE>
PROVISION FOR CREDIT LOSSES
Details of the Corporation's credit risk management and performance during the
quarter ended March 31, 1996, are presented in the Credit Risk Management
section, beginning on page 21.
NONINTEREST INCOME
The following table provides a breakdown of the components of noninterest income
for the first quarter of 1996 as compared with a year ago.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Three Months Ended Percent
March 31 Increase
(In millions) 1996 1995 (Decrease)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Combined trading profits.................. $ 36 $ 55 (35)%
Equity securities gains................... 49 55 (11)
Investment securities gains............... 22 1 N/M
---- ----
Market-driven revenue................... 107 111 (4)
Credit card fee revenue................... 207 201 3
Fiduciary and investment management fees.. 100 96 4
Service charges on deposits............... 101 93 9
Other service charges and commissions..... 88 81 9
Other..................................... 23 21 10
---- ----
Total................................... $626 $603 4
==== ====
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</TABLE>
N/M--Not Meaningful.
9
<PAGE>
The following table provides additional details on revenue from the
Corporation's various trading businesses, including both trading profits and net
interest income generated from these activities.
<TABLE>
<CAPTION>
- -------------------------------------------------------
Trading Revenue
- -------------------------------------------------------
Three Months Ended
March 31
(In millions) 1996 1995
- -------------------------------------------------------
<S> <C> <C>
Foreign exchange and derivatives.. $18 $36
Fixed income and derivatives...... 30 19
Other trading..................... 16 26
--- ---
Total........................ $64 $81
=== ===
- -------------------------------------------------------
</TABLE>
Revenue from trading activities (trading profits and related net interest
income) totaled $64 million in 1996, versus $81 million in the year-ago period.
Reduced foreign exchange trading profits were the primary reason for the decline
from a year ago.
Equity securities gains were $49 million during the first quarter of 1996,
compared with $55 million in the first quarter of 1995.
Investment securities gains totaled $22 million in the first quarter of 1996,
compared with $1 million in the year-ago period. As of March 31, 1996,
investment securities had been reduced by $6.3 billion, compared with the
related average balance for the first half of 1995.
Fiduciary and investment management fees include fees generated from the
Corporation's traditional trust products and services, investment management
activities, and the shareholder services business. Fees generated from these
activities increased 4% in the first quarter of 1996 from the year-ago period.
In the first quarter of 1996, the sale of the Ohio branch network to Fifth Third
Bancorp generated a $6.9 million gain, which is included in other noninterest
income.
Net gains from the active management of assets held in the accelerated
disposition portfolio were less than $1 million in the first quarter of 1996,
compared with $8 million one year ago. Total assets of this portfolio were $22
million at March 31, 1996.
10
<PAGE>
The following chart provides a comparison of 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 related to credit card fee revenue.
NONINTEREST INCOME
(Bar Graph)
<TABLE>
<CAPTION>
$ MILLIONS
Market-Driven Fiduciary & Serv. Chgs. Other Total
Revenue Credit Card Inv. Mgmt. Fees & Commissions Revenue Income
------------- ----------- --------------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
1Q95 $111 $201 $ 96 $174 $21 $603
2Q95 $ 82 $224 $ 97 $187 $41 $631
3Q95 $153 $248 $ 97 $184 $20 $702
4Q95 $101 $228 $114 $190 $22 $655
1Q96 $107 $207 $100 $189 $23 $626
</TABLE>
11
<PAGE>
NONINTEREST EXPENSE
Operating expense in the first quarter of 1996 was $828 million, compared with
$799 million in the year-ago period. Overall operating expense growth was 4%
over the year-ago quarter but was essentially flat compared with fourth quarter
operating levels.
Over the past five quarters, overall expense levels have been relatively
consistent, but operating efficiency ratios have improved markedly, as indicated
by the following charts.
OPERATING EXPENSE
(Bar Graph)
<TABLE>
<CAPTION>
$ MILLIONS
Salaries & Other Operating Total Operating
Benefits Expense Expense
---------- --------------- ---------------
<S> <C> <C> <C>
1Q95 $409 $390 $799
2Q95 $414 $407 $821
3Q95 $437 $390 $827
4Q95 $432 $389 $821
1Q96 $436 $392 $828
</TABLE>
OPERATING EFFICIENCY (1)
(Line Graph)
1Q95 56.3%
2Q95 57.0%
3Q95 54.2%
4Q95 54.0%
1Q96 53.8%
(1) Operating expense as a percentage of total revenue.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Three Months Ended Percent
March 31 Increase
(Dollars in millions) 1996 1995 (Decrease)
- -------------------------------------------------------------------
<S> <C> <C> <C>
Salaries............................ $ 356 $ 337 6%
Employee benefits................... 80 72 11
------- -------
Total............................. $ 436 $ 409 7
======= =======
Average full-time-equivalent staff.. 34,512 35,282 (2)
======= =======
- -------------------------------------------------------------------
</TABLE>
In the first quarter of 1996, employee costs grew by $27 million, or 7%, from
one year ago. Total salary expense, including incentive compensation accruals,
increased $19 million, or 6%, from the year-ago period. Most of this increase
was due to an increase in staff levels to support growth in key business areas,
particularly the credit card business.
12
<PAGE>
The increase in employee benefits expense of $8 million, or 11%, reflects the
higher cost of pension benefits and accelerated FICA tax expense related to
incentive compensation payments. The increase in net periodic pension cost
resulted from the significant increase in the projected benefit obligation,
which increased as a result of the decline in long-term interest rates in 1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Other Operating Expense
- ----------------------------------------------------------------
Three Months Ended Perent
March 31 Increase
(In millions) 1996 1995 (Decrease)
- ----------------------------------------------------------------
<S> <C> <C> <C>
Occupancy expense of premises, net... $ 67 $ 64 5%
Equipment rentals, depreciation and
maintenance.......................... 55 54 2
Marketing and public relations....... 42 43 (2)
FDIC insurance expense............... 2 26 (92)
Amortization of intangible assets.... 18 23 (22)
Telephone............................ 20 17 18
Freight and postage.................. 22 19 16
Travel and entertainment............. 12 11 9
Stationery and supplies.............. 11 10 10
Other................................ 143 123 16
----- -----
Total............................ $ 392 $ 390 1
===== =====
- ----------------------------------------------------------------
</TABLE>
Operating expense associated with the Credit Card business increased $12
million, or 9%, in the first quarter of 1996 from the first quarter of 1995.
This expense increase included market solicitation costs to grow the business
and volume-driven costs associated with servicing a larger customer base and
increased transaction volumes.
Beginning January 1, 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 in 1996 as certain core
deposit intangibles became fully amortized in 1995.
<TABLE>
<CAPTION>
APPLICABLE INCOME TAXES
- -------------------------------------------------
Three Months Ended
March 31
(In millions) 1996 1995
- -------------------------------------------------
<S> <C> <C>
Income before income taxes.. $ 508 $ 513
Applicable income taxes..... 168 177
Effective tax rate.......... 33.1% 34.5%
- -------------------------------------------------
</TABLE>
Tax expense in the first quarter of 1996 included benefits from tax-exempt
income and general business tax credits. Tax expense in the first quarter of
1995 included benefits from tax-exempt income and general business tax credits
offset by the effect of nondeductible expenses, including goodwill.
13
<PAGE>
MERGER-RELATED INITIATIVES
The Corporation has made significant progress toward attaining its merger-
related goals: namely, integration of its 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
its expanded customer base.
The asset reduction program targets reduction in specific asset categories while
allowing for growth in other categories such as loans. The following table
shows the components of the $11.7 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) March 31, 1996 1st Half 1995 (Decrease)
- -------------------------------------------------------------------
<S> <C> <C> <C>
Loans.................... $ 64,253 $ 56,927 $ 7,326
Targeted items
Deposit placements..... 8,910 9,715 (805)
Federal funds sold..... 1,659 1,846 (187)
Trading assets......... 16,251 20,659 (4,408)
Investment securities.. 8,185 14,507 (6,322)
-------- -------- --------
Subtotal............ 35,005 46,727 (11,722)
Other assets............. 16,207 16,830 (623)
-------- -------- --------
Total assets........ $115,465 $120,484 $ (5,019)
======== ======== ========
- -------------------------------------------------------------------
</TABLE>
The Corporation made significant progress toward its headcount reduction goal in
the first quarter of 1996. At March 31, 1996, severance payments had been
initiated for approximately 600 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 March 31, 1996, the merger restructuring reserve totaled $178 million. The
table below details the components of the reserve and related balances at March
31, 1996, and December 31, 1995.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
March 31, December 31, 1st Quarter 1996
(In millions) 1996 1995 Transactions
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Direct merger costs....... $ 1 $ 2 $ (1)
Severance................. 73 92 (19)
Facilities and equipment.. 93 94 (1)
Other..................... 11 12 (1)
----- ----- ----
Total................ $ 178 $ 200 $(22)
===== ===== ====
- ---------------------------------------------------------------------
</TABLE>
As the Corporation's planned 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 integration is completed in the third quarter of this year.
The Corporation has already benefited from increased revenues from offering a
wider array of products to its expanded customer base. In addition, the
Corporation has generated new business with new customers due to improved credit
ratings.
14
<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 32, 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. The Corporation's principal Banks (referred to collectively as the
"Principal Banks"), comprising 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), NBD Bank, N.A. (Indiana) (NBD
Indiana), and NBD Bank (Illinois) (NBD Illinois), all have identical ratings.
As of March 31, 1996, the parent company and the Principal Banks had the
following long- and short-term debt ratings. The short-term debt ratings for
the parent cover commercial paper issuances. The long- and short-term debt
ratings for the Principal Banks cover bank note issuances.
<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
Principal Banks......................... AA- Aa3 A-1+ P-1
- -----------------------------------------------------------------------------
</TABLE>
The Corporation maintains liquid assets in the form of federal funds sold,
deposit placements and selected investment securities to meet any immediate cash
flow obligations. See page 36, for a detailed breakdown of the investment
portfolio. In addition, as part of the normal liquidity management process,
assets are securitized and sold. Securitization of credit card receivables is
an important funding vehicle that both diversifies funding sources and accesses
large amounts of term funding in a cost-effective manner.
Access to a variety of funding markets and customers in the retail and wholesale
sectors is vital both to liquidity management and to cost minimization. Through
its various banking entities, the Corporation maintains direct access to the
local retail deposit markets and uses a network of brokers for gathering retail
deposits on a national basis.
A large customer deposit base is one of the significant strengths of the
Corporation's liquidity position. As part of the monthly liquidity measurement
process, the extent to which core assets are funded by core liabilities is
monitored. Core assets and liabilities consist primarily of customer-driven
lending and deposit-taking activities. Core liabilities also include long-term
debt and equity. The Corporation has established a 35% limit for the use of
wholesale funds for funding core assets. As of March 31, 1996, collectively,
the Principal Banks funded 79% of core assets with core liabilities, accessing
the wholesale market for only 21% of core asset funding. By limiting dependence
on the wholesale market, the risk of a disruption to the Corporation's lending
business from a liquidity event is minimized.
15
<PAGE>
In addition to this strong core funding base, a reliable, diversified mix of
funding from the wholesale market is created by active participation in global
capital markets. Internal guidelines are used to monitor the product mix and
customer concentration of the wholesale funding. The following table shows the
funding source mix for the past five quarters.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Deposits and Other Purchased Funds
March 31 Dec. 31 Sept. 30 June 30 March 31
(In millions) 1996 1995 1995 1995 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic offices
Demand............................ $13,566 $ 15,234 $ 13,286 $ 13,747 $ 13,428
Savings........................... 19,912 20,180 19,785 19,897 20,009
Time
Under $100,000.................. 10,008 9,972 10,309 9,914 9,625
$100,000 and over............... 6,263 5,947 5,647 5,403 5,735
Foreign offices..................... 14,494 17,773 17,907 17,358 14,955
------- -------- -------- -------- --------
Total deposits............. 64,243 69,106 66,934 66,319 63,752
- --------------------------------------------------------------------------------------
Federal funds purchased and
securities under repurchase
agreements......................... 13,110 15,711 20,031 19,665 20,250
Commercial paper.................... 742 288 740 620 782
Other short-term borrowings......... 10,777 9,514 8,517 8,310 7,962
Long-term debt...................... 8,011 8,163 8,445 8,065 7,639
------- -------- -------- -------- --------
Total other purchased funds..... 32,640 33,676 37,733 36,660 36,633
------- -------- -------- -------- --------
Total........................... $96,883 $102,782 $104,667 $102,979 $100,385
======= ======== ======== ======== ========
- --------------------------------------------------------------------------------------
</TABLE>
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.
16
<PAGE>
Many trading positions are kept open for brief periods of time, often less than
one day. Other trading positions are maintained for longer periods, and these
positions are valued at prevailing market rates on a present value basis.
Realized and unrealized gains and losses on these trading positions are included
in noninterest income as combined trading profits.
The overall market risk that any business can assume is approved by the Risk
Management Committee of the Board of Directors, which utilizes a risk point
system. Risk points measure the market risk (potential overnight loss) in a
capital markets product. Products that have more inherent price volatility
incur more risk points. The risk point system, therefore, is the means by which
the Corporation manages its value at risk.
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 first 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 March 31 Dec. 31 Sept. 30 June 30 March 31
(In millions) 1996 1995 1995 1995 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average..................................................... $ 32 $ 28 $ 36 $ 34 $ 31
Maximum..................................................... 38 35 42 45 44
Minimum..................................................... 25 24 27 27 24
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Quarter Ended March 31 Dec. 31 Sept. 30 June 30 March 31
(In millions) 1996 1995 1995 1995 1995
- ------------------------------------------------------------------------------------------------------------
Trading revenue*............................................ $ 64 $ 60 $ 108 $ 43 $ 81
- ------------------------------------------------------------------------------------------------------------
*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.
Whenever possible, assets are matched with liabilities of similar repricing
characteristics. However, the loans and deposits generated through ordinary
business activity do not naturally create offsetting positions with respect to
repricing or maturity. Asset and liability positions that are not appropriately
offset with either specific on-balance-sheet transactions or with asset or
liability pools are offset through the use of off-balance-sheet derivatives
positions (asset and liability management, or "ALM", derivatives).
17
<PAGE>
Traditional gap analysis is one of a variety of measurement tools used to
monitor and control the interest rate risk position. To measure the gap, asset,
liability, equity and off-balance-sheet positions are distributed to future
calendar periods based primarily on contractual interest rate repricing dates
and contractual maturity (including principal amortization) dates. Maturity
distributions are modified to reflect historical differences between contractual
and actual payment flows and management's assumptions regarding the effect
current interest rate levels may have on principal prepayments. Additionally,
assumptions are made as to the repricing frequency and balance behavior of
indeterminate maturity liabilities. Finally, credit card securitizations, which
subject credit card servicing fee revenue to interest rate risk, are included in
the gap analysis measure.
The net difference between the amount of assets and funding sources repricing
within a cumulative calendar period is typically referred to as the "rate
sensitivity position." Its magnitude in the various calendar periods provides a
general indication of the extent to which future earnings may be affected by
interest rate changes. A positive cumulative one-year gap position indicates
more assets than liabilities are anticipated to reprice over the next 12-month
period. Such a position implies that, assuming no management action, the
Corporation's net interest income would be positively affected by rising
interest rates and negatively affected by falling rates. The gap position does
not reflect the potential impact of embedded options on income sensitivity.
The following table details the Corporation's interest rate gap analysis as of
March 31, 1996. Interest rate risks in trading and overseas asset and liability
positions are assumed to be matched and are managed principally as trading
risks.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1996 0-90 91-180 181-365 1-5 Beyond
(Dollars in millions) days days days years 5 years Total
- -----------------------------------------------------------------------------------------------------
Loans.................................. $ 43,745 $ 3,560 $ 4,069 $ 12,468 $ 2,634 $ 66,476
Investment securities.................. 1,425 303 1,106 3,866 2,413 9,113
Other earning assets................... 32,807 24 6 52 63 32,952
Nonearning assets...................... 10,885 99 199 1,584 1,709 14,476
------- ------- -------- ------- ------- --------
Total assets........................ $ 88,862 $ 3,986 $ 5,380 $ 17,970 $ 6,819 $123,017
- -----------------------------------------------------------------------------------------------------
Deposits............................... $ 28,177 $ 3,499 $ 3,771 $ 13,648 $ 944 $ 50,039
Other interest-bearing liabilities..... 47,366 2,042 2,318 3,428 2,682 57,836
Noninterest-bearing liabilities........ 4,990 27 140 433 928 6,518
Equity................................. 394 203 408 3,353 4,266 8,624
------- ------- -------- ------- ------- --------
Total liabilities and equity........ $ 80,927 $ 5,771 $ 6,637 $ 20,862 $ 8,820 $123,017
- -----------------------------------------------------------------------------------------------------
Balance sheet sensitivity gap.......... $ 7,935 $(1,785) $ (1,257) $ (2,892) $(2,001) -
- -----------------------------------------------------------------------------------------------------
Cumulative gap as a % of total assets.. 6.5% 5.0% 4.0% 1.6% 0.0% 0.0%
- -----------------------------------------------------------------------------------------------------
Effect of off-balance-sheet ALM
derivative transactions:
Specific transactions................ $(3,864) $ (185) $ 708 $ 2,999 $ 342 -
Specific asset or liability pools.... (2,586) 164 858 (140) 1,704 -
- -----------------------------------------------------------------------------------------------------
Interest rate sensitivity gap.......... $ 1,485 $(1,806) $ 309 $ (33) $ 45 -
- -----------------------------------------------------------------------------------------------------
Cumulative gap......................... $ 1,485 $ (321) $ (12) $ (45) - -
- -----------------------------------------------------------------------------------------------------
Cumulative gap as a % of total assets.. 1.2% (0.3)% 0.0% 0.0% 0.0% 0.0%
- -----------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
The Corporation's policy is to limit the cumulative one-year gap position,
including ALM derivatives, to within 4% of total assets. As of March 31, 1996,
the cumulative one-year gap position was 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% of total assets.
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 March 31, 1996, the Corporation had
the following estimated earnings sensitivity profile.
<TABLE>
<CAPTION>
- ----------------------------------------------------
Immediate Change in Rates
-------------------------
(In millions) +200 bp -200 bp
- ----------------------------------------------------
<S> <C> <C>
Pretax earnings change.. $ (21) $ (27)
- ----------------------------------------------------
</TABLE>
Access to the derivatives market is an important element in maintaining the
interest rate risk position within policy guidelines. At March 31, 1996, the
notional principal amount of ALM interest rate swaps totaled $9.5 billion,
including $3.8 billion against specific transactions and $5.7 billion against
specific pools of assets or liabilities. Swaps used to adjust the interest rate
sensitivity of specific transactions will not need to be replaced as they mature
since the corresponding asset or liability will mature along with the swap.
However, swaps against the asset and liability pools will have an impact on the
overall risk position as they mature and, assuming no change to the underlying
pool's characteristics, will need to be reissued to maintain the same interest
rate risk profile. These swaps could create modest earnings sensitivity to
changes in interest rates. The following table summarizes the interest rate
swaps used for asset and liability management purposes.
<TABLE>
<CAPTION>
ASSET AND LIABILITY MANAGEMENT SWAPS-NOTIONAL PRINCIPAL
- -----------------------------------------------------------------------------------------
March 31, 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...................... $ - $1,041 $119 $ - $ - $1,160
Investment securities...... - - 250 - - 250
Securitized credit card
receivables............... - 743 - - - 743
Deposits................... 5 3,530 - - - 3,535
Funds borrowed (including
long-term debt)........... 3,394 - - 400 50 3,844
------ ------ ---- ---- --- ------
Total.................... $3,399 $5,314 $369 $400 $50 $9,532
====== ====== ==== ==== === ======
- -----------------------------------------------------------------------------------------
</TABLE>
19
<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 March 31, 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..... $2,548 $2,485 $ 920 $ 416 $ 278 $2,066 $8,713
Weighted average
Receive rate...... 6.44% 5.97% 6.27% 6.32% 5.70% 7.06% 6.41%
Pay rate.......... 5.52% 5.53% 5.65% 5.64% 5.59% 5.54% 5.55%
Pay fixed/receive
floating swaps
Notional amount..... $ 359 $ 97 $ 57 $ 83 $ 110 $ 63 $ 769
Weighted average
Receive rate...... 5.52% 5.50% 5.57% 5.62% 5.43% 5.65% 5.53%
Pay rate.......... 6.67% 7.23% 8.07% 8.00% 7.75% 8.01% 7.25%
Basis swaps
Notional amount..... $ 50 $ - $ - $ - $ - $ - $ 50
Weighted average
Receive rate...... 5.86% -% -% -% -% -% 5.86%
Pay rate.......... 5.34% -% -% -% -% -% 5.34%
- --------------------------------------------------------------------------------------
Total notional
amount................ $2,957 $2,582 $ 977 $ 499 $ 388 $2,129 $9,532
- --------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
CREDIT RISK MANAGEMENT
<TABLE>
<CAPTION>
Summary
- --------------------------------------------------------------------------------------
Selected Statistical Information
March 31 Dec. 31 Sept. 30 June 30 March 31
(Dollars in millions) 1996 1995 1995 1995 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At period-end
Loans outstanding............... $64,253 $64,434 $61,076 $58,484 $57,744
Nonperforming loans............. 391 363 296 289 271
Other real estate, net.......... 39 34 36 36 36
Nonperforming assets............ 430 397 332 325 307
Allowance for credit losses..... 1,383 1,338 1,230 1,159 1,212
Nonperforming assets/loans
outstanding and other
real estate, net............... 0.7% 0.6% 0.5% 0.6% 0.5%
Allowance for credit losses/
loans outstanding.............. 2.2 2.1 2.0 2.0 2.1
Allowance for credit losses/
nonperforming loans............ 354 369 416 401 447
For the quarter ended
Average loans................... $63,790 $62,258 $59,661 $57,727 $56,130
Net charge-offs................. 145 107 60 53 44
Net charge-offs/average loans... 0.9% 0.7% 0.4% 0.4% 0.3%
- --------------------------------------------------------------------------------------
</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 March 31 Dec. 31 Sept. 30 June 30 March 31
(In millions) 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial risk
Domestic
Commercial.............. $25,220 $25,551 $24,818 $24,826 $23,991
Real estate
Construction.......... 1,191 1,151 1,116 1,103 1,084
Other................. 5,897 6,103 6,107 5,885 5,983
Lease financing......... 1,505 1,588 1,434 1,434 1,409
Foreign................... 3,487 3,726 3,605 3,683 3,390
------- ------- ------- ------- -------
Total commercial.. 37,300 38,119 37,080 36,931 35,857
------- ------- ------- ------- -------
Consumer risk
Credit cards.............. 9,722 9,649 7,597 6,198 7,110
Secured by real estate
Mortgage................ 6,685 6,669 6,616 5,922 5,645
Home equity............. 2,543 2,264 2,200 2,173 2,103
Automotive................ 4,546 4,477 4,390 4,171 4,025
Other..................... 3,457 3,256 3,193 3,089 3,004
------- ------- ------- ------- -------
Total consumer.... 26,953 26,315 23,996 21,553 21,887
------- ------- ------- ------- -------
Total............. $64,253 $64,434 $61,076 $58,484 $57,744
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------
</TABLE>
21
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
Although the allowance for credit losses is available to absorb potential losses
inherent in the Corporation's total credit portfolio, its composition reflects
an internal allocation to the commercial, credit card and other consumer
segments.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Allowance for Credit Losses
Three Months Ended March 31, 1996
Credit Other
(Dollars in millions) Commercial Card Consumer Total
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period.. $986 $303 $ 49 $1,338
Provision for credit losses... 39 121 15 175
Net charge-offs............... (35) (97) (13) (145)
Transfers related to
securitized receivables...... - 15 - 15
---- ---- ---- ------
Balance, end of period........ $990 $342 $ 51 $1,383
==== ==== ==== ======
Allowance as a percentage
of loans outstanding........ 2.6% 3.5% 0.3% 2.2%
Allowance as a percentage
of nonperforming loans...... 253% -% -% 354%
- ------------------------------------------------------------------------
</TABLE>
The allowance for credit losses is maintained at a level that in management's
judgment is adequate to provide for inherent credit losses resulting from on-
balance-sheet credit exposure for financial instruments such as loans and
derivatives, and off-balance-sheet credit exposure for credit-related and
derivative financial instruments. The level of the allowance reflects
management's formal review and analysis of potential credit losses, as well as
prevailing economic conditions. Each quarter, the adequacy of the allowance for
credit losses is evaluated and reported to a committee of the Board of
Directors.
The Corporation maintains a separate reserve for securitized credit card
receivables, included in the other assets category. This reserve totaled $277
million at March 31, 1996, compared with $302 million at year-end 1995 and $236
million a year ago.
22
<PAGE>
NONPERFORMING ASSETS
The following table shows the trend in nonperforming assets, including the
breakdown by significant portfolio segment.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Nonperforming Assets March 31 Dec. 31 Sept. 30 June 30 March 31
(Dollars in millions) 1996 1995 1995 1995 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Commercial real estate........... $ 117 $ 91 $ 108 $ 128 $ 139
Other............................ 274 272 188 161 132
----- ----- ----- ----- -----
Total nonperforming loans..... 391 363 296 289 271
----- ----- ----- ----- -----
Other real estate, net............. 39 34 36 36 36
----- ----- ----- ----- -----
Total nonperforming assets.... $ 430 $ 397 $ 332 $ 325 $ 307
===== ===== ===== ===== =====
Nonperforming assets as a
percentage of loans outstanding
and other real estate, net....... 0.7% 0.6% 0.5% 0.6% 0.5%
- ---------------------------------------------------------------------------------------
</TABLE>
Loans 90 days or more past due and still accruing interest amounted to $218
million at March 31, 1996, compared with $197 million at December 31, 1995, and
$134 million at March 31, 1995.
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 $27.0 billion at March 31, 1996, up
23% from $21.9 billion a year ago. Including securitized credit card
receivables, these loans totaled $34.5 billion at March 31, 1996, up 24% from a
year ago.
Total managed credit card receivables (i.e. those held in the portfolio and
those sold to investors through securitization) were $17.3 billion at March 31,
1996, up 33% from a year earlier.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Consumer Loans March 31 Dec. 31 Sept. 30 June 30 March 31
(In millions) 1996 1995 1995 1995 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans............ $ 9,722 $ 9,649 $ 7,597 $ 6,198 $ 7,110
Securitized credit card
receivables................. 7,553 7,877 7,986 7,986 5,867
------- ------- ------- ------- -------
Total managed credit card
receivables.............. 17,275 17,526 15,583 14,184 12,977
Other consumer loans
Secured by real estate
Mortgage................. 6,685 6,669 6,616 5,922 5,645
Home equity.............. 2,543 2,264 2,200 2,173 2,103
Automotive................. 4,546 4,477 4,390 4,171 4,025
Other...................... 3,457 3,256 3,193 3,089 3,004
------- ------- ------- ------- -------
Other consumer loans..... 17,231 16,666 16,399 15,355 14,777
------- ------- ------- ------- -------
Total................... $34,506 $34,192 $31,982 $29,539 $27,754
======= ======= ======= ======= =======
- -----------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Average managed credit card receivables for the first quarter of 1996 grew 35%
from the year-earlier quarter and 8% from the fourth quarter of 1995.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Average Credit Card Receivables For the Quarter Ended
March 31 Dec. 31 Sept. 30 June 30 March 31
(Dollars in millions) 1996 1995 1995 1995 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Credit card loans................ $ 9,380 $ 8,034 $ 6,772 $ 6,485 $ 6,733
Securitized credit card
receivables..................... 7,867 7,986 7,808 6,896 6,027
------- ------- ------- ------- -------
Total managed credit card
receivables.................. $17,247 $16,020 $14,580 $13,381 $12,760
======= ======= ======= ======= =======
Total net charge-offs
(including securitizations)..... $ 206 $ 176 $ 144 $ 132 $ 120
======= ======= ======= ======= =======
Net charge-offs/average
total receivables.............. 4.8% 4.4% 3.9% 4.0% 3.8%
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------
</TABLE>
The net charge-off rate for the total average managed credit card portfolio was
4.8% in the first quarter of 1996, compared with 3.8% a year ago. Current
levels of unemployment and personal bankruptcy filings make reductions in the
charge-off rate unlikely in the near term. Consumer debt service burden and
defaults have increased as a result of the growing consumer debt levels coupled
with stagnant real wage growth. In response to these trends, credit management
policies and practices have been tightened.
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 $37.3 billion at March 31, 1996, down 2.1% from
December 31, 1995, and up 4.0% from March 31, 1995.
During the first quarter, charge-offs net of recoveries were $35 million in the
commercial portfolio. The provision for credit losses related to the commercial
portfolio was $39 million, and the quarter-end reserve of $990 million
represented 2.6% of total commercial loans and 253% of nonperforming commercial
loans.
COMMERCIAL REAL ESTATE
Commercial real estate consists primarily of 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 $7.1 billion at March 31, 1996, down 2.3%
from December 31, 1995. Commercial real estate loans totaled $7.1 billion at
March 31, 1995.
During the first quarter, net charge-offs in the commercial real estate
portfolio were $3 million, and nonperforming commercial real estate assets,
including other real estate, totaled $156 million at March 31, 1996.
24
<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.
A discussion of the Corporation's income from derivatives used in trading
activities is presented on page 10.
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 $2.4 million in the first quarter of 1996, and higher by $9.2 million
in the first quarter of 1995.
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 $2.0 million in the first quarter of
1996, and reduced by $2.9 million in the first quarter of 1995.
Deferred gains and losses on the early termination of interest rate swaps
totaled a net deferred gain of $6.4 million as of March 31, 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: $9.4 million in the remainder of 1996, $(0.8) million in
1997, $(0.7) million in 1998, $(0.3) million in 1999, and $(1.2) million
thereafter.
Credit exposure resulting from derivative financial instruments is represented
by their fair value amounts, increased by an estimate of potential adverse
position exposure. The incremental amount of credit exposure for potential
adverse movement is calculated using a statistical model that estimates changes
over time in exchange rates, interest rates and other relevant factors. Credit
exposure amounts fluctuate as a function of maturity, interest rates, foreign
exchange rates, commodity prices and equity prices. Gross credit exposure may be
overstated because it does not consider collateral and other security, or the
offsetting of losses with the same counterparties based on legally enforceable
termination and netting rights. A reconciliation between gross credit exposure
and balance sheet exposure is presented in the following table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
March 31, 1996 (In billions)
- ------------------------------------------------------------------------
<S> <C>
Gross credit exposure............................................ $21.2
Less additional exposure based on estimate of potential adverse
position exposure.............................................. 8.9
-----
Gross fair value exposure........................................ $12.3
=====
- ------------------------------------------------------------------------
Gross fair value exposure........................................ $12.3
Less netting adjustments due to master netting agreements........ 6.3
Less unrecognized net gain due to nontrading activities.......... 0.1
-----
Balance sheet exposure........................................... $ 5.9
=====
- ------------------------------------------------------------------------
</TABLE>
25
<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. The increase in gross credit exposure and
incremental potential adverse position exposure during the first quarter of 1996
was primarily a result of new activity. In the first quarter of 1996, there
were no net charge-offs associated with derivative financial instruments.
CAPITAL MANAGEMENT
<TABLE>
<CAPTION>
Selected Capital Ratios
- ------------------------------------------------------------------------------------------------------
March 31 Dec. 31 Sept. 30 June 30 March 31 Corporate
Quarter Ended 1996 1995 1995 1995 1995 Guideline
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common equity/total assets (1)..... 7.3% 6.9% 6.8% 6.7% 6.7% N/A
Tangible common equity ratio (1)... 6.9 6.4 6.3 6.3 6.2 N/A
Stockholders' equity/total assets.. 7.5 6.9 6.8 6.8 6.8 N/A
Risk-based capital ratios (1)
Tier 1.......................... 8.1 7.8 8.2 8.5 8.4 7-8%
Total........................... 12.3 11.8 12.4 12.8 12.7 11-12%
Leverage ratio (1)................. 7.3 6.9 6.9 7.0 7.3 5.5-7.0%
Double leverage ratio.............. 115 115 114 112 112 less than or
equal to 120%
Dividend payout ratio.............. 34 29 31 33 33 30-40%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net of investment in FCCM.
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 principal banking subsidiaries to meet these needs and also to maintain a
well-capitalized regulatory position.
ECONOMIC CAPITAL
In the normal course of business, the Corporation assumes several types of risk:
credit, liquidity, structural interest rate, market and operating/ fiduciary.
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. This
process forms a key decision-making tool for managing risk-taking activities, as
well as for ensuring that capital is profitably employed.
A financial instrument or business activity attracts economic capital based on
its potential for loss of value over a particular time period. Capital is
designed to cover unexpected losses to a desired level of statistical
significance. Losses may result from adverse price movements for market and
interest rate risk, failure of a counterparty to perform according to the terms
of an agreement for credit risk, and operating errors and negligence for
operating/fiduciary risk. Credit and operating loss experiences form the basis
for assessing the volatility of these risks. Volatility of interest and
exchange rates and commodity and equity prices is used to determine the capital
for market risk.
Although capital is allocated to specific activities and instruments, a diverse
portfolio of activities requires less capital than the sum of the individual
components due to the unlikelihood that all activities will experience large
value declines at the same time. Consequently, the Corporation's total economic
capital level will be less than or equal to the sum of the individual
requirements.
26
<PAGE>
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 first 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 first quarter of 1996 and the
previous four quarters exceeded its economic capital -- that needed for current
business risks -- and was more than sufficient to meet its intermediary capital
goals. 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 quarter of 1996, there was minimal excess capital, primarily
due to the impact of merger-related charges taken in the fourth quarter of 1995.
Integral to any successful capital management program is the ability to generate
acceptable returns on stockholders' capital. The Corporation has been able to
earn attractive returns on equity. Before merger-related charges, the return on
average common stockholders' equity has been consistently above 15% -- the
Corporation's minimum goal.
OTHER CAPITAL ACTIVITIES
In August 1995, the Corporation's $120.5 million issue of Preferred Stock,
Series A, was redeemed, reducing quarterly dividend requirements by $2.1
million. Regulatory total capital was increased in February 1996 through the
issuance of $150 million of subordinated debt.
REGULATORY CAPITAL
The Corporation endeavors to maintain regulatory capital ratios, including those
of the Principal Banks, 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 26, 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>
- --------------------------------------------------------------------------------------------------------
March 31 Dec. 31 March 31
(In millions) 1996 1995 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Regulatory Risk-Based Capital
Tier 1 capital............................................................. $ 8,006 $ 7,750 $ 7,681
Tier 2 capital............................................................. 4,138 4,017 3,862
------- ------- -------
Total capital......................................................... $12,144 $11,767 $11,543
======= ======= =======
Regulatory Risk-Weighted Assets
Balance sheet risk-weighted assets......................................... $69,825 $71,040 $65,266
Off-balance-sheet risk-weighted assets..................................... 28,876 28,403 25,958
------- ------- -------
Total risk-weighted assets............................................ $98,701 $99,443 $91,224
======= ======= =======
- --------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
The Corporation's Principal Banks have exceeded the regulatory well-capitalized
guidelines as shown in the following tables.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NBD NBD NBD
FNBC FCCNB ANB Michigan Indiana Illinois
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1996
Risk-based capital ratios
Tier 1 capital.......... 7.8% 9.7% 9.2% 8.1% 10.6% 10.1%
Total capital........... 11.6 13.0 11.6 11.5 11.8 11.4
Leverage Ratio............. 6.2 9.7 9.4 8.1 8.7 8.8
- --------------------------------------------------------------------------------
NBD NBD NBD
FNBC FCCNB ANB Michigan Indiana Illinois
- --------------------------------------------------------------------------------
December 31, 1995
Risk-based capital ratios
Tier 1 capital.......... 7.6% 10.0% 9.2% 7.6% 10.3% 9.9%
Total capital........... 11.3 12.1 11.5 10.9 11.5 11.2
Leverage Ratio............. 5.9 11.7 9.2 7.4 7.9 8.3
- --------------------------------------------------------------------------------
</TABLE>
It is important to note that by maintaining regulatory well-capitalized status,
these banks benefit from lower FDIC deposit premiums.
28
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------------------
March 31 December 31 March 31
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks................................................................. $ 6,129 $ 7,297 $ 6,116
Interest-bearing due from banks......................................................... 8,910 10,241 9,774
Federal funds sold and securities under resale agreements............................... 10,684 11,698 13,654
Trading assets.......................................................................... 7,226 8,150 6,224
Derivative product assets............................................................... 5,890 6,713 8,639
Investment securities (fair values--$8,185, $9,449 and $14,095, respectively)........... 8,185 9,449 14,091
Loans (net of unearned income--$627, $610 and $486, respectively)....................... 64,253 64,434 57,744
Allowance for credit losses............................................................. (1,383) (1,338) (1,212)
Premises and equipment.................................................................. 1,424 1,423 1,315
Customers' acceptance liability......................................................... 737 729 696
Other assets............................................................................ 3,410 3,206 2,874
-------- -------- --------
Total assets.................................................................. $115,465 $122,002 $119,915
======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits
Demand................................................................................ $ 13,566 $ 15,234 $ 13,428
Savings............................................................................... 19,912 20,180 20,009
Time.................................................................................. 16,271 15,919 15,360
Foreign offices....................................................................... 14,494 17,773 14,955
-------- -------- --------
Total deposits................................................................ 64,243 69,106 63,752
Federal funds purchased and securities under repurchase agreements...................... 13,110 15,711 20,250
Other short-term borrowings............................................................. 11,519 9,802 8,744
Long-term debt.......................................................................... 8,011 8,163 7,639
Acceptances outstanding................................................................. 737 729 696
Derivative product liabilities.......................................................... 5,871 6,723 8,259
Other liabilities....................................................................... 3,350 3,318 2,416
-------- -------- --------
Total liabilities............................................................. 106,841 113,552 111,756
- ------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock......................................................................... 489 489 611
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--318,534,928; 318,535,798; and 329,695,661, respectively
Number of shares outstanding--316,547,238; 315,241,109; and 320,638,860, respectively
Surplus................................................................................. 2,167 2,185 2,546
Retained earnings....................................................................... 5,716 5,497 5,031
Fair value adjustment on investment securities available-for-sale....................... 68 112 (81)
Deferred compensation................................................................... (68) (39) (36)
Accumulated translation adjustment...................................................... 8 8 10
Treasury stock at cost--1,987,690; 3,294,689; and 9,056,801 shares, respectively........ (75) ( 121) (252)
-------- -------- --------
Stockholders' equity.......................................................... 8,624 8,450 8,159
-------- -------- --------
Total liabilities and stockholders' equity.................................... $115,465 $122,002 $119,915
======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
- --------------------------------------------------------------------------------------------------------------------------
March 31 March 31 December 31
Three Months Ended (In millions, except per share data) 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees............................................................. $ 1,412 $ 1,252 $ 1,398
Bank balances..................................................................... 146 143 154
Federal funds sold and securities under resale agreements......................... 177 245 206
Trading assets.................................................................... 123 90 132
Investment securities--taxable.................................................... 109 201 133
Investment securities--tax-exempt................................................. 25 28 43
-------- -------- --------
Total................................................................... 1,992 1,959 2,066
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits.......................................................................... 592 587 664
Federal funds purchased and securities under repurchase agreements................ 225 306 286
Other short-term borrowings....................................................... 153 133 142
Long-term debt.................................................................... 137 139 140
-------- -------- --------
Total................................................................... 1,107 1,165 1,232
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME............................................................... 885 794 834
Provision for credit losses....................................................... 175 85 210
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES............................. 710 709 624
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits.......................................................... 36 55 48
Equity securities gains........................................................... 49 55 72
Investment securities gains (losses).............................................. 22 1 (19)
-------- -------- --------
Market-driven revenue........................................................... 107 111 101
Credit card fee revenue........................................................... 207 201 228
Fiduciary and investment management fees.......................................... 100 96 114
Service charges and commissions................................................... 189 174 190
Other............................................................................. 23 21 22
-------- -------- --------
Total................................................................... 626 603 655
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits.................................................... 436 409 432
Occupancy expense of premises, net................................................ 67 64 54
Equipment rentals, depreciation and maintenance................................... 55 54 63
FDIC insurance expense............................................................ 2 26 4
Amortization of intangible assets................................................. 18 23 21
Other............................................................................. 250 223 247
-------- -------- --------
Subtotal................................................................ 828 799 821
Merger-related charges............................................................ - - 267
-------- -------- --------
Total................................................................... 828 799 1,088
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES........................................................ 508 513 191
Applicable income taxes........................................................... 168 177 65
-------- -------- --------
NET INCOME........................................................................ $ 340 $ 336 $ 126
======== ======== ========
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY............................ $ 332 $ 326 $ 119
======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
NET INCOME-PRIMARY.............................................................. $1.04 $1.01 $0.37
NET INCOME-FULLY DILUTED........................................................ $1.03 $0.99 $0.37
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
(In millions) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, beginning of period.................................................... $ 489 $ 611
------ ------
Balance, end of period.......................................................... 489 611
------ ------
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........................................................ - 2
Issuance of treasury stock...................................................... (21) (2)
Acquisition of subsidiaries..................................................... - (6)
Cancellation of shares held in treasury......................................... - (8)
Common stock subscribed......................................................... - 6
Other........................................................................... 3 (1)
------ ------
Balance, end of period.......................................................... 2,167 2,546
------ ------
RETAINED EARNINGS
Balance, beginning of period.................................................... 5,497 4,808
Net income...................................................................... 340 336
Cash dividends declared on common stock......................................... (113) (103)
Cash dividends declared on preferred stock...................................... (8) (10)
------ ------
Balance, end of period.......................................................... 5,716 5,031
------ ------
FAIR VALUE ADJUSTMENT ON INVESTMENT SECURITIES
AVAILABLE-FOR-SALE
Balance, beginning of period.................................................... 112 (158)
Change in fair value (net of taxes of $(19) in 1996 and $89 in 1995)............ (44) 77
------ ------
Balance, end of period.......................................................... 68 (81)
------ ------
DEFERRED COMPENSATION
Balance, beginning of period.................................................... (39) (33)
Awards granted.................................................................. (33) (5)
Amortization of deferred compensation........................................... 6 5
Other........................................................................... (2) (3)
------ ------
Balance, end of period.......................................................... (68) (36)
------ ------
ACCUMULATED TRANSLATION ADJUSTMENT
Balance, beginning of period.................................................... 8 7
Translation gain, net of taxes.................................................. - 3
Balance, end of period.......................................................... 8 10
------ ------
TREASURY STOCK
Balance, beginning of period.................................................... (121) (310)
Purchase of common stock........................................................ (20) (122)
Acquisition of subsidiaries..................................................... - 154
Cancellation of shares held in treasury......................................... - 8
Issuance of stock............................................................... 66 18
------ ------
Balance, end of period.......................................................... (75) (252)
------ ------
TOTAL STOCKHOLDERS' EQUITY, END OF PERIOD......................................... $ 8,624 $ 8,159
====== ======
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------
Three Months Ended March 31 (In millions) 1996 1995
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income.......................................................................... $ 340 $ 336
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization..................................................... 63 67
Provision for credit losses....................................................... 175 85
Equity securities gains........................................................... (49) (55)
Net (increase) in net derivative product balances................................. (29) (101)
Net (increase) decrease in trading assets......................................... 939 (1,135)
Net (increase) in loans held-for-sale............................................. (219) (34)
Net (increase) decrease in accrued income receivable.............................. 18 (27)
Net increase (decrease) in accrued expenses payable............................... (57) 29
Net (increase) decrease in other assets........................................... (36) 29
Other noncash adjustments......................................................... 97 105
------- -------
Total adjustments................................................................. 902 (1,037)
Net cash provided by (used in) operating activities................................. 1,242 (701)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold and securities under resale agreements........... 1,014 48
Purchase of investment securities--available for sale............................... (647) (878)
Purchase of debt investment securities--held to maturity............................ - (43)
Purchase of equity securities--fair value........................................... (35) (45)
Proceeds from maturities of debt securities--available for sale..................... 969 533
Proceeds from maturities of debt securities--held to maturity....................... - 318
Proceeds from sales of debt securities--available for sale.......................... 854 1,258
Proceeds from sales of equity securities--available for sale........................ 83 221
Proceeds from sales of equity securities--fair value................................ 51 78
Net (increase) decrease in loans.................................................... 6 (2,107)
Loan recoveries..................................................................... 29 40
Net proceeds from sales of assets held for accelerated disposition.................. - 14
Purchases of premises and equipment................................................. (79) (62)
Proceeds from sales of premises and equipment....................................... 23 12
Net cash and cash equivalents due to acquisitions (dispositions).................... (263) 25
------- -------
Net cash provided by (used in) investing activities................................. 2,005 (588)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) in deposits.......................................................... (4,194) (2,079)
Net increase (decrease) in federal funds purchased and securities under repurchase
agreements......................................................................... (2,601) 3,332
Net increase in other short-term borrowings......................................... 1,717 322
Proceeds from issuance of long-term debt............................................ 549 615
Repayment of long-term debt......................................................... (727) (217)
Net (decrease) in other liabilities................................................. (201) (261)
Dividends paid...................................................................... (126) (113)
Proceeds from issuance of common and treasury stock................................. 8 15
Repurchase of common stock.......................................................... (14) (122)
------- -------
Net cash provided by (used in) financing activities................................. (5,589) 1,492
- -------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS........................ (157) 138
- -------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ (2,499) 341
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 17,538 15,549
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $15,039 $15,890
======= =======
- -------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this statement, cash and cash equivalents consist of cash and
due from banks--noninterest-bearing and interest-bearing.
32
<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>
- ------------------------------------------------------------
Three Months Ended
(In millions) March 31
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
PRIMARY
Net income............................ $ 340 $ 336
Preferred stock dividends............. 8 10
------ ------
Net income attributable to common
stockholders' equity................ $ 332 $ 326
====== ======
Average number of common and
common-equivalent shares............ 319.2 324.1
====== ======
FULLY DILUTED
Net income............................ $ 340 $ 336
Preferred stock dividends, excluding
convertible Series B................ 5 7
------ ------
Fully diluted net income.............. $ 335 $ 329
====== ======
Average number of shares,
assuming full dilution.............. 326.2 331.2
====== ======
- ------------------------------------------------------------
</TABLE>
Note 3
- ------
At March 31, 1996, credit card receivables aggregated $9.7 billion. These
receivables are available for sale at face value through credit card
securitization programs.
33
<PAGE>
Note 4
- ------
The accelerated asset disposition portfolio was established in September 1992.
Nonperforming assets in this portfolio totaled $22 million at March 31, 1996,
compared with $22 million at year-end 1995 and $31 million a year ago.
Note 5
- ------
Nonperforming loans are generally identified as "impaired loans." At March 31,
1996, the recorded investment in loans considered impaired was $391 million,
which required a related allowance for credit losses of $75 million.
Substantially all of the $391 million in impaired loans required the
establishment of an allocated reserve. The average recorded investment in
impaired loans was approximately $369 million for the quarter ended March 31,
1996. The Corporation recognized interest income associated with impaired loans
of $3 million during the quarter.
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.
Note 7
- ------
The ratio of income to fixed charges for the three months ended March 31, 1996,
excluding interest on deposits was 2.0x, 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.
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.
34
<PAGE>
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.
35
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- ---------------------------------------------------------------------------------------------------
Investment Securities--Available-for-Sale
----------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized Fair Value
March 31, 1996 (In millions) Cost Gains Losses (Book Value)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury.......................... $1,455 $ 5 $ 7 $1,453
U.S. government agencies
Mortgage-backed securities........... 3,952 94 51 3,995
Collateralized mortgage obligations.. 4 - - 4
Other................................ 163 - - 163
States and political subdivisions...... 1,342 73 2 1,413
Other debt securities.................. 94 1 - 95
Equity securities (1)(2)............... 982 159 79 1,062
------ ---- ---- ------
Total.............................. $7,992 $332 $139 $8,185
====== ==== ==== ======
- ---------------------------------------------------------------------------------------------------
</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 March 31, 1996 Three Months Ended March 31, 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.. $ 913 $ 168 $ 1,081 $ 815 $ 138 $ 953
Provision for credit
losses................ 175 98 273 85 62 147
Noninterest income...... 626 (70) 556 603 (76) 527
Noninterest expense..... 828 - 828 799 - 799
Net income.............. 340 - 340 336 - 336
Assets--quarter-end..... $115,465 $7,552 $123,017 $119,915 $5,867 $125,782
--average......... 120,708 7,867 128,575 117,172 6,027 123,199
- ---------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
- --------------------------------------------------------------------------------
March 31 Dec. 31 Sept. 30 June 30 March 31
(In millions) 1996 1995 1995 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter.. $1,338 $1,230 $1,159 $1,212 $1,158
- --------------------------------------------------------------------------------
Provision for credit losses.... 175 210 125 90 85
- --------------------------------------------------------------------------------
Charge-offs
Commercial
Domestic
Commercial.................. 43 43 11 11 5
Real estate................. 4 2 6 10 7
Lease financing............. 2 1 1 - -
Foreign...................... - - - - 1
Consumer
Credit card................. 104 76 53 54 58
Other....................... 21 23 18 15 14
------ ------ ------ ------ ------
Total charge-offs.......... 174 145 89 90 85
- --------------------------------------------------------------------------------
Recoveries
Commercial
Domestic
Commercial.................. 12 16 10 15 18
Real estate................. 1 1 4 5 6
Lease financing............. - 1 - - 1
Foreign...................... 1 5 1 1 2
Consumer
Credit card................. 7 8 8 9 8
Other....................... 8 7 6 7 6
------ ------ ------ ------ ------
Total recoveries........... 29 38 29 37 41
- --------------------------------------------------------------------------------
Net charge-offs................ 145 107 60 53 44
- --------------------------------------------------------------------------------
Transfers related to
securitized receivables....... 15 5 - (90) 10
Other (1)...................... - - 6 - 3
- --------------------------------------------------------------------------------
Balance, end of quarter........ $1,383 $1,338 $1,230 $1,159 $1,212
====== ====== ====== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
(1) Primarily acquisitions.
37
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Margin/Rates
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1996 December 31, 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.......................... $ 9,686 $ 146 6.06% $ 10,155 $ 154 6.02%
Federal funds sold and securities under resale
agreements.............................................. 13,465 177 5.29 13,911 206 5.88
Trading assets........................................... 8,797 124 5.67 8,742 132 5.99
Investment securities
U.S. government and federal agency..................... 6,197 105 6.81 8,356 143 6.79
States and political subdivisions...................... 1,428 32 9.01 1,457 34 9.26
Other.................................................. 1,266 17 5.40 1,308 21 6.37
-------- ------ ---- -------- ------ ----
Total investment securities.......................... 8,891 154 6.97 11,121 198 7.06
Loans (1)(2)
Domestic offices....................................... 60,315 1,358 9.17 58,537 1,343 9.22
Foreign offices........................................ 3,475 61 7.06 3,721 63 6.72
-------- ------ ---- -------- ------ ----
Total loans.......................................... 63,790 1,419 9.05 62,258 1,406 9.07
-------- ------ ---- -------- ------ ----
Total earning assets (3)............................. 104,629 2,020 7.77 106,187 2,096 7.83
Cash and due from banks.................................. 6,081 6,141
Allowance for credit losses.............................. (1,335) (1,234)
Other assets............................................. 11,333 12,679
-------- --------
Total assets......................................... $120,708 $123,773
======== ========
- --------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits--interest-bearing
Savings................................................ $ 11,273 $ 64 2.28% $ 11,221 $ 72 2.55%
Money market........................................... 8,645 84 3.91 8,979 90 3.98
Time................................................... 16,941 234 5.56 18,529 271 5.80
Foreign offices........................................ 15,707 210 5.38 16,365 231 5.60
-------- ------ ---- -------- ------ ----
Total deposits--interest-bearing..................... 52,566 592 4.53 55,094 664 4.78
Federal funds purchased and securities under repurchase
agreements............................................. 17,076 225 5.30 19,003 286 5.97
Other short-term borrowings.............................. 11,774 153 5.23 8,986 142 6.27
Long-term debt........................................... 8,079 137 6.82 8,275 140 6.71
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities................... 89,495 1,107 4.97 91,358 1,232 5.35
Demand deposits.......................................... 13,356 13,458
Other liabilities........................................ 9,314 10,469
Preferred stock.......................................... 490 490
Common stockholders' equity.............................. 8,053 7,998
-------- --------
Total liabilities and stockholders' equity........... $120,708 $123,773
======== ========
- --------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets (3)....................... $2,020 7.77% $2,096 7.83%
Interest expense/earning assets.......................... 1,107 4.26 1,232 4.60
------ ---- ------ ----
Net interest margin...................................... $ 913 3.51% $ 864 3.23%
====== ==== ====== ====
- --------------------------------------------------------------------------------------------------------------------------
</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.
38
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
September 30, 1995 June 30, 1995 March 31, 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>
$ 10,460 $ 161 6.11% $ 10,117 $ 162 6.42% $ 9,313 $ 143 6.23%
15,789 230 5.78 16,043 241 6.03 17,061 245 5.82
8,554 142 6.59 6,557 104 6.36 5,348 91 6.90
9,842 167 6.73 10,583 180 6.82 11,310 191 6.85
1,500 35 9.26 1,583 35 8.87 1,643 37 9.13
1,925 22 4.53 1,926 14 2.92 1,966 14 2.89
- -------- ------ ---- -------- ------ ---- -------- ------ ----
13,267 224 6.70 14,092 229 6.52 14,919 242 6.58
56,260 1,261 9.02 54,412 1,237 9.24 52,905 1,202 9.34
3,401 64 7.47 3,315 62 7.50 3,225 57 7.17
- -------- ------ ---- -------- ------ ---- -------- ------ ----
59,661 1,325 8.93 57,727 1,299 9.14 56,130 1,259 9.22
- -------- ------ ---- -------- ------ ---- -------- ------ ----
107,731 2,082 7.66 104,536 2,035 7.81 102,771 1,980 7.81
5,992 6,862 6,315
(1,179) (1,193) (1,183)
12,194 13,590 9,269
- -------- -------- --------
$124,738 $123,795 $117,172
======== ======== ========
- ------------------------------------------------------------------------------------------------
$ 11,335 $ 73 2.56% $ 11,342 $ 76 2.69% $ 11,648 $ 77 2.68%
9,564 97 4.02 9,759 97 3.99 8,784 85 3.92
17,368 260 5.94 16,886 250 5.94 16,601 227 5.55
17,194 247 5.70 15,740 230 5.86 13,984 198 5.74
- -------- ------ ---- -------- ------ ---- -------- ------ ----
55,461 677 4.84 53,727 653 4.87 51,017 587 4.67
20,443 304 5.90 19,622 296 6.05 21,096 306 5.88
8,962 131 5.80 9,550 132 5.54 9,171 133 5.88
8,238 146 7.03 7,840 146 7.47 7,411 139 7.61
- -------- ------ ---- -------- ------ ---- -------- ------ ----
93,104 1,258 5.36 90,739 1,227 5.42 88,695 1,165 5.33
13,158 13,244 13,156
9,972 11,532 7,252
570 611 611
7,934 7,669 7,458
- -------- -------- --------
$124,738 $123,795 $117,172
======== ======== ========
- ------------------------------------------------------------------------------------------------
$2,082 7.66% $2,035 7.81% $1,980 7.81%
1,258 4.63 1,227 4.71 1,165 4.59
------ ---- ------ ---- ------ ----
$ 824 3.03% $ 808 3.10% $ 815 3.22%
====== ==== ====== ==== ====== ====
- ------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
FIVE-QUARTER CONSOLIDATED INCOME STATEMENT
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31 Dec. 31 Sept. 30 June 30 March 31
(Dollars in millions, except per share data) 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees................................................ $ 1,412 $ 1,398 $ 1,318 $ 1,292 $ 1,252
Bank balances........................................................ 146 154 161 162 143
Federal funds sold and securities under resale agreements............ 177 206 230 241 245
Trading assets....................................................... 123 132 141 104 90
Investment securities--taxable....................................... 109 133 176 184 201
Investment securities--tax-exempt.................................... 25 43 28 28 28
-------- -------- -------- -------- --------
Total...................................................... 1,992 2,066 2,054 2,011 1,959
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits............................................................. 592 664 677 653 587
Federal funds purchased and securities under repurchase
agreements.......................................................... 225 286 304 296 306
Other short-term borrowings.......................................... 153 142 131 132 133
Long-term debt....................................................... 137 140 146 146 139
-------- -------- -------- -------- --------
Total...................................................... 1,107 1,232 1,258 1,227 1,165
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME.................................................. 885 834 796 784 794
Provision for credit losses.......................................... 175 210 125 90 85
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES................ 710 624 671 694 709
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Combined trading profits............................................. 36 48 85 22 55
Equity securities gains.............................................. 49 72 66 60 55
Investment securities gains (losses)................................. 22 (19) 2 - 1
-------- -------- -------- -------- --------
Market-driven revenue........................................... 107 101 153 82 111
Credit card fee revenue.............................................. 207 228 248 224 201
Fiduciary and investment management fees............................. 100 114 97 97 96
Service charges and commissions...................................... 189 190 184 187 174
Other................................................................ 23 22 20 41 21
-------- -------- -------- -------- --------
Total...................................................... 626 655 702 631 603
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits....................................... 436 432 437 414 409
Occupancy expense of premises, net................................... 67 54 69 65 64
Equipment rentals, depreciation and maintenance...................... 55 63 53 55 54
FDIC insurance expense............................................... 2 4 2 26 26
Amortization of intangible assets.................................... 18 21 21 23 23
Other................................................................ 250 247 245 238 223
-------- -------- -------- -------- --------
Subtotal................................................... 828 821 827 821 799
Merger-related charges............................................... - 267 - - -
-------- -------- -------- -------- --------
Total...................................................... 828 1,088 827 821 799
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES........................................... 508 191 546 504 513
Applicable income taxes.............................................. 168 65 189 173 177
-------- -------- -------- -------- --------
NET INCOME........................................................... $ 340 $ 126 $ 357 $ 331 $ 336
======== ======== ======== ======== ========
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY............... $ 332 $ 119 $ 347 $ 321 $ 326
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
NET INCOME - PRIMARY............................................... $ 1.04 $ 0.37 $ 1.07 $ 0.99 $ 1.01
NET INCOME - FULLY DILUTED......................................... $ 1.03 $ 0.37 $ 1.06 $ 0.98 $ 0.99
- ----------------------------------------------------------------------------------------------------------------------------------
Average number of common and common-equivalent shares (in millions).. 319.2 320.0 324.4 322.8 324.1
Average number of shares, assuming full dilution (in millions)....... 326.2 326.9 331.8 329.9 331.2
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) March 31 December 31 September 30 June 30 March 31
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME DATA
For the Quarter Ended
Actual
Net interest income--tax-equivalent basis.......................... $ 913 $ 864 $ 824 $ 808 $ 815
Average earning assets............................................. 104,629 106,187 107,731 104,536 102,771
Net interest margin................................................ 3.51% 3.23% 3.03% 3.10% 3.22%
Adjusted (1)
Net interest income--tax-equivalent basis.......................... $ 1,078 $ 1,033 $ 1,003 $ 971 $ 949
Average earning assets............................................. 102,518 104,143 104,962 100,750 97,318
Net interest margin................................................ 4.23% 3.93% 3.79% 3.87% 3.96%
- ----------------------------------------------------------------------------------------------------------------------------------
AT QUARTER-END
BALANCE SHEET DATA
Assets............................................................... $115,465 $122,002 $124,056 $123,180 $119,915
Loans................................................................ 64,253 64,434 61,076 58,484 57,744
Deposits............................................................. 64,243 69,106 66,934 66,319 63,752
Long-term debt....................................................... 8,011 8,163 8,445 8,065 7,639
Common stockholders' equity.......................................... 8,135 7,961 7,954 7,749 7,548
Stockholders' equity................................................. 8,624 8,450 8,445 8,360 8,159
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL DATA (2)
Common equity/assets................................................. 7.3% 6.9% 6.8% 6.7% 6.7%
Regulatory leverage ratio............................................ 7.3 6.9 6.9 7.0 7.3
Risk-based capital
Tier 1 capital ratio............................................... 8.1 7.8 8.2 8.5 8.4
Total capital ratio................................................ 12.3 11.8 12.4 12.8 12.7
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
FOR THE QUARTER ENDED
Net income as a percentage of:
Average stockholders' equity....................................... 16.0% 5.9% 16.7% 16.0% 16.9%
Average common stockholders' equity................................ 16.6 5.9 17.4 16.8 17.7
Average total assets............................................... 1.13 0.40 1.14 1.07 1.16
Average earning assets............................................. 1.31 0.47 1.31 1.27 1.33
Stockholders' equity as a percentage of:
Total assets....................................................... 7.5 6.9 6.8 6.8 6.8
Total loans........................................................ 13.4 13.1 13.8 14.3 14.1
Total deposits..................................................... 13.4 12.2 12.6 12.6 12.8
Average stockholders' equity as a percentage of:
Average assets..................................................... 7.1 6.9 6.8 6.7 6.9
Average loans...................................................... 13.4 13.6 14.3 14.3 14.4
Average deposits................................................... 12.9 12.4 12.4 12.4 12.6
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
FOR THE QUARTER ENDED
Market price
High............................................................... $ 44-1/4 $ 42-1/2 $ 39-1/4 $ 33-1/4 $ 32-7/8
Low................................................................ 34-3/4 36-1/2 31-1/2 30-1/8 27-3/8
At quarter-end..................................................... 41-1/2 39-1/2 38-1/4 32 32-1/2
Book value........................................................... $ 25.70 $ 25.25 $ 24.96 $ 24.25 $ 23.54
Dividends declared on common stock................................... $ 0.36 $ 0.36 $ 0.33 $ 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.
41
<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 March 31, 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 36-1984850
-------------------------------------------------------------
(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 April 30, 1996.
Class Number of Shares Outstanding
- ------------------------- ----------------------------
Common Stock $1 par value 316,822,751
42
<PAGE>
FORM 10-Q CROSS-REFERENCE INDEX
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
- ----------------------------
Page
----
Consolidated Balance Sheet --
March 31, 1996 and 1995, and December 31, 1995 29
Consolidated Income Statement --
Three Months Ended March 31, 1996 and 1995 and
December 31, 1995 30
Consolidated Statement of Stockholders' Equity --
Three Months Ended March 31, 1996 and 1995 31
Consolidated Statement of Cash Flows --
Three Months Ended March 31, 1996 and 1995 32
Notes to Consolidated Financial Statements 33-35
Selected Statistical Information 1,
21-23,
36-41
ITEM 2. Management's Discussion and Analysis of Financial
- ---------------------------------------------------------
Condition and Results of Operations 2-28
-----------------------------------
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings 44
- -------------------------
ITEM 2. Changes in Securities 44
- -----------------------------
ITEM 3. Defaults Upon Senior Securities 44
- ---------------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 44
- -----------------------------------------------------------
ITEM 5. Other Information 44
- -------------------------
ITEM 6. Exhibits and Reports on Form 8-K 44
- ----------------------------------------
Signatures 45
43
<PAGE>
PART II. - OTHER INFORMATION
----------------------------
ITEM 1. Legal Proceedings
- -------------------------
None
ITEM 2. Changes in Securities
- -----------------------------
None
ITEM 3. Defaults Upon Senior Securities
- ---------------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
ITEM 5. Other Information
- -------------------------
None
ITEM 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibit 12 Statement re computation of ratios
Exhibit 27 Financial Data Schedules
(b) The Registrant filed the following Current Reports on Form 8-K during
the quarter ended March 31, 1996.
Date Item Reported
------- -------------
1/16/96 The Registrant's earnings for the quarter ended December 31,
1995.
1/26/96 The Registrant's announcement of its intent to acquire all the
outstanding shares of Barrington Bancorp, Inc.
44
<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 May 15, 1996 /s/ Verne G. Istock
----------------------- -------------------------------
Verne G. Istock
Principal Executive Officer
Date May 15, 1996 /s/ William J. Roberts
----------------------- -------------------------------
William J. Roberts
Principal Accounting Officer
45
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit Page
- -------------- ---------------------- ----
12 - Statement re computation of ratio 47
27 - Financial Data Schedules 48
46
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
The computation of the ratio of income to fixed charges is set forth
in Note 7 of Notes to Consolidated Financial Statements on page 34 of the Form
10-Q.
47
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,129
<INT-BEARING-DEPOSITS> 8,910
<FED-FUNDS-SOLD> 10,684
<TRADING-ASSETS> 7,226
<INVESTMENTS-HELD-FOR-SALE> 8,185
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 64,253
<ALLOWANCE> (1,383)
<TOTAL-ASSETS> 115,465
<DEPOSITS> 64,243
<SHORT-TERM> 24,629
<LIABILITIES-OTHER> 9,221
<LONG-TERM> 8,011
<COMMON> 319
0
489
<OTHER-SE> 7,816<F1>
<TOTAL-LIABILITIES-AND-EQUITY> 115,465
<INTEREST-LOAN> 1,412
<INTEREST-INVEST> 134
<INTEREST-OTHER> 323
<INTEREST-TOTAL> 1,992
<INTEREST-DEPOSIT> 592
<INTEREST-EXPENSE> 1,107
<INTEREST-INCOME-NET> 885
<LOAN-LOSSES> 175
<SECURITIES-GAINS> 22<F2>
<EXPENSE-OTHER> 828<F3>
<INCOME-PRETAX> 508
<INCOME-PRE-EXTRAORDINARY> 340
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 340
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 3.51
<LOANS-NON> 373
<LOANS-PAST> 218
<LOANS-TROUBLED> 18
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,338
<CHARGE-OFFS> 174
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 1,383
<ALLOWANCE-DOMESTIC> 0<F4>
<ALLOWANCE-FOREIGN> 0<F4>
<ALLOWANCE-UNALLOCATED> 0<F4>
<FN>
<F1> Treasury stock of $75 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 totalled $49 million.
<F3> Other expense includes: Salaries and Employee Benefits of $436 million,
Occupancy of $67 million, Equipment rentals, depreciation and maintenance
of $55 million, amortization of intangible assets of $18 million and other
expenses which totaled $252 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>
