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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-7127
FIRST CHICAGO NBD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 38-1984850
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60670
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
Registrant's telephone number, including area code: (312) 732-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1.00 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Preferred Stock with Cumulative and Adjustable
Dividends, Series B ($100 stated value), no par value New York Stock Exchange
Preferred Stock with Cumulative and Adjustable
Dividends, Series C ($100 stated value), no par value New York Stock Exchange
Depositary Shares, each representing one-twenty-fifth
of a share of 8.45% Cumulative Preferred Stock,
Series E ($625 stated value), no par value New York Stock Exchange
Depositary Shares, each representing one-hundredth of
a share of 5 3/4% Cumulative Convertible Preferred
Stock, Series B ($5,000 stated value),
no par value New York Stock Exchange
7 1/2% Preferred Purchase Units New York Stock Exchange
7 1/4% Subordinated Debentures Due 2004 New York Stock Exchange
8.10% Subordinated Notes Due 2002 New York Stock Exchange
8 1/2% Notes Due June 1, 1998 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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TITLE OF CLASS
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8.45% Cumulative Preferred Stock, Series E ($625
stated value)
5 3/4% Cumulative Convertible Preferred Stock, Series
B ($5,000 stated value)
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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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
Corporation at December 31, 1996, was approximately $17,342,000,000 (based on
the average price of such stock on February 28, 1997). At December 31, 1996,
the Corporation had 313,473,520 shares of its Common Stock, $1.00 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE CORPORATION'S DEFINITIVE PROXY STATEMENT DATED MARCH 28,
1997, ARE INCORPORATED BY REFERENCE INTO PART III HEREOF.
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FIRST CHICAGO NBD CORPORATION
FORM 10-K INDEX
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PAGE
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PART I
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Item 1. Business..................................................... 2
Description of Business...................................... 2
Employees.................................................... 5
Competition.................................................. 5
Monetary Policy and Economic Controls........................ 5
Supervision and Regulation................................... 6
Financial Review............................................. 12
Item 2. Properties................................................... 86
Item 3. Legal Proceedings............................................ 87
Item 4. Submission of Matters to a Vote of Security Holders.......... 87
Executive Officers of the Registrant..................................... 87
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..................................................... 87
Item 6. Selected Financial Data...................................... 88
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 88
Item 8. Financial Statements and Supplementary Data.................. 88
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 88
PART III
Item 10. Directors and Executive Officers of the Registrant........... 88
Item 11. Executive Compensation....................................... 88
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 88
Item 13. Certain Relationships and Related Transactions............... 88
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 89
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
General
First Chicago NBD Corporation (the "Corporation"), incorporated in Delaware
in 1972, is a multibank holding company registered under the Bank Holding
Company Act of 1956 (the "BHC Act"). The Corporation is the surviving
corporation resulting from the merger (the "Merger"), effective December 1,
1995, of First Chicago Corporation ("FCC"), a Delaware corporation and
registered bank holding company, with and into NBD Bancorp, Inc. ("NBD"), also
a Delaware corporation and registered bank holding company. Through its bank
subsidiaries, the Corporation provides consumer and corporate banking products
and services. The Corporation's lead bank subsidiary is The First National
Bank of Chicago ("FNBC"). The Corporation also is the parent corporation of
NBD Bank (Michigan) ("NBD Michigan"), American National Bank and Trust Company
of Chicago ("ANB"), FCC National Bank ("FCCNB"), NBD Bank, National
Association (Indiana) ("NBD Indiana"), NBD Bank (Florida) ("NBD Florida") and
several other bank subsidiaries. In addition, the Corporation directly or
indirectly owns various nonbank companies engaged in businesses related to
banking and finance. The Corporation also directly or indirectly raises funds
principally to finance the operations of its nonbank subsidiaries. A
substantial portion of the Corporation's annual income typically has been
derived from dividends from its subsidiaries and from interest on loans, some
of which are subordinated, to its subsidiaries.
The Corporation, on an ongoing basis, evaluates its existing business
operations and organizational structures, and routinely explores opportunities
to acquire financial institutions and other financial services-related
businesses and assets. In addition, the Corporation occasionally sells assets,
or exits businesses or markets determined not to be consistent with the
Corporation's overall business strategy. During 1996, the Corporation acquired
Barrington Bancorp, Inc. ("Barrington"), a one-thrift holding company with
assets of approximately $68 million; Barrington's thrift subsidiary was merged
into FNBC. In addition, the Corporation merged NBD Bank (Illinois) with and
into FNBC and consolidated its retail and middle market banking operations
with those of FNBC and ANB. Also in 1996, the Corporation announced its
intention to exit the stand-alone domestic institutional custody and master
trust businesses and discontinued its emerging markets activities.
The Corporation engages primarily in three lines of business--Regional
Banking, which includes retail banking and middle market banking; Corporate
and Institutional Banking and Corporate Investments; and Credit Card. Each of
these businesses is conducted through the Corporation's bank and nonbank
subsidiaries, as described below.
Regional Banking
Retail Banking
Retail banking is conducted primarily through FNBC, NBD Michigan, NBD
Indiana and NBD Florida by providing traditional retail banking products and
services to consumers and small businesses. Products and services offered
include demand, savings and time deposit accounts; cash management accounts;
installment loans and related services; lines of credit and other open-end
credit products; mortgage banking; electronic banking; safekeeping; nondeposit
investment products and related services, including mutual funds, annuities
and discount brokerage services; and trust and investment services. Trust and
investment services include financial planning, estate planning, retirement
planning, tax counseling, custody services and fiduciary services, including
acting as executor, administrator and personal representative of estates.
The Corporation offers an array of additional financial products to its
retail customers, including property and casualty insurance, and credit life
and other life insurance products. The Corporation also offers a proprietary
mutual fund family--the Pegasus Funds; First Chicago NBD Investment Management
Company ("FCNIMC"), a subsidiary of FNBC, is the investment advisor to these
funds. The Pegasus Funds comprise a variety of mutual funds covering a wide
range of investment objectives. As of December 31, 1996, the Pegasus Funds
ranked among the largest bank-managed fund families in the country, with over
$13 billion in assets.
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The Corporation's primary retail banking markets are metropolitan Chicago
and the states of Michigan and Indiana. The Corporation enjoys a leading
market share in each of these geographic markets, serving approximately
3,000,000 households through over 650 bank branches, more than 1,300 automatic
teller machines ("ATMs"), 24-hour telephone support, and online banking
services available through personal computers. Additionally, retail banking is
available nationally through "direct banking," which offers 24-hour telephone
support, nationwide debit card access at ATMs and merchants, and online
banking services.
ATM services are provided to retail banking clients through two regional
shared networks in which the Corporation has an ownership interest, CASH
STATION and Magic Line, and through the CIRRUS system, a national shared ATM
network. Pursuant to a contract with MasterCard, the Corporation operates the
computerized transaction routing switch for CIRRUS. The Corporation also
operates a similar routing switch for Magic Line.
Middle Market Banking
Middle market banking is conducted primarily through ANB, NBD Michigan and
NBD Indiana, and serves midsized business enterprises located predominantly in
the Midwest. The Corporation seeks to position itself as the lead financial
services provider to its middle market customers by offering a broad array of
targeted products including traditional lending arrangements, asset-based
lending, commercial real estate, and lease financing. Corporate finance
products and services offered include merger and acquisition advisory
services, financial advisory services, interest rate protection products and
mezzanine debt capabilities.
In addition, the Corporation offers a full range of cash management,
international, investment management, corporate trust and employee benefit
products to its middle market customers. For business owners and key
executives, the Corporation offers personal banking, trust, insurance,
investment, loan, deposit and estate planning services.
The Corporation enjoys leading market positions in middle market banking in
each of its major geographic markets.
Corporate & Institutional Banking and Corporate Investments
Corporate & Institutional Banking
Corporate & Institutional Banking encompasses the broad range of commercial
and investment banking products and services that FNBC, NBD Michigan and NBD
Indiana, along with other subsidiaries, provide to domestic and foreign
customers. The Corporation's principal focus in this area is the delivery of
corporate financial services, including the extension of credit, to
commercial, financial and governmental customers.
Corporate & Institutional Banking serves the manufacturing, wholesaling,
retailing, commodities, banking, finance, insurance, transportation,
securities, real estate, mortgage banking, communications, utilities, and
petroleum and mining industries, as well as municipalities and health,
education and service organizations. Customers include large and midsized
corporations.
The Corporation offers capital-raising products to its corporate and
institutional clients, including loans, private placements of debt securities,
merger and acquisition advisory services, highly leveraged transaction
financing, asset sales and distributions, asset securitizations and loan
syndications.
In the global financial marketplace, the Corporation engages in investment
and trading activities in U.S. government, municipal, corporate fixed-income
and federal agency securities. The Corporation also provides to its corporate
and institutional clients a wide range of risk management products, such as
foreign exchange, futures, foreign exchange options, interest rate options,
and interest rate and currency swaps.
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First Chicago Capital Markets, Inc. ("FCCM"), one of the Corporation's
subsidiaries, is a primary government bond dealer and is principally
responsible for activities in the securities of states, municipalities, other
governmental entities and certain corporate entities, including trading,
sales, underwriting, research, and maintenance of an active secondary market
with national sales distribution.
In addition, the Corporation, through a number of its subsidiaries,
develops, markets and delivers cash management, operating, clearing, and other
noncredit products and services, both overseas and domestically. These include
money transfer, collection, disbursement, documentary, remittance, trade
finance and international securities clearing services. Corporate &
Institutional Banking offers a wide range of administrative and trust and
investment advisory services to corporations, municipalities and charitable
organizations. Each of FNBC, NBD Michigan, NBD Indiana and ANB act as trustee
of corporate, pension, profit-sharing and other employee-benefit trusts, and
act as registrar, fiscal and paying agent for business entities. In addition,
First Chicago Trust Company of New York ("FCTC"), a New York state-chartered
trust company ranking among the largest stock transfer agents in the United
States, provides custody, special agency, stock transfer, and securities
issuing, paying and clearance services.
Corporate Investments
Corporate Investments encompasses mostly noncustomer-oriented activities
that are conducted primarily through the Corporation's nonbank subsidiaries,
including First Chicago Investment Corporation, First Chicago Equity
Corporation, First Chicago Leasing Corporation, First Chicago Capital
Corporation and First Chicago Financial Corporation, which raises funds to
help finance these activities. The activities of Corporate Investments
comprise growth equity investments, tax-advantaged investments, value-oriented
investments, and funding and liquidity investments.
Growth equity investment activities include various forms of equity funding
for acquisitions, management buyouts and growing businesses; funding for these
activities is provided by First Chicago Investment Corporation. First Chicago
Equity Corporation, a small business investment company licensed under the
Small Business Investment Act of 1958, offers equity funding for small
business ventures.
Tax-advantaged investment activities include advising on and investing in
leases for commercial aircraft and major industrial and power production
facilities and equipment. Investments are also made in alternative energy
programs and affordable housing projects qualifying for tax credits under
Section 29 and Section 42, respectively, of the Internal Revenue Code of 1986.
Primary support for these activities is provided by First Chicago Leasing
Corporation.
Value-oriented investment activities include positions in the distressed and
value investment markets, such as: loans, letters of credit, trade claims and
securities of distressed companies; securities of companies whose debt trades
below full face value of the claim; below-investment-grade tranches of
commercial mortgage-backed securities; and fixed-income securities, publicly
traded debt (including subordinated debt), equities, options and other
securities. Support for the majority of these activities is provided by First
Chicago Capital Corporation.
Funding and liquidity investment activities provide funding to meet the
incremental financing needs of the Corporation's bank subsidiaries by placing
deposits and making investments in the wholesale money markets to provide a
diversified funding base. These liquid investments include Fed funds and
interest-bearing deposits. In addition, investments are generally made in
short- to medium-term municipal, government, and agency securities that
provide increased liquidity and satisfy various collateral requirements.
Credit Card
Credit Card has primary responsibility for developing and marketing credit
card products and related services to individuals nationwide using direct
response, telemarketing and other techniques that do not require a local
physical presence. While the Corporation's proprietary First Card line of VISA
and MasterCard accounts are the primary Credit Card products, other products
include check-accessed lines of credit and certificates of deposit.
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The majority of the Corporation's credit card accounts are owned and
administered by FCCNB, a Delaware-based national banking association. FCCNB
ranks among the largest issuers of bank credit cards in the United States. The
Corporation's Credit Card operations centers are located in Wilmington,
Delaware; Elgin, Illinois; Indianapolis, Indiana; Troy, Michigan; and
Uniondale (Long Island), New York. A processing center in Springfield,
Missouri, is currently under construction. At December 31, 1996, Credit Card
managed approximately $18.5 billion in card-related receivables.
Financial and Risk Policy
The Corporation's Risk Management Committee determines the desired risk
profile of the Corporation, allocates resources, including risk capacity
against expected return, to the lines of business, approves major investment
programs that are consistent with strategic priorities and risk appetite, and
makes capital management decisions to appropriately fund the Corporation's
portfolio of investments. The Risk Management Committee includes, among
others, the Chairman and Chief Executive Officer, the Vice Chairmen, the Chief
Risk Management Officer and the Chief Financial Officer.
The Risk Management Committee is supported by: the Credit Risk Committees,
which are responsible for approving credit exposures within authorities
granted; the Investment Risk Management Committee, which is responsible for
approving trading and investment/sale decisions for the Corporation's own
account, managing the Corporation's liquidity, monitoring and adjusting
structural interest rate risk, and overseeing market-related trading
activities; the Fiduciary Risk Committee, which is responsible for approving
the processes and mechanisms designed to mitigate fiduciary risks; the
Operating Risk Committee, which is responsible for approving the processes and
mechanisms designed to mitigate operating risks; and the Review Committee,
which is responsible for providing strategic direction and senior management
oversight for the risk management process.
EMPLOYEES
As of December 31, 1996, the Corporation and its subsidiaries had 33,414
employees on a full-time-equivalent basis.
COMPETITION
All of the Corporation's principal business activities are highly
competitive. The Corporation's subsidiaries, including the bank subsidiaries
(the "Banks"), compete actively with other financial services providers
offering a wide array of financial products and services. The Corporation's
competitors include other national and state banks, savings banks, savings and
loan associations, finance companies, credit unions, mutual funds, securities
brokers, mortgage bankers, leasing companies, insurance companies, other
domestic and foreign financial institutions, and various nonfinancial
intermediaries.
MONETARY POLICY AND ECONOMIC CONTROLS
The earnings of the Banks, and therefore the earnings of the Corporation,
are affected by the policies of regulatory authorities, including the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). An
important function of the Federal Reserve Board is to promote orderly economic
growth by influencing interest rates and the supply of money and credit. Among
the methods that have been used to achieve this objective are open market
operations in U.S. government securities, changes in the discount rate on
member bank borrowings, and changes in reserve requirements against bank
deposits. These methods are used in varying combinations to influence overall
growth and distribution of bank loans, investments and deposits, interest
rates on loans and securities, and rates paid for deposits.
The Federal Reserve Board's monetary policies strongly influence the
behavior of interest rates and can have a significant effect on the operating
results of commercial banks. Continued tame price inflation in 1996
contributed to the decision of the Federal Reserve Board to hold short-term
interest rates stable.
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The effects of the various Federal Reserve Board policies on the future
business and earnings of the Corporation cannot be predicted. Other economic
controls also have affected the Corporation's operations in the past. The
Corporation cannot predict the nature or extent of any effects that possible
future governmental controls or legislation may have on its business and
earnings.
SUPERVISION AND REGULATION
General
Bank holding companies, banks and financial institutions generally are
highly regulated, with numerous federal and state laws and regulations
governing their activities. As a bank holding company, the Corporation is
subject to regulation under the BHC Act and to examination and supervision by
the Federal Reserve Board. Under the BHC Act, the Corporation is prohibited,
with certain exceptions, from acquiring or retaining direct or indirect
ownership or control of voting shares of any company that is not a bank or
bank holding company, and from engaging in activities other than those of
banking or of managing or controlling banks, other than companies engaged in
activities that the Federal Reserve Board determines to be so closely related
to the business of banking as to be a proper incident thereto. The acquisition
of direct or indirect ownership or control of a bank or bank holding company
by the Corporation also is subject to certain restrictions under the BHC Act
and applicable state laws.
The Corporation is a legal entity separate and distinct from the Banks and
the Corporation's other subsidiaries. The Banks are subject to certain
restrictions imposed by federal laws on any extensions of credit to the
Corporation or, with certain exceptions, other affiliates; on investments in
stock or other securities of the Corporation; on the taking of such securities
as collateral for loans; and on the terms of transactions between the Banks
and other subsidiaries. The Corporation and its subsidiaries also are subject
to certain restrictions with respect to engaging in the issuance, flotation,
underwriting, public sale or distribution of securities.
The national bank subsidiaries of the Corporation, including FNBC, ANB,
FCCNB and NBD Indiana, are supervised, examined and regulated by the Office of
the Comptroller of the Currency (the "Comptroller") under the National Bank
Act. Since national banks also are members of the Federal Reserve System and
their deposits are insured by the Federal Deposit Insurance Corporation (the
"FDIC"), they also are subject to the applicable provisions of the Federal
Reserve Act, the Federal Deposit Insurance Act and, in certain respects, to
state laws applicable to financial institutions. NBD Michigan and the other
state-chartered bank subsidiaries of the Corporation are, in general, subject
to the same or similar restrictions and regulations, but with more extensive
regulation and examination by state banking departments, the Federal Reserve
Board for state banks that are members of the Federal Reserve System, and the
FDIC for state banks that are not members of the Federal Reserve System. In
addition, the Banks' operations in other countries are subject to various
restrictions imposed by the laws of those countries.
Federal law prohibits the Corporation and certain of its subsidiaries from
borrowing from the Banks without the prior approval of the respective Bank's
Board of Directors and unless such loans are secured by United States Treasury
securities or other specified obligations. Further, such loans and investments
by any of the Banks to the Corporation or any other affiliate are limited to
10% of the respective Bank's capital and surplus, and as to the Corporation
and all such affiliates to an aggregate 20% of the respective Bank's capital
and surplus. Under Federal Reserve Board policy, the Corporation is expected
to act as a source of financial strength to each Bank and to commit resources
to support such Bank in circumstances where it might not do so absent that
policy. In addition, any capital loans by the Corporation to any of the Banks
would be subordinate in right of payment to deposits and to certain other
indebtedness of such Bank.
Additionally, there are certain federal and state regulatory limitations on
the payment of dividends to the Corporation by the Banks. Dividend payments by
national banks are limited to the lesser of (i) the level of undivided profits
and (ii) absent regulatory approval, an amount not in excess of net income for
the current year combined with retained net income for the preceding two
years. As of January 1, 1997, the Banks could
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have declared additional dividends of approximately $0.9 billion without the
approval of bank regulatory agencies. The payment of dividends by any Bank
also may be affected by other factors, such as the maintenance of adequate
capital for that Bank. Banking regulatory agencies have the authority to
prohibit the banking organizations they supervise from paying dividends if, in
the regulator's opinion, the payment of dividends would, in light of the
bank's financial condition, constitute an unsafe or unsound practice.
The BHC Act, subject to certain exceptions, generally prohibits the Banks
from entering into certain tie-in arrangements in connection with extensions
of credit or providing property or services.
Legislation may be enacted or regulations imposed in the United States or
its political subdivisions, or in any other jurisdiction in which the
Corporation does business, to further regulate banking and financial services.
There can be no assurance that any such legislation or regulation will not
place additional limitations or restrictions on the Corporation's or any
Bank's operations.
Capital Adequacy
The Federal Reserve Board has adopted risk-based capital guidelines that
require bank holding companies to maintain a minimum ratio of total capital to
risk-weighted assets (including certain off-balance-sheet items, such as
standby letters of credit) of 8%. At least half of total capital must be
composed of common stockholders' equity, minority interest, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less disallowed intangibles and other adjustments ("Tier I
capital"). The remainder ("Tier II capital") may consist of subordinated debt,
other preferred stock, certain other instruments and a limited amount of loan
loss reserves. At December 31, 1996, the Corporation's consolidated Tier I
capital and total capital ratios were 9.2% and 13.3%, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier I capital to total average assets (the "leverage ratio")
of 3% for bank holding companies that meet certain specified criteria,
including those having the highest regulatory rating. All other bank holding
companies generally are required to maintain a leverage ratio of at least 3%
plus an additional cushion of 100 to 200 basis points. The Corporation's
leverage ratio at December 31, 1996, was 9.3%. The guidelines also provide
that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant
reliance on intangible assets. Furthermore, the Federal Reserve Board has
indicated that it will consider a "tangible Tier I capital leverage ratio"
(deducting all intangibles) and other indicia of capital strength in
evaluating proposals for expansion or new activities.
Each of the Banks is subject to similar risk-based and leverage capital
requirements adopted by the applicable federal bank regulatory agency. Each of
the Banks was in compliance with the applicable minimum capital requirements
as of December 31, 1996. Neither the Corporation nor any of the Banks has been
advised by any federal bank regulatory agency of any specific minimum leverage
ratio requirement applicable to it.
Failure to meet capital requirements could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business, which are described below
under "FDICIA and FIRREA."
FDICIA and FIRREA
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
significantly expanded the regulatory and enforcement powers of federal
banking regulators, in particular the FDIC, and has important consequences for
the Corporation, the Banks and other depository institutions located in the
United States.
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A major feature of FDICIA is the comprehensive directions it gives federal
banking regulators to promptly direct or require the correction of problems at
inadequately capitalized banks in the manner that is least costly to the
federal deposit insurance funds. The degree of corrective regulatory
involvement in the operations and management of banks and their holding
companies is, under FDICIA, largely determined by the actual or anticipated
capital positions of the subject institutions.
FDICIA established five tiers of capital measurement for regulatory purposes
ranging from "well-capitalized" to "critically undercapitalized." Under
regulations adopted by the federal banking agencies, a depository institution
is well-capitalized if it significantly exceeds the minimum level required by
regulation for each relevant capital measure, adequately capitalized if it
meets such measure, undercapitalized if it fails to meet any such measure,
significantly undercapitalized if it is significantly below such measure, and
critically undercapitalized if its tangible equity is not greater than 2% of
total tangible assets. A depository institution may be deemed to be in a
capitalization category lower than is indicated by its actual capital position
if it receives an unsatisfactory examination rating. FDICIA requires banking
regulators to take increasingly strong corrective steps, based on the capital
tier of any subject bank, to cause such bank to achieve and maintain capital
adequacy. Even if a bank is adequately capitalized, however, the banking
regulators are authorized to apply corrective measures if the bank is
determined to be in an unsafe or unsound condition or engaging in an unsafe or
unsound activity.
Depending on the level of capital of an insured depository institution, the
banking regulatory agencies' corrective powers can include: requiring a
capital restoration plan; placing limits on asset growth and restrictions on
activities; requiring the institution to reduce total assets; requiring the
institution to issue additional stock (including voting stock) or to be
acquired; placing restrictions on transactions with affiliates; restricting
the interest rate the institution may pay on deposits; ordering a new election
for the institution's board of directors; requiring that certain senior
executive officers or directors be dismissed; prohibiting the institution from
accepting deposits from correspondent banks; requiring the institution to
divest certain subsidiaries; prohibiting the payment of principal or interest
on subordinated debt; prohibiting the institution's parent holding company
from making capital distributions without prior regulatory approval; and,
ultimately, appointing a receiver for the institution.
If the insured depository institution is undercapitalized, the parent
holding company is required to guarantee that the institution will comply with
any capital restoration plan submitted to, and approved by, the appropriate
federal banking agency in an amount equal to the lesser of (i) 5% of the
institution's total assets at the time the institution became undercapitalized
or (ii) the amount that is necessary (or would have been necessary) to bring
the institution into compliance with all applicable capital standards as of
the time the institution fails to comply with the capital restoration plan. If
such parent holding company guarantee is not obtained, the capital restoration
plan may not be accepted by the banking regulators. As a result, such
institution would be subject to the more severe restrictions imposed on
significantly undercapitalized institutions. Further, the failure of such a
depository institution to submit an acceptable capital plan is grounds for the
appointment of a conservator or receiver.
FDICIA also contains a number of other provisions affecting depository
institutions, including additional reporting and independent auditing
requirements, the establishment of safety and soundness standards, the system
of risk-based assessments described below under "FDIC Insurance," a review of
accounting standards, and supplemental disclosures and limits on the ability
of all but well-capitalized depository institutions to acquire brokered
deposits.
Since FDICIA was enacted, Congress has enacted the Riegle Community
Development and Regulatory Improvement Act of 1994, the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 and other legislation, which
contain a number of specific provisions easing to some extent the regulatory
burden on banks and bank holding companies, including some FDICIA-imposed
requirements, and which are intended to make the bank regulatory system more
efficient. Where required, federal banking regulators are taking actions to
implement these provisions.
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The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), among other things, provides generally that, upon the default of
any bank of a multi-unit holding company, the FDIC may assess an affiliated
insured depository institution for the estimated losses incurred by the FDIC.
Specifically, FIRREA provides that a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of a default. "Default" is defined generally as the appointment of a
conservator or receiver. "In danger of a default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur
in the absence of regulatory assistance. All of the Banks are FDIC-insured
depository institutions.
FDIC Insurance
The Banks are subject to FDIC deposit insurance assessments. Under the
FDIC's risk-based assessment system, the assessment rate is based on
classification of a depository institution in one of nine risk assessment
categories. Such classification is based upon the institution's capital level
and upon certain supervisory evaluations of the institution by its primary
regulator.
The assessment rate schedule, effective January 1, 1997, creates a spread in
assessment rates ranging from 0.27% per annum on the amount of domestic
deposits for banks classified as weakest by the FDIC down to no annual
assessment for banks classified as strongest by the FDIC.
Interstate Banking and Branching
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") significantly revised prior laws applicable to interstate
acquisitions of banks and bank holding companies and the branching powers of
national banks. Prior to the Riegle-Neal Act, the Federal Reserve Board was
not permitted to approve an application to acquire shares of a bank located
outside the state in which the operations of the applicant's bank subsidiaries
were principally conducted unless the acquisition was specifically authorized
by a statute of the acquired bank's state. The Federal Reserve Board is now
authorized to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of a bank located
in another state without regard to whether such transaction is prohibited
under the laws of such state. The Federal Reserve Board may not, however,
approve such an application if, following the acquisition, the applicant would
control either (l) more than 10% of all insured depository institution
deposits in the United States or (2) under certain circumstances, 30% or more
of all insured depository institution deposits in any state where either the
applicant or the acquired bank is located. The 30% limit on aggregate deposits
that may be controlled by an applicant can be adjusted by the states on a
nondiscriminatory basis.
The Riegle-Neal Act also revises the laws applicable to mergers between
insured banks located in different states. Before passage of the Riegle-Neal
Act, such mergers generally were not authorized. Commencing June l, 1997,
however, adequately capitalized and adequately managed insured banks in
different states may merge without regard to whether the merger is authorized
under the laws of any state. States may elect to prohibit interstate bank
mergers or may elect to permit early interstate bank mergers by adopting,
prior to June 1, 1997, legislation that expressly so provides, and that
applies on equal terms to all out-of-state banks. The Riegle-Neal Act provides
that an interstate merger involving the acquisition of a bank branch (as
distinguished from an entire bank) or the de novo establishment of a bank
branch in another state may be approved only if the law of the host state
expressly permits such action. Generally an interstate merger may not be
approved if, following the merger, the resulting bank (and all insured
depository institutions that are affiliates of the resulting bank) would
control (1) more than 10% of all insured depository institution deposits in
the United States or (2) under certain circumstances, 30% or more of all
insured depository institution deposits in any state where the resulting bank
will be located. The 30% limit on aggregate deposits that may be controlled by
the resulting bank can be adjusted
9
<PAGE>
by the states on a nondiscriminatory basis. The laws of the host state
regarding community reinvestment, consumer protection, fair lending and the
establishment of intrastate branches will apply to any branch of an out-of-
state bank unless, in the case of an out-of-state branch of a national bank,
such host state laws are preempted by federal law or the Comptroller
determines that application of such laws would have a discriminatory effect on
the national bank.
The Riegle-Neal Act contains a number of other provisions related to banks
and bank holding companies, including: authorization of interstate branching
by foreign banks; additional branch closing notice requirements for interstate
banks proposing to close a branch in a low- or moderate-income area;
amendments to the Community Reinvestment Act of 1977 to require separate
written evaluations of an insured depository institution for each state in
which it maintains branches; a prohibition on interstate banks maintaining
out-of-state deposit production offices; and authorization for a bank
subsidiary of a bank holding company to receive deposits, renew time deposits,
close and service loans, and receive payments on loans as agent for a
depository institution affiliate of such bank.
The extent to and terms on which full interstate branching and certain other
actions authorized under the Riegle-Neal Act are implemented will depend on
the actions of entities other than the Corporation and the Banks, including
the legislatures of the various states. Further developments by state and
federal authorities, including legislation, with respect to matters covered by
the Riegle-Neal Act reasonably can be anticipated to occur in the future. In
addition, there may be new banking legislation enacted or introduced in the
current Congress related to bank holding companies and their powers; the
likelihood of passage and effect, if any, of such legislation on the
Corporation and the Banks cannot be predicted.
Other
FNBC, NBD Michigan, NBD Indiana and ANB are registered with the Comptroller
or the Securities and Exchange Commission (the "Commission") as transfer
agents and are subject to the rules and regulations of the Commission and/or
the Comptroller with respect to their activities as transfer agents. FCTC is
registered as a transfer agent with the Commission and also is subject to
regulation by the New York State Banking Department and the Federal Reserve
Board.
Certain organizational units within FNBC, NBD Michigan, ANB and NBD Indiana
are registered with the Commission as municipal securities dealers. These
units are subject to the applicable rules and regulations of the Commission
and the Municipal Securities Rulemaking Board with respect to transactions in
municipal securities performed in a municipal securities dealer capacity.
FNBC, NBD Michigan and NBD Indiana also are regulated government securities
brokers and dealers under the Government Securities Act, and are subject to
regulations issued thereunder in connection with the conduct of their United
States government securities business.
In addition, First Chicago NBD Investment Services, Inc. ("FCNIS"), which
provides investment products and brokerage services for individuals and small
businesses, is registered as a broker-dealer with the Commission and is a
member of the National Association of Securities Dealers ("NASD"). FCNIS was
formed as the result of the merger in 1996 of First Chicago Investment
Services, Inc. with NBD Securities, Inc., and the resulting entity's later
merger with NBD Brokerage Services, Inc. FCNIS provides products and services
to clients of FNBC, ANB, NBD Michigan, and NBD Indiana. The brokerage
activities of FCNIS are subject to the applicable rules and regulations of the
Commission and the NASD. FCCM also is registered as a broker-dealer with the
Commission and is a member of the NASD. The securities distribution and
trading activities of FCCM are subject to the applicable rules and regulations
of the Federal Reserve Board, the Commission and the NASD.
First Chicago Futures, Inc. ("FCFI"), a subsidiary of FNBC that conducts a
commodities and securities brokerage business, is registered with the
Commission as a broker-dealer and with the Commodity Futures Trading
Commission ("CFTC") as a futures commission merchant, and is a member of the
National Futures Association ("NFA") and the NASD. FCFI is subject to the
applicable rules and regulations of the Commission, the CFTC, the NFA, the
NASD, and certain commodities and securities exchanges of which FCFI is a
member with respect to its activities as a futures commission merchant and
broker-dealer.
10
<PAGE>
FCNIMC and ANB Investment Management and Trust Company ("ANBIMC"), a
subsidiary of FCNIMC, provide investment advisory, management and
administrative services to a variety of clients. FCNIMC and ANBIMC are
registered with the Commission as investment advisers and, as such, are
subject to the Investment Advisers Act of 1940. In addition, as an adviser to
regulated investment companies, FCNIMC also may be subject to certain
provisions of the Investment Company Act of 1940.
The Corporation's insurance services and products are marketed through
various bank and nonbank subsidiaries, each of which is licensed and regulated
by applicable state insurance regulatory agencies. Similarly, certain of the
Corporation's mortgage banking activities are subject to various federal and
state licensing and/or regulatory requirements.
11
<PAGE>
FINANCIAL REVIEW
INDEX TO FINANCIAL REVIEW
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Financial Data.................................................... 13
Business Segments.......................................................... 14
Earnings Analysis.......................................................... 18
Risk Management............................................................ 24
Liquidity Risk Management.................................................. 24
Market Risk Management..................................................... 26
Credit Risk Management..................................................... 30
Derivative Financial Instruments........................................... 35
Capital Management......................................................... 37
Consolidated Financial Statements.......................................... 41
Notes to Consolidated Financial Statements................................. 45
Report of Management on Responsibility for Financial Reporting............. 73
Report of Independent Public Accountants................................... 75
Selected Statistical Information........................................... 76
</TABLE>
12
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER 1996 1995 1994 1993 1992
SHARE DATA) -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
SUMMARY OF INCOME
Net interest income.............. $3,620 $3,208 $2,956 $2,784 $2,692
Provision for credit losses...... 735 510 276 390 653
Provision for assets held for
accelerated disposition (1)..... -- -- -- -- 625
Noninterest income............... 2,548 2,591 2,393 2,769 2,018
Merger-related charges........... -- 267 -- -- 76
FDIC special assessment.......... 18 -- -- -- --
Operating expense................ 3,253 3,268 3,220 3,161 3,084
Income before cumulative effect
of changes in accounting
principles...................... 1,436 1,150 1,221 1,290 224
Net income....................... 1,436 1,150 1,221 1,290 394
EARNINGS PER SHARE
Primary
Income before cumulative effect
of changes in accounting
principles.................... $4.39 $3.45 $3.62 $3.91 $0.60
Net income..................... 4.39 3.45 3.62 3.91 1.17
Fully diluted
Income before cumulative effect
of changes in accounting
principles.................... 4.32 3.41 3.58 3.79 0.60
Net income..................... 4.32 3.41 3.58 3.79 1.17
PERIOD-END BALANCES
Total assets..................... $104,619 $122,002 $112,763 $93,140 $90,011
Long-term debt................... 8,454 8,163 7,246 5,250 4,175
Total stockholders' equity....... 9,007 8,450 7,809 7,499 6,323
COMMON SHARE DATA
Dividends declared............... $ 1.48 $ 1.35 $ 1.23 $ 1.08 $ 1.04
Book value, year-end............. 27.31 25.25 22.60 21.25 18.27
Market price, year-end........... 53 3/4 39 1/2 27 3/8 29 3/4 32 3/4
CAPITAL RATIOS (2)
Common equity-to-assets ratio.... 8.2% 6.9% 6.8% 7.6% 6.5%
Regulatory leverage ratio........ 9.3 6.9 7.3 7.8 6.6
Risk-based capital
Tier 1 ratio................... 9.2 7.8 8.6 9.0 7.4
Total capital ratio............ 13.3 11.8 13.0 13.6 11.3
</TABLE>
- --------
(1) Of the total provision, $491 million relates to loans and $134 million
relates to other real estate held for accelerated disposition.
(2) Net of investment in FCCM.
13
<PAGE>
Business Segments
OVERVIEW
Financial results are reported by major business segments, principally
structured around the customer markets served: Credit Card, Regional Banking,
and Corporate & Institutional Banking and Corporate Investments.
EARNINGS CONTRIBUTION BY BUSINESS LINES
Pie Chart
1996 1995* 1994
Credit Card 24% 23% 29%
Regional 41% 38% 32%
Corporate & Institutional/
Corporate Investments 34% 38% 35%
Other 1% 1% 4%
*Operating Earnings
Business segment 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 an equity
allocation based on risk elements. Information for prior years has been
adjusted in order to achieve consistency for comparison purposes.
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 and noninterest income on pages 19 and 20,
respectively, as well as the reconciliation of reported to presecuritized
results on page 77.
Revenues and costs for investment management and insurance products are also
aligned with customers and, therefore, are reported within the appropriate
business segment. Certain corporate revenues and expenses, generally unusual or
one-time in nature, are included in "Other Activities."
14
<PAGE>
REGIONAL BANKING
<TABLE>
<CAPTION>
1996 1995 1994
(DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ------ ------ ------
<S> <C> <C> <C>
Net interest income--tax-equivalent basis............... $2,078 $2,008 $1,787
Provision for credit losses............................. 116 97 75
Noninterest income...................................... 748 649 594
Noninterest expense..................................... 1,771 1,725 1,677
Net income.............................................. 591 514 390
Return on equity........................................ 16% 17% 15%
Efficiency ratio........................................ 63% 65% 70%
Average loans (in billions)............................. $33.9 $31.3 $26.4
Average assets (in billions)............................ 38.1 36.0 30.0
Average common equity (in billions)..................... 3.5 3.0 2.5
</TABLE>
More than 40% of the Corporation's earnings in 1996 were generated by
Regional Banking, where the Corporation is the leading banking company in the
three-state region of Illinois, Indiana and Michigan. This business segment
encompasses retail banking and investment management activities for consumers
as well as a host of financial services for small businesses and middle market
companies. Transactions are conducted through branch and electronic banking
networks. Additionally, ANB provides services specifically tailored to
Chicagoland's middle market.
Net income was $591 million for the year, up 15% from 1995. Return on equity
was slightly above 16%. Loan volume in Regional Banking averaged just under
$34 billion for 1996, up 8% from 1995.
<TABLE>
<CAPTION>
MIDDLE
RETAIL MARKET
-------------- ------------
1996 1995 1996 1995
(DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ------ ------ ----- -----
<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis......... $1,308 $1,273 $ 770 $ 735
Provision for credit losses....................... 83 51 33 46
Noninterest income................................ 567 492 181 157
Noninterest expense............................... 1,328 1,306 443 419
Net income........................................ 292 249 299 265
Return on equity.................................. 16% 16% 17% 17%
Efficiency ratio.................................. 71% 74% 47% 47%
Average loans (in billions)....................... $19.0 $17.5 $14.9 $13.8
Average assets (in billions)...................... 21.6 20.5 16.5 15.5
Average common equity (in billions)............... 1.8 1.5 1.7 1.5
</TABLE>
- --------
The retail and middle market breakdowns are not available for 1994.
The retail banking segment of Regional Banking produced net income of $292
million for a return on equity of 16%. Earnings increased 17% from 1995,
driven by a 6% increase in total revenue and expense growth of less than 2%.
The provision for credit losses in the retail segment rose $32 million,
reflecting some deterioration in consumer credit quality.
Middle market earnings in 1996 were $299 million, up 13% from 1995. Return
on equity was 17%. Total revenue increased about 7%, mostly in loan spread and
deposit and trust fees. Credit quality improved year-over-year as the
provision dropped by $13 million. Operating efficiency remained excellent, at
47%.
15
<PAGE>
CORPORATE & INSTITUTIONAL BANKING AND CORPORATE INVESTMENTS
<TABLE>
<CAPTION>
1996 1995 1994
(DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ----- ------ -----
<S> <C> <C> <C>
Net interest income--tax-equivalent basis................. $809 $817 $748
Provision for credit losses............................... 37 41 (22)
Noninterest income........................................ 905 1,015 851
Noninterest expense....................................... 933 992 933
Net income................................................ 481 510 424
Return on equity.......................................... 13% 14% 11%
Efficiency ratio.......................................... 54% 54% 58%
Average assets (in billions).............................. $64.5 $78.9 $71.8
Average common equity (in billions)....................... 3.6 3.6 3.6
</TABLE>
The Corporation manages its corporate and institutional activities in two
distinct business segments: Corporate & Institutional Banking, which includes
customer-based businesses; and Corporate Investments, which comprises
activities such as venture capital, leveraged leasing, funding and arbitrage,
and the fixed income investment account. Together these two segments earned
$481 million in 1996, for a 13% return on equity. Despite operating expense
reductions in both segments, combined results were below the levels reported
in 1995 due to a shortfall in revenues generated by trading businesses.
<TABLE>
<CAPTION>
CORPORATE &
INSTITUTIONAL CORPORATE
BANKING INVESTMENTS
-------------- ------------
1996 1995 1996 1995
(DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ------ ------ ----- -----
<S> <C> <C> <C> <C>
Net interest income--tax-equivalent basis......... $714 $700 $ 95 $117
Provision for credit losses....................... 37 41 -- --
Noninterest income................................ 606 718 299 297
Noninterest expense............................... 880 930 53 62
Net income........................................ 264 278 217 232
Return on equity.................................. 8% 9% 48% 32%
Efficiency ratio.................................. 67% 66% N/M N/M
Average loans (in billions)....................... $ 20.1 $ 19.3 $ 1.2 $ 1.3
Average assets (in billions)...................... 45.6 54.7 18.9 24.2
Average common equity (in billions)............... 3.1 2.9 0.5 0.7
</TABLE>
- --------
N/M--Not meaningful
Detailed breakdowns for Corporate & Institutional Banking and Corporate
Investments are not available for 1994.
CORPORATE & INSTITUTIONAL BANKING
Corporate & Institutional Banking provides sophisticated products and
services to large corporations, governments, institutions and investors both
nationally and internationally. Specific areas of expertise include:
traditional credit products, syndications, corporate finance, cash management,
trade finance, stock transfer, corporate trust, trading and the derivatives
business. The Corporation is the leading provider of these products and
services in the Midwest.
Corporate & Institutional Banking earned $264 million in 1996, down about 5%
from 1995. Disappointing results from the foreign exchange and interest rate
derivatives businesses offset the gains in other areas. Expenses were down 5%
in 1996 as a result of merger synergies, lower trading-related incentive
compensation and disciplined expense management. In addition, the provision
for credit losses was 10% lower in 1996, reflecting excellent loan quality and
overall favorable economic conditions.
16
<PAGE>
Return on equity for the segment was 8% in 1996, well below the 15% hurdle
rate targeted for this business. Corporate & Institutional Banking is focused
on increasing returns through maximizing profitability of products and
customer relationships, improving trading results and reducing the amount of
risk capital required to support the business.
CORPORATE INVESTMENTS
In 1996, Corporate Investments made a significant contribution to earnings,
generating $217 million, or 15%, of consolidated net income. Return on equity
was 48%. Strong equity securities gains--$232 million--drove this exceptional
performance. Lower asset and capital levels in 1996 reflected a substantial
decline in investment securities as part of the Corporation's asset reduction
strategy.
The nature of Corporate Investments implies that it will be a more variable
component of earnings going forward than the other business lines. However,
because of the Corporation's expertise in this high-return area, continued
significant earnings contributions are expected.
CREDIT CARD
(PRESECURITIZED)
<TABLE>
<CAPTION>
1996 1995 1994
(DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ------ ------ ------
<S> <C> <C> <C>
Net interest income--tax-equivalent basis............... $1,495 $1,175 $1,007
Provision for credit losses............................. 1,029 708 476
Noninterest income...................................... 651 560 491
Noninterest expense..................................... 558 541 459
Net income.............................................. 347 302 350
Return on equity........................................ 32% 36% 54%
Efficiency ratio........................................ 26% 31% 31%
Average loans (in billions)............................. $17.4 $14.2 $11.4
Average common equity (in billions)..................... 1.1 0.8 0.6
</TABLE>
Among the largest bankcard issuers in the United States, Credit Card
contributed about one-quarter of the Corporation's earnings in 1996. For the
year, net income was $347 million and return on equity was a superior 32%.
Earnings in 1996 were 15% higher than in 1995, as average managed credit card
receivables grew 23% to $17.4 billion. At year-end 1996, receivables were
$18.5 billion. Consistent with this growth, common equity allocated to Credit
Card increased by about $300 million.
Net interest income rose $320 million, or 27%, in 1996 due to higher average
receivables volume. Likewise, fee income improved by $91 million, or 16%, due
in part to changes in fee pricing. Expenses increased a modest 3% as new
account solicitations declined from 1995's record level. Credit Card's
operating efficiency remained excellent in 1996, at 26%.
Credit Card is managed to achieve a superior return relative to risk over
time. In 1996, rapid deterioration in this business line's credit quality
partially offset the positive revenue and expense trends. The provision for
credit losses grew to $1,029 million, up $321 million from 1995. The average
net charge-off rate in the managed portfolio reached 5.8% for 1996, compared
with 4.0% for 1995 and 3.5% for 1994. This substantial rise reflected the
increasing rate of personal bankruptcy filings. Although the Corporation
expects the charge-off rate to continue rising in the near term, the level and
timing of the peak rate is uncertain.
17
<PAGE>
OTHER ACTIVITIES
<TABLE>
<CAPTION>
1996 1995 1994
(DOLLARS IN MILLIONS, EXCEPT WHERE NOTED) ---- ----- ----
<S> <C> <C> <C>
Total revenue................................................. $31 $ 14 $139
Noninterest expense........................................... 9 277 79
Net income (loss)............................................. 17 (176) 57
Average assets (in billions).................................. -- 0.4 0.1
</TABLE>
Results for 1996 include a $7 million gain from the sale of Ohio branch
operations.
Merger-related charges totaled $267 million in 1995, of which $225 million
was related to direct merger and restructuring costs. The remaining one-time
charges of $42 million were for the conformance of accounting practices
between the merged companies. Investment securities losses of $19 million in
1995 are also included in Other Activities.
Earnings for 1994 included gains of $46 million from the sale of assets held
in the accelerated disposition portfolio and a $35 million gain from the sale
of an interest in an investment management business. Noninterest expense in
1994 included a charge of $25 million related to the depreciation of personal
computer equipment and $19 million of other general corporate costs.
Earnings Analysis
SUMMARY
Net income for 1996 was $1.436 billion, or $4.32 per share, compared with
$1.150 billion, or $3.41 per share, in 1995 and $1.221 billion, or $3.58 per
share, in 1994.
Operating earnings for 1996, which excluded the after-tax effect of the one-
time special FDIC assessment, were $1.447 billion, or $4.36 per share.
Operating earnings for 1995, which excluded the after-tax effect of the
merger-related charges and fourth-quarter 1995 investment securities losses,
were $1.341 billion, or $3.99 per share.
<TABLE>
<CAPTION>
1996 1995 1994
(IN MILLIONS, EXCEPT PER SHARE DATA) ------ ------ ------
<S> <C> <C> <C>
Net income.............................................. $1,436 $1,150 $1,221
Fully diluted earnings per share........................ 4.32 3.41 3.58
Return on common equity................................. 17.0% 14.3% 16.6%
Return on assets........................................ 1.28 0.94 1.13
</TABLE>
The Corporation's 1996 results reflected the following highlights:
. Net interest income grew 12% and net interest margin improved 69
basis points to 3.83% as a result of loan growth in the credit card
and regional banking businesses as well as the effects of the targeted
asset reduction program.
. Adjusted fee revenue increased 10%, reflecting growth in both credit
card and other product-based revenue.
. Market-driven revenue was down 24%, principally due to disappointing
trading results; Corporate Investment activities turned in a strong
performance.
. Commercial credit quality remained strong as nonperforming assets
declined 27% to $290 million at year-end.
. Credit Card earned an attractive return on equity of 32%. The net
charge-off rate for credit card receivables increased to 5.8% for the
year, up from 4.0% in 1995 and 3.5% in 1994.
18
<PAGE>
. Operating expense was slightly below the 1995 level.
. Merger-related initiatives were successfully completed, including
targeted earning asset reductions, key business integration efforts
and revenue enhancements.
In addition, in the fourth quarter the Corporation announced a common stock
repurchase program totaling 40 million shares to be executed over a 2-3 year
period. Under this program, 7.3 million shares were purchased during the
fourth quarter at an average price of $53.93.
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 derivatives used
to manage interest rate risk.
Net interest margin measures how efficiently the Corporation uses its
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 FCCM.
<TABLE>
<CAPTION>
1996 1995 1994
(DOLLARS IN MILLIONS) ------- -------- -------
<S> <C> <C> <C>
Reported
Net interest income--tax-equivalent basis......... $ 3,722 $ 3,311 $ 3,043
Average earning assets............................ 97,274 105,306 92,598
Net interest margin............................... 3.83% 3.14% 3.29%
Adjusted
Net interest income--tax-equivalent basis......... $ 4,377 $ 3,956 $ 3,579
Average earning assets............................ 98,652 101,793 88,969
Net interest margin............................... 4.44% 3.89% 4.02%
</TABLE>
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 $7.7
billion in 1996, $7.2 billion in 1995, and $5.5 billion in 1994.
FCCM is the Corporation's wholly owned subsidiary engaged in permissible
investment banking activities. Because capital requirements for FCCM are risk-
exposure driven rather than based on asset levels, FCCM can generate
substantial volumes of relatively riskless, thin-spread earning assets that
require little additional capital. The Corporation's net interest margin
trends can be better analyzed if these earning assets and related margins are
excluded.
Adjusted net interest income increased by $421 million, or 11%, in 1996. In
addition, adjusted net interest margin improved to 4.44% compared with 3.89%
in 1995. Loan growth in both the credit card and regional banking businesses,
coupled with the Corporation's successful efforts in reducing $25 billion of
targeted low-margin assets, accounted for this improved performance.
Adjusted net interest income in 1995 was up $377 million, or 11%, while
adjusted net interest margin was 3.89%, down slightly from 4.02% in 1994. The
1995 growth in dollar spread income was principally driven by a 14% increase
in adjusted average earning assets. Percentage spreads, on the other hand,
were down principally due to a less profitable earning asset mix, reflecting
the growth in thinly priced assets, including trading assets and loans to
large corporate banking customers.
19
<PAGE>
NONINTEREST INCOME
Credit card fee revenue and total noninterest income have been adjusted to
exclude the effect of credit card securitizations to provide a more meaningful
trend analysis. Credit card fee revenue in the following table excludes the
amount of net servicing revenue (spread income less credit costs) associated
with securitized credit card receivables.
<TABLE>
<CAPTION>
PERCENT
INCREASE (DECREASE)
-------------------
1996 1995 1994 1995-1996 1994-1995
(DOLLARS IN MILLIONS) ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Combined trading profits............ $ 58 $ 210 $ 86 (72)% 144%
Equity securities gains............. 255 253 229 1 10
Investment securities gains
(losses)........................... 27 (16) (1) N/M N/M
------ ------ ------
Market-driven revenue.............. 340 447 314 (24) 42
Credit card fee revenue (1)......... 694 579 574 20 1
Fiduciary and investment management
fees............................... 400 404 377 (1) 7
Service charges on deposits......... 414 382 372 8 3
Other service charges and
commissions........................ 389 353 316 10 12
------ ------ ------
Adjusted fee-based revenue......... 1,897 1,718 1,639 10 5
Gain on sale of loans............... 8 7 6 14 17
Accelerated disposition portfolio
gains.............................. 6 37 46 (84) (20)
Gain on sale of investment advisory
business........................... -- -- 35 -- N/M
Other............................... 77 60 56 28 7
------ ------ ------
Adjusted noninterest income....... $2,328 $2,269 $2,096 3 8
====== ====== ======
</TABLE>
- --------
(1) Net credit card servicing revenue totaled $220 million in 1996, $322
million in 1995 and $297 million in 1994.
N/M--Not Meaningful
Combined trading profits totaled $58 million in 1996, compared with $210
million in 1995 and $86 million in 1994. Disappointing results from the
foreign exchange and interest rate derivative trading businesses accounted for
much of the 1996 decline. These trading businesses contributed to the improved
1995 results as increased customer demand and market volatility provided
additional profit opportunities. 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.
TRADING REVENUE
<TABLE>
<CAPTION>
1996 1995 1994
(IN MILLIONS) ---- ---- ----
<S> <C> <C> <C>
Foreign exchange and derivatives................................ $ 63 $ 83 $ 56
Fixed income and derivatives.................................... 48 106 74
Emerging markets................................................ 6 6 (49)
Other trading................................................... 58 97 79
---- ---- ----
Total....................................................... $175 $292 $160
==== ==== ====
</TABLE>
Equity securities gains, principally from Corporate Investment activities,
were $255 million during 1996, compared with $253 million in 1995 and $229
million in 1994.
Investment securities gains totaled $27 million in 1996, compared with
losses of $16 million in 1995 and $1 million in 1994. Beginning in the fourth
quarter of 1995, the investment securities portfolio was reduced through sales
and maturities as part of the Corporation's asset reduction program. From June
30, 1995, to December 31, 1996, the investment securities portfolio was
reduced by $6.5 billion.
20
<PAGE>
Credit card fee revenue was $694 million in 1996, up 20% from 1995. The
increase was due to both higher transaction volume and pricing changes
instituted during 1996 to mitigate rising credit costs. Adjusted for the
reclassification of Mileage Plus payments, the growth in credit card fee
revenue in 1995 was 15%.
Fiduciary and investment management fees include revenue generated by the
Corporation's traditional trust products and services, investment management
activities, and the shareholder services business. Fees generated from these
activities decreased slightly in 1996, compared with a modest increase in
1995. In 1996, the Corporation decided to exit its stand-alone global custody
and master trust businesses; the exit should be substantially completed by the
second quarter of 1997. Revenues from these activities in 1996 totaled
approximately $54 million. Revenues from the shareholder services business
increased to $88 million in 1996 from $82 million in 1995 and $81 million in
1994. Revenue growth in the shareholder services business continues to be
hampered by industry consolidation and price competition.
Net gains from the active management of assets held in the accelerated
disposition portfolio were $6 million in 1996, compared with $37 million in
1995 and $46 million in 1994.
In the first quarter of 1996, the sale of the Corporation's Ohio branch
network to Fifth Third Bancorp generated a $6.9 million gain, which is
included in other noninterest income.
PROVISION FOR CREDIT LOSSES
Details of the Corporation's credit risk management and performance are
presented in the "Credit Risk Management" section, beginning on page 30.
NONINTEREST EXPENSE
Operating expense in 1996 was $15 million below that of a year ago. Merger
savings were channeled into investments in technology and used to fund growth
in selected business activities.
Overall 1995 expense growth, adjusted for the reclassification of Mileage
Plus payments, was limited to 4% despite higher employee costs, increased
equipment costs and investment in core business growth.
SALARIES AND BENEFITS
<TABLE>
<CAPTION>
PERCENT
INCREASE (DECREASE)
-------------------
1996 1995 1994 1995-1996 1994-1995
(DOLLARS IN MILLIONS) ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Salaries.............................. $1,423 $1,420 $1,325 -% 7%
Employee benefits..................... 284 272 277 4 (2)
------ ------ ------
Total................................. $1,707 $1,692 $1,602 1 6
====== ====== ======
Average full-time-equivalent
employees............................ 34,115 35,352 35,642 (3) (1)
====== ====== ======
</TABLE>
Total employee costs grew by only $15 million, or 1%, in 1996, following an
increase of $90 million, or 6%, between 1994 and 1995. Salary costs increased
only slightly from a year ago as annual salary increases and higher
performance-based incentive accruals were partially offset by reduced staff
levels. Employee benefit costs increased $12 million in 1996 due mainly to
higher pension expense. The 6% increase in 1995 reflected staff increases in
certain business units as well as higher performance-based incentive costs.
21
<PAGE>
OTHER NONINTEREST EXPENSE
<TABLE>
<CAPTION>
PERCENT
INCREASE (DECREASE)
-------------------
1996 1995 1994 1995-1996 1994-1995
(DOLLARS IN MILLIONS) ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Occupancy expense of premises, net.... $ 259 $ 252 $ 244 3% 3%
Equipment rentals, depreciation and
maintenance.......................... 227 225 245 1 (8)
Marketing and public relations........ 120 161 128 (25) 26
FDIC insurance expense................ 4 58 105 (93) (45)
Amortization of intangible assets..... 79 88 93 (10) (5)
Telephone............................. 88 80 67 10 19
Freight and postage................... 87 78 68 12 15
Travel and entertainment.............. 55 50 47 10 6
Stationery and supplies............... 48 45 39 7 15
Operating and other taxes............. 30 29 31 3 (6)
Other................................. 549 510 551 8 (7)
------ ------ ------
Operating expense.................... 1,546 1,576 1,618 (2) (3)
Merger-related charges................ -- 267 -- N/M N/M
FDIC special assessment............... 18 -- -- N/M N/M
------ ------ ------
Total............................. $1,564 $1,843 $1,618 (15) 14
====== ====== ======
</TABLE>
Equipment expense increased 1% in 1996 to $227 million. A special charge of
$25 million was taken in 1994 to reflect the reduction in the estimated useful
life of existing personal computer equipment.
The changes in marketing costs over the past several years generally reflect
the level of credit card solicitation costs. Increased costs in 1995 supported
a significant solicitation program that produced a record 3.4 million credit
card accounts.
FDIC insurance expense, excluding a one-time special assessment in 1996 of
$18 million related to the recapitalization of the Savings Association
Insurance Fund (SAIF), totaled $4 million in 1996. The decline from 1995
resulted from a substantial reduction in the insurance rate for Bank Insurance
Fund deposits. However, a good portion of this expense savings was passed on
to business customers in the form of fee reductions.
Intangible amortization expense declined in both periods as certain core
deposit intangibles became fully amortized.
Merger-related charges in 1995 totaled $267 million, of which $225 million
was related to direct merger and related restructuring costs. Other charges of
$42 million were related to the one-time conformance of accounting practices.
(See Note 3 on page 49 for more details.)
APPLICABLE INCOME TAXES
The following table shows the Corporation's income before income taxes,
applicable income taxes, and effective tax rate for each of the past three
years.
<TABLE>
<CAPTION>
1996 1995 1994
(DOLLARS IN MILLIONS) ------ ------ ------
<S> <C> <C> <C>
Income before income taxes.............................. $2,162 $1,754 $1,853
Applicable income taxes................................. 726 604 632
Effective tax rates..................................... 33.6% 34.4% 34.1%
</TABLE>
Tax expense for 1996 and 1995 included benefits for tax-exempt income and
general business tax credits offset by the effect of nondeductible expenses,
including goodwill.
22
<PAGE>
Tax expense in 1994 included a one-time tax benefit related to the
implementation of final Internal Revenue Service ("IRS") bad debt recapture
regulations as well as the effects of several favorable tax rulings.
MERGER-RELATED INITIATIVES
The Corporation successfully completed its merger-related initiatives in
1996, including targeted asset reductions, key business integration efforts to
generate cost savings of $200 million, and revenue enhancements of $50 million
from cross-sales of products to an expanded customer base.
The Corporation completed its $25 billion asset reduction program by
September 30, 1996, well ahead of schedule. The following table shows the
components of the $25 billion decline using average assets for the first half
of 1995 as a baseline.
ASSET REDUCTION INITIATIVE
<TABLE>
<CAPTION>
AVERAGE AVERAGE INCREASE
4TH QTR. 1996 1ST HALF 1995 (DECREASE)
(IN MILLIONS) ------------- ------------- ---------
<S> <C> <C> <C>
Loans.................................... $ 65,494 $ 56,927 $ 8,567
Targeted items
Deposit placements..................... 5,664 9,715 (4,051)
Federal funds sold..................... 739 1,846 (1,107)
Trading assets......................... 8,888 20,659 (11,771)
Investment securities.................. 5,311 14,507 (9,196)
-------- -------- --------
Subtotal............................. 20,602 46,727 (26,125)
Other assets (1)......................... 16,591 16,830 (239)
-------- -------- --------
Total assets......................... $102,687 $120,484 $(17,797)
======== ======== ========
</TABLE>
- --------
(1) Includes approximately $1.8 billion of investment securities required in
conjunction with the Corporation's government-related cash management and
payment services.
The Corporation has made the decisions necessary to effectively integrate
its business activities, including organization and staffing changes to
facilitate their implementation. At year-end 1996, staff reductions of over
2,000 had been identified, with severance payments already initiated for
approximately 1,800 of such positions. The remaining identified staff
reductions will occur as integration decisions are fully implemented. Staff
level reductions have more than exceeded the Corporation's initially
established goals.
The Corporation has realized incremental fee revenue as a result of its
wider array of product offerings to an expanded customer base. This has been
particularly evident in increased cash management fee revenue and net interest
income despite targeted asset reductions. In addition, due to an upgrade in
its credit ratings, the Corporation has generated additional business with new
customers.
The Corporation established a reserve for direct merger and restructuring-
related charges totaling $225 million at the time of the merger. The table
below details the components of the reserve at year-end 1996 and 1995.
MERGER RESERVE
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
(IN MILLIONS) ------------ ------------
<S> <C> <C>
Personnel............................................. $ 42 $ 92
Facilities & Equipment................................ 71 94
Other................................................. 5 14
---- ----
Total................................................ $118 $200
==== ====
</TABLE>
23
<PAGE>
At this time, the Corporation anticipates full usage of the merger reserve
based on the projected cost of identified business actions. Such costs (i.e.
severance payments, lease payments) will be absorbed by the merger reserve as
incurred based on existing contractual arrangements.
Risk Management
The Corporation's various business activities generate liquidity, market and
credit risks:
. Liquidity risk is the possibility of being unable to meet all present and
future financial obligations in a timely manner.
. Market risk is the possibility that changes in future market rates or
prices will make the Corporation's positions less valuable.
. Credit risk is the possibility of loss from the failure of a customer to
perform according to the terms of a transaction.
Compensation for assuming these risks is reflected in interest income,
combined trading profits and fee income. In addition, these risks are factored
into the allocation of capital to support various business activities, as
discussed in the "Capital Management" section, beginning on page 37.
The Corporation is a party to transactions involving financial instruments
that create risks that may or may not be reflected on a traditional balance
sheet. These financial instruments can be subdivided into three categories:
. Cash financial instruments, generally characterized as on-balance-sheet
transactions, include loans, bonds, stocks and deposits.
. Credit-related financial instruments include such instruments as
commitments to extend credit and standby letters of credit.
. Derivative financial instruments include such instruments as interest
rate, foreign exchange, commodity price and equity price contracts,
including forwards, swaps and options.
The Corporation's risk management policies are intended to monitor and limit
exposure to liquidity, market and credit risks that arise from each of these
financial instruments.
Liquidity Risk Management
Liquidity risk management encompasses the Corporation's ability to meet all
present and future financial obligations in a timely manner. The Consolidated
Statement of Cash Flows, on page 44, presents data on cash and cash
equivalents provided by and used in operating, investing and financing
activities. 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 Corporation believes its prudent management policies and guidelines will
ensure adequate levels of liquidity to fund anticipated needs of on- and off-
balance-sheet items. In addition, a contingency funding plan identifies
actions to be taken in response to an adverse liquidity event. The objectives
of liquidity management policies are to maintain:
. strong credit ratings and capital ratios;
. adequate liquid assets;
. liability diversification among instruments, maturities and customers;
and
. a continuously strong presence both in the wholesale purchased funds
market and in the retail deposit market.
Strong credit ratings foster the ability to attract wholesale funds on a
regular basis and at a competitive cost. The Corporation's principal Banks
(referred to collectively as the "Principal Banks"), comprising ANB, FNBC,
FCCNB, NBD Indiana and NBD Michigan, all have identical ratings. The short-
term debt ratings for
24
<PAGE>
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 SHORT-TERM
DEBT DEBT
CREDIT RATINGS ----------- ------------
S&P MOODY'S S&P MOODY'S
DECEMBER 31, 1996 --- ------- ---- -------
<S> <C> <C> <C> <C>
First Chicago NBD Corporation (parent)................. A+ A1 A-1 P-1
The Principal Banks.................................... AA- Aa3 A-1+ P-1
</TABLE>
Liquid assets are maintained in the form of federal funds sold, deposit
placements and selected investment securities to meet any immediate cash flow
obligations. Note 6, beginning on page 50, provides a detailed breakdown of
the investment portfolio.
The Corporation segments its balance sheet into liquid assets, core assets
and non-core assets for liquidity management purposes. Liabilities are grouped
as core liabilities, wholesale purchased funds and non-core liabilities. Core
assets and liabilities consist primarily of customer-driven lending and
deposit-taking activities. The large retail customer deposit base (the
principal component of core liabilities) is one of the significant sources of
liquidity. Through its various banking entities, the Corporation maintains
direct access to local retail deposit markets and uses a network of brokers
for gathering retail deposits on a national basis. Core liabilities also
include subordinated debt and equity.
As part of the monthly liquidity measurement process, the funding of core
assets with core liabilities is monitored. As of December 31, 1996, 78% of
core assets were funded with core liabilities. The wholesale market provided
only 22% of core asset funding. The Corporation has established a 35% limit on
the use of wholesale purchased funds for funding core assets. By limiting
dependence on the wholesale market, the risk of a disruption to the
Corporation's lending business from an adverse liquidity event is minimized.
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. A reliable, diversified mix of funding from the wholesale market
is created by active participation in global capital markets. Internal
guidelines are used to manage the product mix and customer concentration of
wholesale funding. In addition, as part of the normal liquidity management
process, the Corporation securitizes and sells assets such as credit card
receivables. Securitization is an important funding vehicle that both
diversifies funding sources and raises large amounts of term funding in a
cost-effective manner.
DEPOSITS AND OTHER PURCHASED FUNDS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
DECEMBER 31 (IN MILLIONS) ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Domestic offices
Demand............................... $15,702 $ 15,234 $14,378 $14,852 $14,247
Savings.............................. 21,722 20,180 20,088 21,154 20,929
Time
Under $100,000..................... 9,851 9,972 8,720 8,310 9,779
$100,000 and over.................. 5,143 5,947 4,484 4,089 5,688
Foreign offices........................ 11,251 17,773 17,225 9,602 10,098
------- -------- ------- ------- -------
Total deposits................... 63,669 69,106 64,895 58,007 60,741
Federal funds purchased and securities
under repurchase agreements........... 7,859 15,711 16,919 11,038 10,591
Commercial paper....................... 762 288 206 323 357
Other short-term borrowings............ 6,810 9,514 8,216 6,506 3,808
Long-term debt......................... 8,454 8,163 7,246 5,250 4,175
------- -------- ------- ------- -------
Total other purchased funds...... 23,885 33,676 32,587 23,117 18,931
------- -------- ------- ------- -------
Total............................ $87,554 $102,782 $97,482 $81,124 $79,672
======= ======== ======= ======= =======
</TABLE>
25
<PAGE>
Market Risk Management
OVERVIEW
Market risk arises from changes in interest rates, exchange rates, commodity
prices and equity prices. The Corporation has 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 that are designed 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. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can
be found in Note 17, beginning on page 66.
TRADING ACTIVITIES
The Corporation takes 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, 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.
Many trading positions are kept open for brief periods of time, often less
than one day. Other trading positions are held 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 positions are included in
noninterest income as combined trading profits.
Value at risk is intended to measure the maximum amount the Corporation
could lose, given a specified confidence level, over a given period of time.
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 in managing the Corporation's value at risk. Risk points measure the
market risk (potential overnight loss) in a capital markets product. Products
that have more inherent price volatility are assigned more risk points.
26
<PAGE>
Value at risk is monitored in each significant trading portfolio on a daily
basis. The following charts show the average, maximum and minimum daily value
at risk for 1994, 1995 and 1996, and the actual trading revenue for each year.
<TABLE>
<CAPTION>
Daily Value at Risk Trading Revenue*
Bar Graph Bar Graph
$ Millions $ Millions
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1994 1995 1996
Average $45 $32 $28 $160 $292 $175
Maximum $66 $45 $38
Minimum $34 $24 $21 *Includes trading profits and net interest income.
</TABLE>
Value at risk is estimated using statistical models calibrated at a three-
standard-deviation confidence interval. The Corporation has made significant
progress in recognizing offsets and correlations across different trading
portfolios. This has contributed to a decline in daily value at risk from 1995
to 1996. However, the Corporation's reported value at risk remains somewhat
overstated because all offsets and correlations 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
income and economic value due to an imbalance in the repricing or maturity of
asset, liability and off-balance-sheet positions. Interest rate risk exposure
is actively managed with the goal of minimizing the impact of interest rate
volatility on current earnings and on the market value of equity.
In general, the assets and liabilities generated through ordinary business
activities do not naturally create offsetting positions with respect to
repricing or maturity characteristics. Access to the derivatives market is an
important element in maintaining the Corporation's interest rate risk position
within policy guidelines. Using off-balance-sheet instruments, principally
interest rate swaps (asset and liability management or "ALM" derivatives), the
interest rate sensitivity of specific on-balance-sheet transactions, as well
as pools of assets or liabilities, is adjusted to maintain the desired
interest rate risk profile. At year-end 1996, the notional value of ALM
interest rate swaps totaled $9.6 billion, including $4.7 billion against
specific transactions and $4.9 billion against specific pools of assets or
liabilities.
27
<PAGE>
ASSET AND LIABILITY MANAGEMENT SWAPS--NOTIONAL PRINCIPAL
<TABLE>
<CAPTION>
RECEIVE FIXED PAY FIXED BASIS
PAY FLOATING RECEIVE FLOATING SWAPS
DECEMBER 31, 1996 --------------- ------------------- -----
SPECIFIC POOL SPECIFIC POOL POOL TOTAL
(IN MILLIONS) -------- ------ ---------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Swaps associated with:
Loans....................... $ -- $ 982 $ 46 $ -- $ -- $1,028
Investment securities....... -- -- 240 -- -- 240
Securitized credit card
receivables................ -- 500 -- -- -- 500
Deposits.................... 50 2,991 -- -- -- 3,041
Funds borrowed (including
long-term debt)............ 4,329 -- -- 125 340 4,794
------ ------ -------- -------- ---- ------
Total..................... $4,379 $4,473 $ 286 $ 125 $340 $9,603
====== ====== ======== ======== ==== ======
</TABLE>
Swaps used to adjust the interest rate sensitivity of specific transactions
will not need to be replaced at maturity 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 may need to be reissued to maintain the same interest rate risk
profile. These swaps could create modest earnings sensitivity to changes in
interest rates.
Substantially all ALM interest rate swaps are standard swap contracts. 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.
ASSET AND LIABILITY MANAGEMENT SWAPS--MATURITIES AND RATES
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 THEREAFTER TOTAL
(DOLLARS IN MILLIONS) ------ ------ ---- ---- ---- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay
floating swaps
Notional amount........ $4,102 $1,112 $629 $330 $761 $1,919 $8,853
Weighted average
Receive rate......... 5.97% 6.24% 6.23% 5.76% 7.17% 6.87% 6.31%
Pay rate............. 5.66% 5.74% 5.62% 5.67% 5.66% 5.70% 5.68%
Pay fixed/receive
floating swaps
Notional amount........ $ 97 $ 57 $ 83 $110 $ 25 $ 38 $ 410
Weighted average
Receive rate......... 5.63% 5.67% 5.68% 5.68% 5.70% 5.70% 5.67%
Pay rate............. 7.22% 8.07% 7.99% 7.74% 8.01% 8.01% 7.75%
Basis swaps
Notional amount........ $ 50 $ 265 $ 25 -- -- -- $ 340
Weighted average
Receive rate......... 5.59% 5.76% 5.69% -- -- -- 5.73%
Pay rate............. 5.58% 5.62% 5.58% -- -- -- 5.61%
------ ------ ---- ---- ---- ------ ------
Total notional
amount............ $4,249 $1,434 $737 $440 $786 $1,957 $9,603
====== ====== ==== ==== ==== ====== ======
</TABLE>
The Corporation uses a variety of measurement tools to monitor and control
the overall interest rate risk exposure of both the on- and off-balance-sheet
positions, including the ALM derivatives. For each measurement tool, the level
of interest rate risk created by the assets, liabilities, equity and off-
balance-sheet positions are a function primarily of their contractual interest
rate repricing dates and contractual maturity (including principal
amortization) dates.
Modifications to the interest rate risk measure are made where there are
historical differences between contractual and actual payment flows. These
modifications are designed to capture principal prepayments on loans and early
withdrawals of deposits. Additionally, assumptions are made on the measurement
of the interest rate risk of indeterminate maturity assets, liabilities and
equity. Finally, income volatility from positions such as
28
<PAGE>
credit card securitizations, mortgage servicing and cash management service
products, which subject servicing fee revenue to interest rate risk, are
included in one or more of the risk measures.
Static gap analysis is one of the tools used for interest rate risk
measurement. The net difference between the amount of assets, liabilities,
equity and off-balance-sheet instruments repricing within a cumulative
calendar period is typically referred to as the "rate sensitivity position."
Interest rate risks in trading and overseas balance sheet positions are
assumed to be matched and are managed principally as trading risks. The
Corporation's policy is to limit the cumulative one-year gap position,
including ALM derivatives, to within 4% of total assets.
The following table details the Corporation's static gap position. As of
December 31, 1996, the cumulative one-year gap position was 1.0% of total
assets.
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
0-90 91-180 181-365 1-5 BEYOND
DECEMBER 31, 1996 DAYS DAYS DAYS YEARS 5 YEARS TOTAL
(DOLLARS IN MILLIONS) ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Loans................... $46,716 $ 3,401 $ 4,092 $12,955 $ 2,799 $ 69,963
Investment securities... 400 454 856 3,830 1,387 6,927
Other earning assets.... 19,219 101 107 115 -- 19,542
Nonearning assets....... 14,149 77 145 1,226 1,478 17,075
------- ------- ------- ------- ------- --------
Total assets........ $80,484 $ 4,033 $ 5,200 $18,126 $ 5,664 $113,507
======= ======= ======= ======= ======= ========
Deposits................ $28,597 $ 3,868 $ 5,067 $14,309 $ 984 $ 52,825
Other interest-bearing
liabilities............ 34,575 3,102 1,896 2,306 3,352 45,231
Noninterest-bearing
liabilities............ 5,773 -- 19 15 637 6,444
Equity.................. 405 368 528 3,425 4,281 9,007
------- ------- ------- ------- ------- --------
Total liabilities
and equity......... $69,350 $ 7,338 $ 7,510 $20,055 $ 9,254 $113,507
======= ======= ======= ======= ======= ========
Balance sheet
sensitivity gap........ $11,134 $(3,305) $(2,310) $(1,929) $(3,590) --
Cumulative gap as a % of
total assets........... 9.8% 6.9% 4.9% 3.2% -- --
Effect of off-balance-
sheet ALM derivative
transactions:
Specific transactions. (4,650) 1,696 690 478 1,786 --
Specific asset or
liability pools...... (2,969) 154 642 2,079 94 --
------- ------- ------- ------- ------- --------
Interest rate
sensitivity gap........ $ 3,515 $(1,455) $ (978) $ 628 $(1,710) --
======= ======= ======= ======= ======= ========
Cumulative gap.......... $ 3,515 $ 2,060 $ 1,082 $ 1,710 -- --
Cumulative gap as a % of
total assets........... 3.1% 1.8% 1.0% 1.5% -- --
</TABLE>
Static gap analysis does not fully capture the impact of embedded options,
lagged interest rate changes, administered interest rate products, or certain
off-balance-sheet sensitivities to interest rate movements. Therefore, this
tool cannot be used in isolation to determine the level of interest rate risk
exposure in more complex banking institutions. The Corporation performs an
earnings simulation analysis and a value-at-risk measure to identify more
dynamic interest rate risk exposures, including embedded option positions.
The earnings simulation analysis estimates the effect that specific interest
rate changes would have on 12 months of pretax earnings. This exercise
includes management assumptions regarding the level of interest rate or
balance changes on indeterminate maturity deposit products (passbook savings,
money market, NOW and demand deposits) for a given level of market rate
changes. These assumptions have been developed through a combination of
historical analysis and future expected pricing behavior. Interest rate caps
and floors on all products are included to the extent that they are exercised
in the 12-month simulation period. Additionally, changes in prepayment
behavior of the residential mortgage portfolio in each rate environment are
captured using industry estimates of prepayment speeds for various coupon
segments of the portfolio. Sensitivity of fee income to market interest rate
levels, such as those related to securitized credit card receivables, cash
management service products and mortgage servicing, are included as well.
Finally, the impact of planned growth and anticipated new business activities
is factored into the simulation model.
29
<PAGE>
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 December 31, 1996, the Corporation had the following estimated
earnings sensitivity profile.
<TABLE>
<CAPTION>
IMMEDIATE CHANGE IN RATES
--------------------------
+200 BP -200 BP
(IN MILLIONS) ------------ -------------
<S> <C> <C>
Pretax earnings change...................... $23 $(10)
</TABLE>
FOREIGN EXCHANGE RISK MANAGEMENT
Wherever possible, foreign currency-denominated assets are funded with
liability instruments denominated in the same currency. If a liability
denominated in the same currency is not immediately available or desired, a
forward foreign exchange contract is used to fully hedge the risk due to
cross-currency funding.
To minimize the earnings and capital impact of translation gains or losses
measured on an after-tax basis, the Corporation uses forward foreign exchange
contracts on a selective basis to hedge the exposure created by investments in
overseas branches and subsidiaries.
Credit Risk Management
The Corporation has developed policies and procedures to manage the level
and composition of risk in its credit portfolio. The objective of this credit
risk management process is to quantify and manage credit risk on a portfolio
basis as well as to reduce the risk of a loss resulting from a customer's
failure to perform according to the terms of a transaction.
Customer transactions create credit exposure that is reported both on and
off the balance sheet. On-balance-sheet credit exposure includes such items as
loans and derivative financial instruments. Off-balance-sheet credit exposure
includes unfunded credit commitments and other credit-related financial
instruments. Credit exposures resulting from derivative financial instruments
are reported both on and off the balance sheet as explained on page 36.
SELECTED STATISTICAL INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
(DOLLARS IN MILLIONS) ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
At year-end
Loans outstanding............... $66,414 $64,434 $55,176 $48,654 $47,836
Nonperforming loans............. 262 363 294 485 717
Other real estate, net.......... 28 34 57 87 81
Nonperforming assets............ 290 397 351 572 798
Allowance for credit losses..... 1,407 1,338 1,158 1,106 1,041
Nonperforming assets/loans
outstanding and other real
estate, net.................... 0.4% 0.6% 0.6% 1.2% 1.7%
Allowance for credit
losses/loans outstanding....... 2.1 2.1 2.1 2.3 2.2
Allowance for credit
losses/nonperforming loans..... 537 369 394 228 145
For the year
Average loans................... $64,949 $58,944 $50,083 $47,110 $49,042
Net charge-offs................. 670 264 192 296 572
Net charge-offs/average loans... 1.0% 0.4% 0.4% 0.6% 1.2%
</TABLE>
30
<PAGE>
For analytical purposes, the Corporation's portfolio is divided into
commercial (domestic and foreign) and consumer (credit card and other
consumer) segments.
LOAN COMPOSITION
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
DECEMBER 31 (IN MILLIONS) ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial risk
Domestic
Commercial......................... $27,718 $25,551 $22,546 $19,310 $19,944
Real estate
Construction..................... 1,057 1,151 1,074 1,105 1,323
Other............................ 5,103 6,103 5,903 5,613 5,869
Lease financing.................... 1,820 1,588 1,381 1,295 1,312
Foreign.............................. 3,656 3,726 3,305 3,083 3,176
------- ------- ------- ------- -------
Total commercial............... 39,354 38,119 34,209 30,406 31,624
------- ------- ------- ------- -------
Consumer risk
Credit cards......................... 9,601 9,649 6,980 6,393 4,829
Secured by real estate(1)............ 9,406 8,933 7,025 6,088 6,163
Automotive........................... 4,423 4,477 3,994 3,241 2,911
Other................................ 3,630 3,256 2,968 2,526 2,309
------- ------- ------- ------- -------
Total consumer................. 27,060 26,315 20,967 18,248 16,212
------- ------- ------- ------- -------
Total.......................... $66,414 $64,434 $55,176 $48,654 $47,836
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Includes home-equity loans.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level that in
management's judgment is adequate to provide for estimated probable credit
losses inherent in various on- and off-balance-sheet 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.
31
<PAGE>
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
(IN MILLIONS) ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year.............. $1,338 $1,158 $1,106 $1,041 $1,136
Provision for credit losses............. 735 510 276 390 653
Provision for loans held for accelerated
disposition............................ -- -- -- -- 491
Charge-offs
Commercial
Domestic
Commercial........................... 114 70 68 122 253
Real estate.......................... 20 25 41 99 149
Lease financing...................... 7 2 3 6 6
Foreign (1)........................... 2 1 9 47 78
Consumer
Credit card........................... 567 241 193 165 180
Other................................. 105 70 50 46 52
------ ------ ------ ------ ------
Total charge-offs................... 815 409 364 485 718
Recoveries
Commercial
Domestic
Commercial........................... 45 59 55 81 39
Real estate.......................... 20 16 15 9 6
Lease financing...................... 1 2 1 2 5
Foreign............................... 15 9 44 17 22
Consumer
Credit card........................... 33 33 32 57 52
Other................................. 31 26 25 23 22
------ ------ ------ ------ ------
Total recoveries.................... 145 145 172 189 146
Net charge-offs......................... 670 264 192 296 572
Charge-offs of loans upon transfer to
accelerated disposition portfolio...... -- -- -- -- 636
Transfers related to securitized
receivables............................ 4 (75) (49) (29) (42)
Other (2)............................... -- 9 17 -- 11
------ ------ ------ ------ ------
Balance, end of year.................... $1,407 $1,338 $1,158 $1,106 $1,041
====== ====== ====== ====== ======
</TABLE>
- --------
(1) 1992 amounts include $12 million defined as commercial real estate.
(2) Primarily acquisitions.
32
<PAGE>
CONSUMER RISK MANAGEMENT
Consumer loans consist of credit card receivables as well as home mortgage
loans, automobile financing and other forms of consumer installment credit.
The consumer loan portfolio increased slightly during the year to $27.1
billion at year-end 1996. Including securitized credit card receivables, the
consumer portfolio increased $1.8 billion, or 5%, to $35.9 billion at December
31, 1996.
CONSUMER LOANS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
DECEMBER 31 (IN MILLIONS) ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Credit card loans...................... $ 9,601 $ 9,649 $ 6,980 $ 6,393 $ 4,829
Securitized credit card receivables.... 8,888 7,877 6,117 4,958 4,500
------- ------- ------- ------- -------
Total managed credit card
receivables......................... 18,489 17,526 13,097 11,351 9,329
Other consumer loans
Secured by real estate (1)............ 9,406 8,933 7,025 6,088 6,163
Automotive............................ 4,423 4,477 3,994 3,241 2,911
Other................................. 3,630 3,256 2,968 2,526 2,309
------- ------- ------- ------- -------
Other consumer loans................. 17,459 16,666 13,987 11,855 11,383
------- ------- ------- ------- -------
Total.............................. $35,948 $34,192 $27,084 $23,206 $20,712
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Includes home-equity loans.
Consumer risk management focuses on the credit card segment separately from
other parts of the portfolio. For both the on-balance-sheet and the
securitized credit card portfolios, loss potential is tested using
statistically expected levels of losses based on delinquencies and on the
source, age and other risk characteristics of each portfolio.
For the other segments of the consumer portfolio, reserve factors are based
on historical loss rates, trends and other relevant risk factors.
Managed credit card receivables (i.e. those held in the portfolio and those
sold to investors through securitization) were $18.5 billion at December 31,
1996, up 5% from 1995. Average managed credit card receivables grew to $17.4
billion in 1996, up 23% from 1995.
Credit card receivables represent the most significant risk element in the
consumer portfolio. The credit card charge-off rate of 5.8% in 1996 represents
a significant increase from prior years. In addition, the portfolio
experienced an increase in delinquency rates as presented in the following
table.
CREDIT CARD RECEIVABLES
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
(DOLLARS IN MILLIONS) ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Average balances:
Credit card loans.................. $ 9,774 $ 7,006 $ 5,904 $4,772 $4,155
Securitized credit card
receivables....................... 7,672 7,179 5,538 4,839 3,918
------- ------- ------- ------ ------
Total average managed credit card
receivables..................... $17,446 $14,185 $11,442 $9,611 $8,073
======= ======= ======= ====== ======
Total net charge-offs (including
securitizations).................... $1,019 $572 $403 $342 $333
======= ======= ======= ====== ======
Net charge-offs/average total managed
receivables......................... 5.8% 4.0% 3.5% 3.6% 4.1%
Credit Card Delinquency Rate
30 or more days.................... 4.5 3.6 3.0 3.0 3.1
90 or more days.................... 1.8 1.3 1.1 1.0 1.0
</TABLE>
Credit card receivables are generally charged off no later than 180 days
past due, or earlier in the event of bankruptcy. Current levels of
unemployment and 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
33
<PAGE>
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 increased 3% from $38.1 billion at December 31, 1995, to
$39.4 billion at December 31, 1996. Commercial net charge-offs were $62
million in 1996, up from the relatively low levels of $12 million in 1995 and
$6 million in 1994. At the same time, the level of nonperforming commercial
assets declined $107 million to $290 million at year-end 1996, representing
0.4% of total loans and other real estate.
In the commercial portfolio, credit quality is rated according to defined
levels of credit risk. The lower categories of credit risk are equivalent to
the four bank regulatory classifications: Special Mention, Substandard,
Doubtful and Loss. These categories define levels of credit deterioration at
which it may be increasingly difficult for the Corporation to be fully repaid
without restructuring the credit.
Each quarter, the Corporation conducts an asset-by-asset review of
significant lower-rated credit or country exposure. Potential losses are
identified during this review, and reserves are adjusted accordingly.
(BAR GRAPH)
NONPERFORMING ASSETS-PERIOD END
$ MILLIONS
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$798 $572 $351 $397 $290
OREO $81 $87 $57 $34 $28
Loans $717 $485 $294 $363 $262
</TABLE>
(BAR GRAPH)
NONPERFORMING ASSETS AS A PERCENTAGE OF
LOANS AND OTHER REAL ESTATE - PERIOD END
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1992 1993 1994 1995 1996
1.7% 1.2% 0.6% 0.6% 0.4%
</TABLE>
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.
At December 31, 1996, commercial real estate loans totaled $6.2 billion, or
16% of commercial loans, compared with $7.3 billion, or 19% of commercial
loans, at December 31, 1995. During 1996, net charge-offs in the commercial
real estate portfolio segment were under $1 million, compared with $9 million
in 1995.
34
<PAGE>
Nonperforming commercial real estate assets, including other real estate,
totaled $128 million, or 2.1% of related assets, at December 31, 1996,
compared with $125 million, or 1.7% of related assets, at December 31, 1995.
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. See Note 15, beginning on page 63, for a discussion of
the nature and terms of derivative financial instruments.
NOTIONAL PRINCIPAL OR CONTRACTUAL AMOUNTS OF DERIVATIVE FINANCIAL INSTRUMENTS
The following tables represent the gross notional principal or contractual
amounts of outstanding derivative financial instruments used in certain
activities. These amounts do not represent the market or credit risk
associated with these instruments, but instead indicate the volume of the
transactions. The amounts greatly exceed the associated credit risk of these
instruments and do not reflect the netting of offsetting transactions.
<TABLE>
<CAPTION>
ASSET AND
LIABILITY CORPORATE
DECEMBER 31, 1996 TRADING MANAGEMENT INVESTMENTS TOTAL
(IN BILLIONS) -------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Interest rate contracts................ $ 644.1 $ 9.6 $ -- $ 653.7
Foreign exchange contracts............. 375.4 1.7 -- 377.1
Equity contracts....................... 8.6 -- 0.2 8.8
Commodity contracts.................... 3.4 -- -- 3.4
-------- ----- ---- --------
Total.............................. $1,031.5 $11.3 $0.2 $1,043.0
======== ===== ==== ========
<CAPTION>
ASSET AND
LIABILITY CORPORATE
DECEMBER 31, 1995 TRADING MANAGEMENT INVESTMENTS TOTAL
(IN BILLIONS) -------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Interest rate contracts................ $415.4 $ 9.7 $ -- $425.1
Foreign exchange contracts............. 378.8 1.8 -- 380.6
Equity contracts....................... 7.9 -- 0.1 8.0
Commodity contracts.................... 1.0 -- -- 1.0
-------- ----- ---- --------
Total.............................. $803.1 $11.5 $0.1 $814.7
======== ===== ==== ========
</TABLE>
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments used in trading activities are valued at
prevailing market rates on a present-value basis. Realized and unrealized
gains and losses are included in noninterest income as combined trading
profits. Where appropriate, compensation for credit risk and ongoing servicing
is deferred and recorded as income over the term of the derivative financial
instrument.
Income or expense on most derivative financial instruments used to manage
interest rate exposure is recorded on an accrual basis, as an adjustment to
the yield of the related exposures over the periods covered by the contracts.
The income recognition treatment of the related exposure, generally assets or
liabilities carried at historical cost, is recorded on an accrual basis. If an
interest rate swap is terminated early, any resulting gain or loss is deferred
and amortized as an adjustment of the yield on the underlying interest rate
exposure position over the remaining periods originally covered by the
terminated swap. If all or part of an underlying position is terminated, e.g.,
an underlying asset is sold or prepaid, the related pro rata portion of any
unrecognized gain or loss on the swap is recognized in income at that time, as
part of the gain or loss on the termination, sale or prepayment.
35
<PAGE>
In general, purchased option, cap and floor contracts are reported in
derivative product assets, and written option, cap and floor contracts are
reported in derivative product liabilities. For other derivative financial
instruments, an unrealized gain is reported in derivative product assets and
an unrealized loss is reported in derivative product liabilities. Derivative
financial instruments executed with the same counterparty under a legally
enforceable master netting arrangement are reported on a net basis. Cash flows
from derivative financial instruments are reported net as operating
activities.
INCOME RESULTING FROM DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation's income from derivatives used in trading activities is
included in the "Trading Revenue" table on page 20.
The Corporation uses interest rate derivative financial instruments to
reduce structural interest rate risk and the volatility of net interest
margin. Net interest margin reflects the effective use of these derivatives.
Without their use, net interest income would have been lower by $33 million in
1996, higher by $12 million in 1995, and lower by $48 million in 1994.
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 $9 million in
1996, $6 million in 1995 and $39 million in 1994.
CREDIT EXPOSURE RESULTING FROM DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation maintains risk management policies that monitor and limit
exposure to credit risks. For a further discussion of credit risks, see the
"Credit Risk Management" section, beginning on page 30.
Credit exposure from derivative financial instruments arises from the risk
of a customer default on the derivative contract. The amount of loss created
by the default is the replacement cost or current fair value of the defaulted
contract. The Corporation utilizes master netting agreements whenever possible
to reduce its credit exposure from customer default. These agreements allow
the netting of contracts with unrealized losses against contracts with
unrealized gains to the same customer, in the event of a customer default. The
table below shows the impact of these master netting agreements at December
31, 1996:
DECEMBER 31, 1996
(IN MILLIONS)
<TABLE>
<S> <C>
Gross replacement cost................................................. $14,933
Less: Adjustment due to master netting agreements.................... (9,876)
-------
Current credit exposure................................................ 5,057
Less: Unrecognized net gains due to nontrading activity.............. (83)
-------
Balance sheet exposure................................................. $ 4,974
=======
</TABLE>
The $5.057 billion of total current credit exposure represents the total
loss that the Corporation would have suffered had every counterparty been in
default on that date. This amount is reduced by $83 million related to the
unrealized and unrecognized gains on derivatives used to manage interest rate
exposures to arrive at the balance sheet exposure.
Since a derivative's replacement cost, measured by its fair value, is
subject to change over the contract's life, the Corporation's evaluation of
credit risk incorporates potential increases to the contract's fair value.
Potential exposure is calculated with a statistical model that estimates
changes over time in exchange rates, interest rates and other relevant factors
using a 95% confidence level. This potential credit exposure is calculated on
a portfolio basis incorporating master netting agreements as well as any
natural offsets that exist between
36
<PAGE>
contracts within the customer's portfolio. In total, the potential credit
exposure was approximately $6.3 billion higher than the current credit
exposure at December 31, 1996.
Capital Management
SELECTED CAPITAL RATIOS
<TABLE>
<CAPTION>
CORPORATE
1996 1995 1994 1993 1992 GUIDELINE
DECEMBER 31 ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Common equity/total assets (1).......... 8.2% 6.9% 6.8% 7.6% 6.5% N/A
Tangible common equity ratio (1)........ 7.8 6.4 6.3 6.9 5.7 N/A
Stockholders' equity/total assets....... 8.6 6.9 6.9 8.1 7.0 N/A
Risk-based capital ratios (1) (2)
Tier 1................................ 9.2 7.8 8.6 9.0 7.4 7-8%
Total................................. 13.3 11.8 13.0 13.6 11.3 11-12%
Leverage ratio (1) (2).................. 9.3 6.9 7.3 7.8 6.6 5.5-7.0%
Double leverage ratio (2)............... 105 115 113 108 112 120%*
Dividend payout ratio................... 34 39 34 28 89 30-40%
</TABLE>
- --------
(1) Net of investment in FCCM.
(2) Includes trust preferred capital securities.
N/A--Not Applicable
* less than or equal to
Capital represents the stockholders' investment on which the Corporation
strives to generate attractive returns. It is the foundation of a cohesive
risk management framework that links return with risk. Capital supports
business growth and provides protection to depositors and creditors.
Key capital management objectives are to:
.generate attractive returns to enhance shareholder value;
.maintain a capital base commensurate with overall risk profile;
.maintain strong capital ratios relative to peers; and
.meet or exceed all regulatory guidelines.
In conjunction with the annual financial planning process, a capital plan is
established to ensure that the Corporation and all of its subsidiaries have
capital structures consistent with prudent management principles and
regulatory requirements.
ECONOMIC CAPITAL
In the normal course of business, the Corporation assumes several types of
risk: credit, liquidity, structural interest rate, market and
operating/fiduciary. To integrate the individual processes monitoring these
risks, 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. Return on economic capital is a key decision-
making tool for managing risk-taking activities, as well as for ensuring that
capital is efficiently and profitably employed.
A financial instrument or business activity attracts economic capital based
on its potential for loss of value over a particular time period. The
allocated amount is designed to cover unexpected losses to a desired level of
statistical significance. 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. Total economic capital will vary proportionately with
the level and riskiness of the Corporation's businesses and products.
37
<PAGE>
The Corporation has established a Tier 1 capital target necessary to provide
management flexibility while maintaining an adequate capital base for its
overall risk profile and in relation to its peers. The long-term target for
the Tier 1 ratio is 7% to 8%; this ratio is currently being managed to the
high end of the range. Line of business activities determine the Corporation's
risk profile and hence the total level of capital. Allocations of capital to
lines of business, which are used in performance measurement, equaled the 8%
target.
Excess capital, defined as common equity above that required for the 8% Tier
1 target, is available for core business investment and acquisitions. During
1996, this excess amount averaged $171 million, compared with $327 million in
1995. If attractive long-term opportunities are not available over time in
core businesses, management intends to return any excess capital to
stockholders, typically by way of stock repurchase programs and/or dividend
increases.
REGULATORY CAPITAL
The Corporation aims to maintain regulatory capital ratios, including those
of its principal banking subsidiaries, in excess of the well-capitalized
guidelines. To ensure this goal is met, target ranges of 7% to 8% have been
established for Tier 1 capital and 11% to 12% for total risk-based capital.
Both targets exceed the respective well-capitalized guidelines of 6% and 10%.
The Tier 1 and total capital ratios for the past three years have reached or
exceeded the upper end of the target ranges. The lower year-end 1995 ratios
reflect the impact of merger-related charges.
Tier 1 and Total Capital Ratios-Period End
Bar Graph
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1995 1996
Tier 1 8.6% 7.8% 9.2%
Total 13.0% 11.8% 13.3%
Regulatory Guidelines
Tier 1 6% 6% 6%
Total 10% 10% 10%
</TABLE>
In the fourth quarter of 1996, two wholly owned consolidated trust
subsidiaries of the Corporation issued, in the aggregate, $750 million of
preferred securities. These "Trust Preferred Capital Securities" are tax-
advantaged issues that qualify for Tier 1 capital treatment. In January 1997,
an additional $250 million of Trust Preferred Capital Securities were issued.
During 1996, the Corporation increased Tier 2 capital through the issuance of
$300 million in subordinated debt.
38
<PAGE>
The components of the Corporation's regulatory risk-based capital and risk-
weighted assets are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
DECEMBER 31 (IN MILLIONS) -------- ------- -------
<S> <C> <C> <C>
Regulatory Risk-Based Capital
Tier 1 capital......................................... $ 9,186 $ 7,750 $ 7,489
Tier 2 capital......................................... 4,146 4,017 3,806
-------- ------- -------
Total capital...................................... $13,332 $11,767 $11,295
======== ======= =======
Regulatory Risk-Weighted Assets
Balance sheet risk-weighted assets..................... $ 71,177 $71,040 $62,778
Off-balance-sheet risk-weighted assets................. 29,078 28,403 23,852
-------- ------- -------
Total risk-weighted assets......................... $100,255 $99,443 $86,630
======== ======= =======
</TABLE>
In arriving at Tier 1 and total capital, such amounts are reduced by goodwill
and other nonqualifying intangible assets as shown below.
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1996 1995 1994
DECEMBER 31 (IN MILLIONS) ---- ---- ----
<S> <C> <C> <C>
Goodwill......................................................... $397 $446 $326
Other nonqualifying intangibles.................................. 3 12 19
---- ---- ----
Subtotal..................................................... 400 458 345
Qualifying intangibles........................................... 69 94 142
---- ---- ----
Total intangibles............................................ $469 $552 $487
==== ==== ====
</TABLE>
The Principal Banks have exceeded the well-capitalized guidelines for the
past three years, as shown in the following tables.
<TABLE>
<CAPTION>
NBD NBD
FNBC MICHIGAN FCCNB ANB INDIANA
DECEMBER 31, 1996 ---- -------- ----- ---- -------
<S> <C> <C> <C> <C> <C>
Risk-Based Capital Ratios
Tier 1 capital............................. 7.8% 9.3% 10.6% 8.7% 9.7%
Total capital.............................. 11.2 13.5 13.5 11.5 11.0
Leverage ratio............................... 7.6 9.6 10.6 9.4 8.9
</TABLE>
<TABLE>
<CAPTION>
NBD NBD
FNBC MICHIGAN FCCNB ANB INDIANA
DECEMBER 31, 1995 ---- -------- ----- ---- -------
<S> <C> <C> <C> <C> <C>
Risk-Based Capital Ratios
Tier 1 capital............................. 7.6% 7.6% 10.0% 9.2% 10.3%
Total capital.............................. 11.3 10.9 12.1 11.5 11.5
Leverage ratio............................... 5.9 7.4 11.7 9.2 7.9
</TABLE>
<TABLE>
<CAPTION>
NBD NBD
FNBC MICHIGAN FCCNB ANB INDIANA
DECEMBER 31, 1994 ---- -------- ----- ---- -------
<S> <C> <C> <C> <C> <C>
Risk-Based Capital Ratios
Tier 1 capital............................. 8.1% 7.5% 12.1% 9.5% 12.4%
Total capital.............................. 12.5 11.1 15.0 12.0 13.7
Leverage ratio............................... 6.3 6.1 14.4 9.1 8.9
</TABLE>
By maintaining regulatory well-capitalized status, these banks benefit from
lower FDIC deposit premiums.
In September 1996, federal bank regulators amended risk-based capital
requirements to incorporate a measure for market risk inherent in the trading
portfolio. Under the new market risk requirements, capital will
39
<PAGE>
be allocated to support the amount of market risk that relates to the
Corporation's trading activities. The market risk rules are not effective
until 1998. It is currently estimated that the new rules will not
significantly affect the risk-based capital ratios of the Corporation or the
Principal Banks.
DIVIDENDS
The Corporation's common dividend policy reflects its earnings outlook,
desired payout ratios, the need to maintain an adequate capital level and
alternative investment opportunities. The Corporation is currently targeting a
common dividend payout ratio in the range of 30% to 40% of operating earnings
over time. On November 8, 1996, the Corporation increased its quarterly common
dividend to $0.40 per share. This represented an 11% increase from the
previous $0.36 per share common dividend rate.
<TABLE>
<CAPTION>
Common Stock Dividends Declared
Bar Graph
<S> <C> <C> <C>
1994 1995 1996
$1.23 $1.35 $1.48
</TABLE>
STOCK REPURCHASE PROGRAM AND OTHER CAPITAL ACTIVITIES
The repurchase of shares is an integral part of capital management used to
enhance shareholder value. The Corporation's stock repurchase program,
announced in October 1996, authorizes the repurchase of up to 40 million
shares of common stock. Under this authorization, the Corporation repurchased
7.3 million shares of common stock at an average price of $53.93 per share. At
December 31, 1996, 32.7 million shares remain available for repurchase under
this program.
On February 14, 1997, the Corporation authorized the redemption on April 1,
1997, of all shares outstanding of its 5 3/4% Cumulative Convertible Preferred
Stock, Series B, and the corresponding redemption of the related depositary
shares, each representing a one-hundredth interest in a share of the
Convertible Preferred Stock. As of December 31, 1996, there were 3,078,688
depositary shares of Series B outstanding.
DOUBLE LEVERAGE
Double leverage is the extent to which parent debt is used to finance equity
investments in subsidiaries. Presently, the Corporation intends to limit its
double leverage ratio to no more than 120% at any time. On December 31, 1996,
double leverage was 105%, compared with 115% at year-end 1995. Trust Preferred
Capital Securities of $748 million are included in capital for purposes of
this calculation.
40
<PAGE>
CONSOLIDATED BALANCE SHEET
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1996 1995
DECEMBER 31 (DOLLARS IN MILLIONS) -------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks.................................... $ 7,823 $ 7,297
Interest-bearing due from banks............................ 5,474 10,241
Federal funds sold and securities under resale agreements.. 4,197 11,698
Trading assets............................................. 4,812 8,150
Derivative product assets.................................. 4,974 6,713
Investment securities...................................... 7,178 9,449
Loans (net of unearned income--$764 in 1996 and $610 in
1995)..................................................... 66,414 64,434
Less allowance for credit losses......................... (1,407) (1,338)
-------- --------
Loans, net............................................... 65,007 63,096
Premises and equipment..................................... 1,415 1,423
Customers' acceptance liability............................ 577 729
Other assets............................................... 3,162 3,206
-------- --------
Total assets........................................... $104,619 $122,002
======== ========
LIABILITIES
Deposits
Demand................................................... $ 15,702 $ 15,234
Savings.................................................. 21,722 20,180
Time..................................................... 14,994 15,919
Foreign offices.......................................... 11,251 17,773
-------- --------
Total deposits......................................... 63,669 69,106
Federal funds purchased and securities under repurchase
agreements................................................ 7,859 15,711
Other short-term borrowings................................ 7,572 9,802
Long-term debt............................................. 8,454 8,163
Acceptances outstanding.................................... 577 729
Derivative product liabilities............................. 4,753 6,723
Other liabilities.......................................... 2,728 3,318
-------- --------
Total liabilities...................................... 95,612 113,552
STOCKHOLDERS' EQUITY
Preferred stock--without par value, authorized 10,000,000 shares
<CAPTION>
SHARES OUTSTANDING: 1996 1995
- ------------------- ----------- -----------
<S> <C> <C> <C> <C>
Series B ($100 stated value)..... 1,191,000 1,191,000 119 119
Series C ($100 stated value)..... 713,800 713,800 71 71
Series E ($625 stated value)..... 160,000 160,000 100 100
Convertible Series B ($5,000
stated value).................... 30,786 39,774 154 199
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C> <C> <C>
Common stock--$1 par value................................. 320 319
Number of shares authorized...... 750,000,000 750,000,000
Number of shares issued.......... 319,509,189 318,535,798
Number of shares outstanding..... 313,473,520 315,241,109
Surplus.................................................... 2,149 2,185
Retained earnings.......................................... 6,433 5,497
Fair value adjustment on investment securities available-
for-sale................................................... 38 112
Deferred compensation...................................... (58) (39)
Accumulated translation adjustment......................... 7 8
Treasury stock at cost, 6,035,669 shares in 1996 and
3,294,689 shares in 1995................................... (326) (121)
-------- --------
Stockholders' equity..................................... 9,007 8,450
-------- --------
Total liabilities and stockholders' equity............. $104,619 $122,002
======== ========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
41
<PAGE>
CONSOLIDATED INCOME STATEMENT
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1996 1995 1994
FOR THE YEAR (IN MILLIONS, EXCEPT PER SHARE DATA) ------ ------ ------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees..................................... $5,745 $5,260 $4,000
Bank balances............................................. 463 620 395
Federal funds sold and securities under resale agreements. 510 922 624
Trading assets............................................ 394 467 284
Investment securities--taxable............................ 364 694 716
Investment securities--tax-exempt......................... 93 127 117
------ ------ ------
Total................................................. 7,569 8,090 6,136
INTEREST EXPENSE
Deposits.................................................. 2,175 2,581 1,653
Federal funds purchased and securities under repurchase
agreements............................................... 671 1,192 704
Other short-term borrowings............................... 552 538 378
Long-term debt............................................ 551 571 445
------ ------ ------
Total................................................. 3,949 4,882 3,180
------ ------ ------
NET INTEREST INCOME 3,620 3,208 2,956
Provision for credit losses............................... 735 510 276
------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES..... 2,885 2,698 2,680
NONINTEREST INCOME
Combined trading profits.................................. 58 210 86
Equity securities gains................................... 255 253 229
Investment securities gains (losses)...................... 27 (16) (1)
------ ------ ------
Market-driven revenue................................... 340 447 314
Credit card fee revenue................................... 914 901 871
Fiduciary and investment management fees.................. 400 404 377
Service charges and commissions........................... 803 735 688
------ ------ ------
Fee-based revenue....................................... 2,117 2,040 1,936
Other income.............................................. 91 104 143
------ ------ ------
Total................................................. 2,548 2,591 2,393
NONINTEREST EXPENSE
Salaries and employee benefits............................ 1,707 1,692 1,602
Occupancy expense of premises, net........................ 259 252 244
Equipment rentals, depreciation and maintenance........... 227 225 245
FDIC insurance expense.................................... 4 58 105
Amortization of intangible assets......................... 79 88 93
Other..................................................... 977 953 931
------ ------ ------
Operating Expense....................................... 3,253 3,268 3,220
Merger-related charges.................................... -- 267 --
FDIC special assessment................................... 18 -- --
------ ------ ------
Total................................................. 3,271 3,535 3,220
------ ------ ------
INCOME BEFORE INCOME TAXES................................ 2,162 1,754 1,853
Applicable income taxes................................... 726 604 632
------ ------ ------
NET INCOME................................................ $1,436 $1,150 $1,221
====== ====== ======
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS' EQUITY.... $1,405 $1,113 $1,169
====== ====== ======
EARNINGS PER SHARE
NET INCOME--PRIMARY..................................... $4.39 $3.45 $3.62
NET INCOME--FULLY DILUTED............................... $4.32 $3.41 $3.58
</TABLE>
The accompanying notes are an integral part of this statement.
42
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1996 1995 1994
(IN MILLIONS) ------ ------ ------
<S> <C> <C> <C>
PREFERRED STOCK
Balance, beginning of period............................. $ 489 $ 611 $ 761
Conversion of preferred stock............................ (45) (1) --
Redemption of preferred stock............................ -- (121) (150)
------ ------ ------
Balance, end of period................................... 444 489 611
------ ------ ------
COMMON STOCK
Balance, beginning of period............................. 319 329 318
Issuance of stock........................................ 1 1 --
Acquisition of subsidiaries.............................. -- -- 11
Cancellation of shares held in treasury.................. -- (11) --
------ ------ ------
Balance, end of period................................... 320 319 329
------ ------ ------
SURPLUS
Balance, beginning of period............................. 2,185 2,555 2,542
Issuance of common stock................................. 4 14 14
Issuance of treasury stock............................... (84) (21) (39)
Conversion of preferred stock............................ (18) -- (5)
Acquisition of subsidiaries.............................. 17 (3) 39
Cancellation of shares held in treasury.................. -- (369) --
Other.................................................... 45 9 4
------ ------ ------
Balance, end of period................................... 2,149 2,185 2,555
------ ------ ------
RETAINED EARNINGS
Balance, beginning of period............................. 5,497 4,808 3,924
Net income............................................... 1,436 1,150 1,221
Cash dividends declared on common stock.................. (469) (424) (367)
Cash dividends declared on preferred stock............... (31) (37) (47)
Acquisition of subsidiaries.............................. -- -- 77
------ ------ ------
Balance, end of period................................... 6,433 5,497 4,808
------ ------ ------
FAIR VALUE ADJUSTMENT ON INVESTMENT SECURITIES AVAILABLE-
FOR-SALE
Balance, beginning of period............................. 112 (158) (6)
Unrealized gain on securities transferred from held-to-
maturity to available-for-sale on November 17, 1995
(net of taxes of $55)................................... -- 101 --
Change in fair value (net of taxes of $(41) in 1996, $99
in 1995 and $(87) in 1994).............................. (74) 169 (148)
Acquisition of subsidiaries.............................. -- -- (4)
------ ------ ------
Balance, end of period................................... 38 112 (158)
------ ------ ------
DEFERRED COMPENSATION
Balance, beginning of period............................. (39) (33) (30)
Awards granted........................................... (32) (18) (28)
Amortization of deferred compensation.................... 26 21 21
Other.................................................... (13) (9) 4
------ ------ ------
Balance, end of period................................... (58) (39) (33)
------ ------ ------
ACCUMULATED TRANSLATION ADJUSTMENT
Balance, beginning of period............................. 8 7 3
Translation gain (loss), net of taxes.................... (1) 1 4
------ ------ ------
Balance, end of period................................... 7 8 7
------ ------ ------
TREASURY STOCK
Balance, beginning of period............................. (121) (310) (13)
Purchase of common stock................................. (412) (513) (388)
Acquisition of subsidiaries.............................. -- 262 --
Cancellation of shares held in treasury.................. -- 380 --
Conversion of preferred stock............................ 62 1 --
Issuance of stock........................................ 145 59 91
------ ------ ------
Balance, end of period................................... (326) (121) (310)
------ ------ ------
Total Stockholders' Equity, end of period.............. $9,007 $8,450 $7,809
====== ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
43
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
(IN MILLIONS) ------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 1,436 $ 1,150 $ 1,221
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 255 274 277
Provision for credit losses....................... 735 510 279
Equity securities gains........................... (255) (253) (229)
Net (increase) decrease in net derivative product
balances......................................... (231) 296 (62)
Net gains from accelerated disposition portfolio
activities....................................... (6) (37) (46)
Net (increase) decrease in trading assets......... 3,331 (2,766) (427)
Net (increase) decrease in loans held for sale.... 11 (243) 197
Net (increase) decrease in accrued income receiv-
able............................................. 133 (131) (143)
Net increase (decrease) in accrued expenses pay-
able............................................. 65 (153) 102
Net (increase) decrease in other assets........... (91) 174 (212)
Interest income from Brazilian debt restructuring. -- (2) (17)
Merger-related charges............................ -- 242 --
Other noncash adjustments......................... 11 (67) 70
------- ------- -------
Total adjustments................................. 3,958 (2,156) (211)
Net cash provided by (used in) operating activi-
ties.............................................. 5,394 (1,006) 1,010
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold and
securities under resale agreements ............... 7,501 2,003 (4,623)
Purchase of investment securities--available-for-
sale.............................................. (4,626) (4,340) (6,392)
Purchase of debt investment securities--held-to-ma-
turity............................................ -- (119) (3,081)
Purchase of equity securities--fair value.......... (138) (385) (181)
Proceeds from maturities of debt securities--avail-
able-for-sale..................................... 2,248 3,652 2,811
Proceeds from maturities of debt securities--held-
to-maturity....................................... -- 1,042 2,052
Proceeds from sales of investment securities--
available-for-sale................................ 4,340 5,564 2,164
Proceeds from sales of equity securities--fair val-
ue................................................ 425 1,051 333
Credit card receivables securitized................ 2,286 2,286 2,000
Net (increase) in loans............................ (5,291) (10,815) (8,200)
Loan recoveries.................................... 145 142 155
Net proceeds from sales of assets held for acceler-
ated disposition.................................. 26 59 112
Purchases of premises and equipment................ (286) (382) (370)
Proceeds from sales of premises and equipment...... 79 74 107
Net cash and cash equivalents due to mergers, ac-
quisitions and dispositions....................... (245) 116 38
------- ------- -------
Net cash provided by (used in) investing activi-
ties.............................................. 6,464 (52) (13,075)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits................ (4,936) 2,616 5,776
Net increase (decrease) in federal funds purchased
and securities under repurchase agreements........ (7,852) (1,208) 5,832
Net increase (decrease) in other short-term
borrowings........................................ (2,230) 1,574 1,581
Proceeds from issuance of long-term debt........... 2,519 2,163 3,357
Redemption and repayment of long-term debt......... (2,230) (1,262) (1,231)
Net increase (decrease) in other liabilities....... (466) 103 2
Dividends paid..................................... (488) (447) (397)
Proceeds from issuance of common and treasury
stock............................................. 59 23 52
Purchase of treasury stock......................... (412) (513) (397)
Payment for redemption of preferred stock.......... -- (121) (150)
------- ------- -------
Net cash provided by (used in) financing activi-
ties.............................................. (16,036) 2,928 14,425
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS....................................... (63) 119 109
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS............................................. (4,241) 1,989 2,469
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..... 17,538 15,549 13,080
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... $13,297 $17,538 $15,549
======= ======= =======
OTHER CASH FLOW DISCLOSURES:
Interest paid..................................... $4,055 $4,666 $3,165
State and federal income taxes paid............... 663 808 575
</TABLE>
- --------
Loans transferred to other real estate were $25 million, $18 million and $29
million in 1996, 1995 and 1994, respectively.
The accompanying notes are an integral part of this statement.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On December 1, 1995, FCC merged with and into NBD, with the combined company
renamed First Chicago NBD Corporation. The merger was accounted for as a
pooling of interests, and accordingly, the financial statements prior to the
merger have been restated to reflect the consolidated results of the combined
company.
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. Certain financial statement
reclassifications have been made to prior years' information to conform with
the current year's financial statement presentation.
(a) Principles of Consolidation
The Corporation's consolidated financial statements include the accounts of
the Corporation (the "Parent Company") and all subsidiaries more than 50%
owned. All significant intercompany accounts and transactions have been
eliminated.
(b) Trading Activities
Trading assets and liabilities are carried at fair value. Realized and
unrealized gains and losses related to trading activities are reflected in
noninterest income as combined trading profits.
Combined trading profits include interest rate, exchange rate, commodity
price, and equity price trading results from both cash and derivative
financial instruments. More information on the Corporation's trading revenue
is shown in the "Trading Revenue" table on page 20.
(c) Investment Securities
In 1995, the Corporation reclassified all held-to-maturity debt securities
to available-for-sale and recorded a $156 million unrealized pretax gain in
the fair value adjustment on investment securities available-for-sale in
stockholders' equity. Previously, these debt investment securities were
carried at amortized cost. The decision to reclassify was made in conjunction
with the Financial Accounting Standards Board's ("FASB") issuance of an
implementation guide.
Debt and equity investment securities classified as available-for-sale are
carried at fair value with unrealized gains and losses, net of applicable
income taxes, reported in the fair value adjustment on investment securities
available-for-sale in stockholders' equity. Realized gains and losses and
other than temporary impairments related to these securities are determined
using the specific identification method and are reported in noninterest
income as investment securities gains (losses) or equity securities gains, as
appropriate.
The Corporation carries investments of its venture capital subsidiaries at
fair value. Changes in the fair value of such investments are recognized in
noninterest income as equity securities gains. The fair value of publicly
traded investments takes into account their quoted market prices with
adjustments made for market liquidity or sale restrictions. For investments
that are not publicly traded, management has made estimates of fair value that
consider the investees' financial results, conditions and prospects, and the
values of comparable public companies.
45
<PAGE>
(d) Loans
Loans are generally reported at the principal amount outstanding, net of
unearned income. Loans held for sale are valued at the lower of cost or fair
value with unrealized losses as well as realized gains or losses included in
other noninterest income.
Loan origination and commitment fees generally are deferred and amortized as
interest income over the life of the related loan. Other credit-related fees,
such as syndication management fees, commercial letters of credit fees, and
fees on unused, available lines of credit, are recorded as service charges and
commissions in noninterest income when earned.
Loans, including lease financing receivables, are considered nonperforming
when placed on nonaccrual status, or when renegotiated at terms that represent
an economic concession to the borrower. Nonperforming loans are generally
identified as "impaired loans."
A commercial loan is placed on nonaccrual status when the collection of
contractual principal or interest is deemed doubtful by management or becomes
90 days or more past due, and the loan is not well-secured and in the process
of collection. Accrued but uncollected interest is reversed and charged
against interest income when the commercial loan is placed on nonaccrual
status.
Interest payments on a partially charged-off commercial loan are applied to
the remaining principal balance until the balance is fully recovered. Once
principal is recovered, cash payments received are recorded as recoveries to
the extent of prior charge-offs, and then as interest income.
A charge-off on a commercial loan is recorded in the reporting period in
which either an event occurs that confirms the existence of a loss or it is
determined a loan or a portion of a loan is uncollectible.
Consumer loans are generally not placed on nonaccrual status but are
typically charged off after reaching certain delinquency periods that range
from approximately 120 to 180 days past due. The timing and amount of the
charge-off will depend on the type of consumer loan and any related
collateral. Accrued but uncollected interest on a consumer loan typically is
reversed against interest income when the loan is charged off.
An economic concession on a renegotiated loan may represent forgiveness of
principal and/or interest or a below-market interest rate offered to the
borrower to maximize recovery of the loan. Generally, this occurs when the
borrower's cash flow is insufficient to service the loan under its original
terms. Subject to the above nonaccrual policy, interest on these loans is
accrued at the reduced rates.
(e) Credit Card Securitization
The Corporation actively packages and sells credit card receivables as
securities to investors. At the time of securitization no gain or loss is
recorded since the amount of proceeds received is equal to the par value of
the receivables. Transaction costs are deferred and amortized ratably as a
reduction of servicing fees over the terms of the related securitizations. The
amount of credit card interest income and fee revenue in excess of interest
paid to certificate holders, credit losses and other trust expenses is
recognized on an accrual basis as servicing fees in credit card fee revenue.
Refer to Section (o) of this note for further details.
(f) Allowance for Credit Losses
The allowance for credit losses is maintained at a level that in
management's judgment is adequate to provide for estimated probable credit
losses inherent in on- and off-balance-sheet credit exposure. The allowance
for credit losses attributable to off-balance-sheet credit exposure is not
material. The amount of the allowance is based on formal review and analysis
of potential credit losses, as well as prevailing economic conditions.
46
<PAGE>
(g) Premises and Equipment
Premises and equipment are carried at amortized cost. Depreciation is
charged to noninterest expense over the estimated useful lives of the assets
on either a straight-line or an accelerated depreciation basis. Leasehold
improvements are amortized over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. Maintenance,
repairs and minor alterations are expensed as incurred. Gains and losses on
disposition are reflected in other noninterest income.
(h) Other Real Estate
Other real estate includes primarily assets that have been received in
satisfaction of debt. Other real estate is initially recorded and subsequently
carried at the lower of cost or fair value less estimated selling costs. Any
valuation adjustments required at the date of transfer are charged to the
allowance for credit losses. Operating results from other real estate are
recorded in other noninterest expense.
(i) Intangible Assets
Intangible assets are included in other assets. Goodwill, representing the
cost of investments in subsidiaries and affiliated companies in excess of the
fair value of net assets acquired, is amortized on a straight-line basis over
periods ranging from 10 to 25 years.
Other intangible assets, such as customer lists, core deposits and credit
card relationships, are amortized using various methods over the periods
benefited.
(j) Derivative Financial Instruments
For a discussion of the Corporation's accounting policies for derivative
financial instruments, see pages 35 and 36.
(k) Foreign Currency Translation
When the primary operating currency (functional currency) of a foreign
installation is the U.S. dollar, its monetary assets and liabilities carried
in local currency are remeasured into U.S. dollars at current exchange rates.
Its premises and equipment are remeasured at historical exchange rates.
Remeasurement effects and the results of related hedging transactions are
included in other noninterest income.
If the foreign installation's functional currency is its local currency, all
assets and liabilities are translated at current exchange rates. Translation
adjustments, related hedging results and applicable income taxes are included
in accumulated translation adjustment within stockholders' equity.
(l) Mortgage Servicing Rights
The Corporation adopted SFAS No. 122, "Accounting for Mortgage Servicing
Rights," on January 1, 1996. This Statement amended existing accounting rules
by requiring originated mortgage servicing rights to be capitalized under
certain circumstances. SFAS No. 122 also requires that the Corporation's
portfolio be stratified by primary risk characteristics when assessing
impairment. The Corporation stratifies its portfolio by both product type and
interest rate bands. The statement did not have a material effect on the
Corporation's financial results in 1996. Refer to Section (o) of this Note for
more details.
(m) Stock-Based Compensation
In 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." Under the provisions of this Statement, the Corporation elected
to retain its current method of measuring and recognizing costs (the intrinsic
value method) related to employee stock compensation plans and to disclose the
pro forma effect of applying the fair value method contained in SFAS No. 123.
Accordingly, there continue to be no
47
<PAGE>
compensation costs charged against income for stock options awarded under the
Corporation's Stock Performance Plan or stock purchase rights offered under
its Employee Stock Purchase and Savings Plan. In addition, the unamortized
cost of performance and restricted shares awarded continues to be included in
deferred compensation, a separate component of stockholders' equity.
Information on the Corporation's stock-based compensation plans is included in
Note 12, beginning on page 57.
(n) Cash Flow Reporting
The Corporation uses the indirect method, which reports cash flows from
operating activities by adjusting net income to reconcile to net cash flows
from operating activities. Cash and cash equivalents consist of cash and due
from banks, whether interest-bearing or not. Net reporting of cash
transactions has been used when the balance sheet items consist predominantly
of maturities of three months or less, or where otherwise permitted. Other
items are reported on a gross basis.
In 1996, $45 million of the Corporation's Cumulative Convertible Preferred
Stock was converted into common stock. See Note 11, beginning on page 56, for
more details.
In 1995, a noncash transfer of $7.2 billion attributable to reclassifying
debt investment securities from held-to-maturity to available-for-sale was
made. Refer to Section (c) of this note for more details.
(o) Recently Issued Accounting Standards
In 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
generally became effective on a prospective basis beginning January 1, 1997.
In December, 1996, the FASB deferred the effective date of certain provisions,
primarily relating to collateral, securities lending and dollar repurchase
agreements until January 1, 1998. The new Statement establishes criteria based
on legal control to determine whether a transfer of a financial asset is a
sale or a secured borrowing. A sale is recognized when the Corporation
relinquishes control over a financial asset and is compensated for such asset.
The difference between net proceeds received and the carrying amount of the
financial asset(s) being sold or securitized is recognized as a gain or loss
on sale.
SFAS No. 125 also supersedes SFAS No. 122 and, in general, applies the
accounting for mortgage servicing rights under SFAS No. 122 to servicing
rights of all financial assets.
In general, the Corporation expects that transactions it recorded as sales
under prior accounting standards will continue to receive sales treatment
under the new Statement, and does not expect the new Statement to have a
significant effect on its financial results.
NOTE 2--EARNINGS PER SHARE
Earnings per share are presented 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 net shares issuable under the Employee Stock Purchase and
Savings Plan and outstanding stock options.
The fully diluted earnings per share calculation also includes common shares
that would result from the conversion of convertible preferred stock and
convertible notes. Accordingly, net income was not reduced by preferred stock
dividend requirements related to convertible preferred stock or the interest
expense on the convertible notes.
<TABLE>
<CAPTION>
1996 1995 1994
(IN MILLIONS) ------ ------ ------
<S> <C> <C> <C>
Primary
Net income........................................... $1,436 $1,150 $1,221
Preferred stock dividends (1)........................ (31) (37) (52)
------ ------ ------
Net income attributable to common stockholders'
equity.............................................. $1,405 $1,113 $1,169
====== ====== ======
Fully diluted
Net income........................................... $1,436 $1,150 $1,221
Preferred stock dividends, excluding convertible Series
B, where applicable (1)................................ (20) (26) (40)
Interest on convertible notes, net of taxes............ -- -- 2
------ ------ ------
Fully diluted net income............................. $1,416 $1,124 $1,183
====== ====== ======
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS) ------- ------- -------
<S> <C> <C> <C>
Average shares outstanding............................. 316,765 320,049 319,929
Common stock equivalents............................... 3,478 2,808 2,737
------- ------- -------
Average number of common and common-equivalent shares
(primary).............................................. 320,243 322,857 322,666
Incremental shares related to convertible preferred
stock, debentures and other......................... 7,814 7,240 8,145
------- ------- -------
Average number of shares, assuming full dilution..... 328,057 330,097 330,811
======= ======= =======
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Earnings Per Share
Net income--primary.................................. $4.39 $3.45 $3.62
======= ======= =======
Net income--fully diluted............................ $4.32 $3.41 $3.58
======= ======= =======
</TABLE>
- --------
(1) 1994 preferred dividends include a $4.5 million, or 3%, premium paid on
the redemption of the Corporation's Cumulative Preferred Stock, Series D.
NOTE 3--MERGER-RELATED CHARGES
In 1995, merger-related charges were $267 million and included direct merger
and restructuring-related charges totaling $225 million, as well as the effect
of conforming a number of accounting practices between FCC and NBD, which
totaled $42 million. The effect of conforming these practices is not material
to the Corporation's financial statements.
The following table provides details on the merger-related reserve as of
December 31, 1996, compared with that of a year ago and at consummation of the
merger transaction.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 1,
MERGER RESERVE 1996 1995 1995
(IN MILLIONS) ------------ ------------ -----------
<S> <C> <C> <C>
Personnel................................. $ 42 $ 92 $ 93
Facilities & Equipment.................... 71 94 95
Other..................................... 5 14 37
---- ---- ----
$118 $200 $225
==== ==== ====
</TABLE>
Personnel-related costs primarily reflect the costs of employee severance
packages. Facilities costs consist of lease termination costs and facilities-
related exit costs arising from the consolidation of duplicate headquarters
and operational facilities. Equipment costs consist of computer equipment and
software write-offs due to duplication or incompatibility.
The remaining reserve has been fully allocated to identified merger-related
activities and will be charged with costs as incurred based on existing
contractual arrangements.
NOTE 4--ACQUISITIONS
In July 1995, the Corporation consummated its merger with Deerbank
Corporation, a $766 million thrift holding company located in Deerfield,
Illinois. The merger was accounted for as a purchase. The purchase price of
$106 million was funded by the issuance of 3.3 million shares of the
Corporation's common stock. Before the closing, the Corporation repurchased an
amount of shares equivalent to the shares issued in the transaction.
In January 1995, the Corporation consummated its merger with AmeriFed
Financial Corp., a thrift holding company located in Joliet, Illinois, with
total assets of $910 million. The purchase price of $148 million was funded by
the issuance of 5.2 million shares of the Corporation's common stock. The
merger was accounted for as a purchase. The Corporation had repurchased 5.0
million of the shares issued before the closing of the merger, and repurchased
the remaining shares issued soon after the closing.
49
<PAGE>
On July 8, 1994, the Corporation issued approximately 11.6 million shares of
its common stock for all of the common stock of Lake Shore Bancorp., Inc. of
Chicago, Illinois, with total assets of $1.2 billion and capital of $123
million. The combination was accounted for on a pooling-of-interests basis;
however, because the transaction was not considered significant from an
accounting perspective, the Corporation did not restate either 1994 or prior-
year financial data.
NOTE 5--BUSINESS SEGMENTS
The Corporation is engaged primarily in the banking business, and with the
continuing globalization of financial markets, the distinction between
international and domestic activities has become less important. The following
table shows approximate consolidated financial data for the three years ended
December 31, 1996, attributable to domestic and foreign operations. No foreign
geographic region accounted for more than 10% of consolidated results.
<TABLE>
<CAPTION>
INCOME BEFORE NET TOTAL
REVENUES(1) EXPENSES(2) INCOME TAXES INCOME ASSETS
(IN MILLIONS) ----------- ----------- ------------- ------ --------
<S> <C> <C> <C> <C> <C>
1996
Domestic operations.... $ 9,020 $6,919 $2,101 $1,391 $ 90,070
Foreign operations..... 1,097 1,036 61 45 14,549
------- ------ ------ ------ --------
Consolidated........... $10,117 $7,955 $2,162 $1,436 $104,619
======= ====== ====== ====== ========
1995
Domestic operations.... $ 9,277 $7,590 $1,687 $1,099 $100,601
Foreign operations..... 1,404 1,337 67 51 21,401
------- ------ ------ ------ --------
Consolidated........... $10,681 $8,927 $1,754 $1,150 $122,002
======= ====== ====== ====== ========
1994
Domestic operations.... $ 7,745 $5,926 $1,819 $1,204 $ 97,372
Foreign operations..... 784 750 34 17 15,391
------- ------ ------ ------ --------
Consolidated........... $ 8,529 $6,676 $1,853 $1,221 $112,763
======= ====== ====== ====== ========
</TABLE>
- --------
(1) Includes interest income and noninterest income.
(2) Includes interest expense, provision for credit losses and noninterest
expense.
Because many of the resources employed by the Corporation are common to both
its foreign and domestic activities, it is difficult to segregate assets,
related revenues and expenses into their foreign and domestic components. The
amounts in the preceding table are estimated on the basis of internally
developed assignment and allocation procedures, which to some extent are
subjective. The principal internal allocations used to prepare this
information are described below.
Corporate overhead is allocated based on individual activities. Expenses are
generally allocated to the geographic area benefited. Assets and revenues are
generally allocated based on the domicile of the customer. Capital, with the
exception of that invested in foreign subsidiaries, is allocated to domestic
operations.
For information regarding the Corporation's line of business activities, see
the "Business Segments--Overview" section on page 14 as well as the tables on
pages 15 to 18, which summarize financial results for the Corporation's major
business segments and other activities.
NOTE 6--INVESTMENT SECURITIES
The following is a summary of the Corporation's available-for-sale
investment securities portfolio. Aside from those investments accounted for at
fair value in accordance with specialized industry practice, the remaining
investments in the portfolio are classified as available-for-sale.
50
<PAGE>
<TABLE>
<CAPTION>
AMORTIZED GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE
DECEMBER 31, 1996 (IN COST GAINS LOSSES (BOOK VALUE)
MILLIONS) --------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury........... $2,878 $ 18 $ 6 $2,890
U.S. government agencies
Mortgage-backed
securities........... 1,603 23 18 1,608
Collateralized
mortgage obligations. 40 -- 1 39
Other................. 60 1 -- 61
States and political
subdivisions........... 1,150 59 1 1,208
Other debt securities... 256 3 -- 259
Equity securities
(1)(2)................. 1,004 180 71 1,113
------ ---- ---- ------
Total............... $6,991 $284 $ 97 $7,178
====== ==== ==== ======
<CAPTION>
AMORTIZED GROSS UNREALIZED GROSS UNREALIZED FAIR VALUE
DECEMBER 31, 1995 (IN COST GAINS LOSSES (BOOK VALUE)
MILLIONS) --------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury........... $1,416 $ 8 $ 1 $1,423
U.S. government agencies
Mortgage-backed
securities........... 4,855 119 20 4,954
Collateralized
mortgage obligations. 5 -- -- 5
Other................. 457 1 -- 458
States and political
subdivisions........... 1,383 81 2 1,462
Other debt securities... 92 2 -- 94
Equity securities
(1)(2)................. 986 152 85 1,053
------ ---- ---- ------
Total............... $9,194 $363 $108 $9,449
====== ==== ==== ======
</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.
The following is a summary of the proceeds from the sale of available-for-
sale investment securities and the related gross realized gains and losses.
<TABLE>
<CAPTION>
GROSS REALIZED GROSS REALIZED
PROCEEDS GAINS LOSSES
(IN MILLIONS) -------- -------------- --------------
<S> <C> <C> <C>
1996..................................... $4,340 $65 $34
1995..................................... 5,564 45 62
1994..................................... 2,164 14 15
</TABLE>
The maturity distribution of debt investment securities is shown below. The
distribution of mortgage-backed securities and collateralized mortgage
obligations is based on average expected maturities. Actual maturities may
differ because issuers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
DECEMBER 31, 1996 (IN MILLIONS) --------- ------
<S> <C> <C>
Due in one year or less....................................... $1,303 $1,313
Due after one year through five years......................... 3,352 3,399
Due after five years through ten years........................ 1,070 1,079
Due after ten years........................................... 262 274
------ ------
$5,987 $6,065
====== ======
</TABLE>
51
<PAGE>
NOTE 7--LOANS
Following is a breakdown of loans included in the consolidated balance sheet
as of December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
(IN MILLIONS) ------- -------
<S> <C> <C>
Commercial
Domestic
Commercial.................................................. $27,718 $25,551
Real estate
Construction.............................................. 1,057 1,151
Other..................................................... 5,103 6,103
Lease financing............................................. 1,820 1,588
Foreign....................................................... 3,656 3,726
------- -------
Total commercial........................................ 39,354 38,119
------- -------
Consumer
Credit cards.................................................. 9,601 9,649
Secured by real estate........................................ 9,406 8,933
Automotive.................................................... 4,423 4,477
Other......................................................... 3,630 3,256
------- -------
Total consumer.......................................... 27,060 26,315
------- -------
Total................................................... $66,414 $64,434
======= =======
</TABLE>
The amount of interest shortfall for related nonperforming loans at year-end
1996 was $16 million. The shortfall amount represents the difference between
the $27 million of interest contractually due and the $11 million of interest
actually recorded. For 1995, the interest shortfall related to nonperforming
loans at year-end was $19 million. Contractual amounts due were $32 million
and $13 million of interest was actually recorded.
Credit card receivables are available for sale through the Corporation's
credit card securitization program. In addition, other loans available for
sale at December 31, 1996 and 1995, totaled $545 million and $556 million,
respectively.
The Corporation has loans outstanding to certain of its directors and
executive officers and to partnerships or companies in which a director or
executive officer has at least a 10% beneficial interest. At December 31, 1996
and 1995, $339 million and $271 million, respectively, of such loans to
related parties were outstanding. An analysis of the activity during 1996 with
respect to such loans includes additions of $331 million, and reductions of
$263 million.
NOTE 8--ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses for the three years ended
December 31, 1996, were as follows.
<TABLE>
<CAPTION>
1996 1995 1994
(IN MILLIONS) ------ ------ ------
<S> <C> <C> <C>
Balance, beginning of year.............................. $1,338 $1,158 $1,106
Additions (deductions)
Charge-offs........................................... (815) (409) (364)
Recoveries............................................ 145 145 172
------ ------ ------
Net charge-offs....................................... (670) (264) (192)
Provision for credit losses........................... 735 510 276
Other
Acquisitions.......................................... -- 9 16
Transfers related to securitized receivables.......... 4 (75) (49)
Other................................................. -- -- 1
------ ------ ------
Balance, end of year.................................... $1,407 $1,338 $1,158
====== ====== ======
</TABLE>
52
<PAGE>
Effective January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures." SFAS
No. 114 addresses the accounting for a loan when it is probable that all
principal and interest amounts due will not be collected in accordance with
its contractual terms. Certain loans, such as loans carried at the lower of
cost or market or small-balance homogeneous loans (e.g., credit card
installment credit), are exempt from SFAS No. 114's provisions.
On a quarterly basis, the Corporation identifies impaired loans, and
impairment is recognized to the extent the recorded investment of an impaired
loan or pool of loans exceeds the calculated present value. Loans having a
significant recorded investment are measured on an individual basis while
loans not having a significant recorded investment are grouped and measured on
a pool basis.
The allocated reserve associated with impaired loans is considered in
management's determination of the allowance for credit losses.
At December 31, 1996, the recorded investment in impaired loans was $262
million, which required a related allowance for credit losses of $39 million.
Substantially all of the $262 million in impaired loans had a related
allowance for credit losses. At December 31, 1995, the recorded investment in
impaired loans was $363 million, which required a related allowance for credit
losses of $36 million.
The average recorded investment in impaired loans was approximately $341
million for 1996 and $302 million in 1995. The Corporation recognized interest
income associated with impaired loans of $17 million during 1996 and $15
million during 1995.
NOTE 9--PLEDGED AND RESTRICTED ASSETS
At December 31, 1996, $17.1 billion of assets were pledged to secure
government deposits, trust deposits, borrowings, and for other purposes
required by law.
The Banks are required to maintain noninterest-bearing cash balances with
the Federal Reserve based on the types and amounts of deposits held. During
1996 and 1995, the average balances maintained to meet this requirement were
$1.357 billion and $1.374 billion, respectively.
53
<PAGE>
NOTE 10--LONG-TERM DEBT
Long-term debt consists of borrowings having an original maturity of over
one year. Original issue discount and deferred issuance costs are amortized
over the terms of the related notes. Long-term debt at December 31, 1996 and
1995, was as follows.
<TABLE>
<CAPTION>
1996 1995
(IN MILLIONS) ------ ------
<S> <C> <C>
PARENT COMPANY
SUBORDINATED DEBT
9% notes due 1999.............................................. $ 199 $ 199
9 7/8% notes due 2000.......................................... 99 99
9 1/5% notes due 2001.......................................... 5 5
9 1/4% notes due 2001.......................................... 100 100
10 1/4% notes due 2001......................................... 100 100
11 1/4% notes due 2001......................................... 96 96
8 7/8% notes due 2002.......................................... 100 100
8 1/10% notes due 2002......................................... 200 200
8 1/4% notes due 2002.......................................... 100 100
7 5/8% notes due 2003.......................................... 199 199
6 7/8% notes due 2003.......................................... 200 200
Floating rate notes due 2003................................... 149 149
7 1/4% debentures due 2004..................................... 200 200
Floating rate notes due 2005................................... 96 96
6 1/8% notes due 2006.......................................... 149 --
7% notes due 2006.............................................. 149 --
7 1/8% notes due 2007.......................................... 199 199
6 3/8% notes due 2009.......................................... 198 198
7 1/2% preferred purchase units due 2023....................... 150 150
9 7/8% equity commitment notes due 1999........................ 200 200
Floating rate equity contract notes due 1996................... -- 125
SENIOR DEBT
8 1/2% notes due 1998.......................................... 100 100
Other Parent Company debt...................................... 1,475 1,624
------ ------
Total Parent Company......................................... 4,463 4,439
------ ------
SUBSIDIARIES
Bank notes, various rates and maturities....................... 2,465 2,944
Subordinated 6 1/4% notes due 2003............................. 200 200
Subordinated 8 1/4% notes due 2024............................. 250 250
8 3/4% notes due 1997-1999..................................... 10 10
Capitalized lease obligations, various rates and maturities.... 13 15
Other.......................................................... 305 305
Guaranteed preferred beneficial interest in the Corporation's
junior subordinated debt...................................... 748 --
------ ------
Total subsidiaries........................................... 3,991 3,724
------ ------
Total long-term debt......................................... $8,454 $8,163
====== ======
</TABLE>
(A) PARENT COMPANY LONG-TERM DEBT
SUBORDINATED NOTES
These notes are subordinated to other indebtedness of the Corporation. The
fixed-rate notes have interest rates that range from 6 1/8% to 11 1/4% and
maturities that range from 1999 to 2023. The floating rate notes due in
54
<PAGE>
2003 have an interest rate priced at the greater of 4 1/4% or the three-month
London interbank offered rate (LIBOR) plus 1/8%. The interest rate on this
issue on December 31, 1996, was 5 21/32%. The floating rate notes due 2005 may
be redeemed, in whole or in part, on any interest payment date at par.
Interest payment on the notes is at a rate of 1/4% above the average offered
rate quoted in the London interbank market for three-month Eurodollar deposits
but in no event may the rate be less than 5 1/4%. On December 31, 1996, the
interest rate was 5 3/4%.
Each 7 1/2% preferred purchase unit consists of a 7.40% subordinated
debenture due May 10, 2023, in a principal amount of $25 and a related
purchase contract paying fees of 0.10% of the principal amount of the
debenture per year. The contract requires the purchase on May 10, 2023 (or
earlier at the Corporation's election), of one depositary share representing a
one-fourth interest in a share of 7 1/2% cumulative preferred stock of the
Corporation at a purchase price of $25 per depositary share.
The equity commitment notes may not be redeemed prior to their stated
maturity. The agreements under which these notes were issued require the
Corporation, prior to maturity, to issue common stock, perpetual preferred
stock or other forms of equity approved by the Federal Reserve Board in an
amount equal to the original aggregate principal amount of the notes. As of
December 31, 1996, all the equity securities required by the agreements had
been issued.
SENIOR DEBT
The 8 1/2% notes are unsecured obligations that are not subordinated to any
other indebtedness of the Corporation and may not be redeemed prior to their
stated maturity.
Other Parent Company long-term debt of $1.475 billion includes various notes
with a weighted average interest rate of 6.03% and remaining weighted average
maturity of 22 months at December 31, 1996.
(B) SUBSIDIARIES' LONG-TERM DEBT
The bank notes are unsecured and unsubordinated debt obligations of the
Banks. At December 31, 1996, the weighted average rate of the bank notes was
6.06% and remaining weighted average maturity was 12 months.
The 6 1/4% subordinated notes due 2003 are unsecured, subordinated to the
claims of depositors and other creditors of NBD Michigan, and are not
redeemable prior to maturity.
The 8 1/4% subordinated notes due 2024 are unsecured, subordinated to the
claims of depositors and other creditors of NBD Michigan, and are not
redeemable by the bank prior to maturity. Registered holders have a one-time
right to redeem the notes at par, in whole or in part, on November 1, 2004.
Other long-term debt at December 31, 1996, included $286 million related to
the sale and lease back of certain bank properties. The effective interest
rate related to this transaction is 8.7%, with expected maturity in 2018.
(C) GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE CORPORATION'S JUNIOR
SUBORDINATED DEBT
The $748 million of Guaranteed Preferred Beneficial Interest in the
Corporation's Junior Subordinated Debt ("Trust Preferred Capital Securities")
represents the net proceeds from the issuance of preferred capital securities
by First Chicago NBD Institutional Capital A ("the Series A Trust") and First
Chicago NBD Institutional Capital B ("the Series B Trust"). The Series A Trust
and the Series B Trust are statutory business trusts created in 1996 for the
sole purpose of issuing capital securities and investing the proceeds thereof
in junior subordinated debentures of the Corporation ("Junior Subordinated
Debt"). The preferred capital securities represent preferred individual
beneficial interests in the respective trusts and are subject to mandatory
redemption upon repayment of the Junior Subordinated Debt. The common
securities of each trust are owned by the Corporation. The Corporation's
obligations under the Junior Subordinated Debt and other relevant agreements,
in aggregate, constitute a full and unconditional guarantee by the Corporation
of such Trust's obligations under the preferred securities issued by the
Trust.
55
<PAGE>
The Series A Trust issued $500 million in aggregate liquidation amount of
7.95% preferred capital securities in December 1996. The sole asset of the
Series A Trust is $515 million principal amount of 7.95% Junior Subordinated
Debt that will mature on December 1, 2026, and is redeemable prior to maturity
at the option of the Corporation on or after December 1, 2006.
The Series B Trust issued $250 million in aggregate liquidation amount of
7.75% preferred capital securities in December 1996. The sole asset of the
Series B Trust is $258 million principal amount of 7.75% Junior Subordinated
Debt that will mature on December 1, 2026, and is redeemable prior to maturity
at the option of the Corporation on or after December 1, 2006.
The Trust Preferred Capital Securities are tax-advantaged issues and qualify
as Tier 1 capital.
In January 1997, First Chicago NBD Capital I ("the Series I Trust"), a
statutory business trust, issued $250 million in aggregate liquidation amount
of floating rate preferred capital securities. The sole asset of the Series I
Trust is $258 million principal amount of floating rate Junior Subordinated
Debt of the Corporation that bears interest at an annual rate equal to three-
month LIBOR plus 0.55%, will mature on February 1, 2027, and is redeemable at
the option of the Corporation on or after February 1, 2007. All common
securities of the Series I Trust are owned by the Corporation. The
Corporation's obligations under the Junior Subordinated Debt and the relevant
indenture, trust agreement and guarantee, in aggregate, constitute a full and
unconditional guarantee by the Corporation of the Series I Trust's obligations
under the preferred capital securities issued by such Trust.
(D) MATURITY OF LONG-TERM DEBT
Of the Corporation's $8.454 billion total long-term debt, $1.941 billion,
$1.343 billion, $674 million, $361 million and $545 million is scheduled to
mature in 1997, 1998, 1999, 2000 and 2001, respectively.
NOTE 11--PREFERRED STOCK
The Corporation is authorized to issue 10,000,000 shares of preferred stock,
without par value. The Board of Directors is authorized to fix the particular
designations, preferences, rights, qualifications and restrictions for each
series of preferred stock issued. All preferred shares rank prior to common
shares both as to dividends and liquidation, but have no general voting
rights. The dividend rate on each of the cumulative adjustable rate series is
based on stated value and adjusted quarterly, based on a formula that
considers the interest rates for selected short- and long-term U.S. Treasury
securities prevailing at the time the rate is set. The minimum, maximum and
current dividend rates as of December 31, 1996, are presented in the following
table.
<TABLE>
<CAPTION>
STATED ANNUAL DIVIDEND RATE EARLIEST
SHARES VALUE PER ----------------------- REDEMPTION REDEMPTION
PREFERRED STOCK SERIES OUTSTANDING SHARE MAXIMUM MINIMUM CURRENT DATE PRICE (1)
---------------------- ----------- --------- ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative Adjustable
Rate
Series B.............. 1,191,000 $ 100.00 12.00% 6.00% 6.00% (2) $ 100.00
Series C.............. 713,800 100.00 12.50 6.50 6.50 (2) 100.00
Cumulative Fixed Rate
Series E (3).......... 160,000 625.00 8.45 8.45 8.45 11/16/97(4) 625.00
Cumulative Convertible
Fixed Rate
Series B (5).......... 30,786 5,000.00 5.75 5.75 5.75 4/1/97(6) 5,172.50
</TABLE>
- --------
(1) Plus accrued and unpaid dividends.
(2) Currently redeemable.
(3) Represented by 4,000,000 depositary shares, with a corresponding annual
dividend of $2.1125 each and a $25 stated value.
56
<PAGE>
(4) The preferred shares are redeemable on or after November 16, 1997, at $625
per share (equivalent to $25 per depositary share).
(5) Represented by 3,078,688 depositary shares, with a corresponding annual
dividend of $2.875 each and a $50 stated value.
(6) The preferred shares may be converted into shares of the Corporation's
common stock at the option of the stockholders at any time at the
conversion price of $29.6271 per common share, subject to adjustment under
certain conditions. Shares are redeemable beginning April 1, 1997, at the
option of the Corporation, at a price of $5,172.50 ($51.725 per depositary
share), with the redemption price decreasing annually until the shares are
redeemable on or after April 1, 2003, at their stated value of $5,000 per
share ($50 per depositary share). In 1996, 8,988 preferred shares were
converted into 1,516,628 shares of the Corporation's common stock. A total
of 9,214 preferred stock shares have been converted into 1,554,786 shares
of the Corporation's common stock through the end of 1996.
All shares of Cumulative Preferred Stock, Series A, were called for
redemption in August 1995. The redemption price was $50 per share plus accrued
and unpaid dividends.
On February 14, 1997, the Corporation authorized the redemption on April 1,
1997, of all shares outstanding of its 5 3/4% Cumulative Convertible Preferred
Stock, Series B ($5,000 stated value), and the related redemption of all
outstanding depositary shares representing a one-hundredth interest in a share
of the Series B Convertible Preferred, at a redemption price of $51.725 per
depositary share, plus an accrued and unpaid dividend of $0.71875 per
depositary share.
NOTE 12--EMPLOYEE BENEFITS
The Corporation has established common plans covering pension,
postretirement benefits, postemployment benefits, employee savings and stock
compensation, all of which were effective January 1, 1997. Such plans replaced
the former FCC and NBD benefit plans.
The benefit plans and related costs described below relate primarily to
former FCC and NBD benefit plans.
(A) PENSION PLANS
The Corporation sponsors pension plans covering substantially all salaried
employees. The pension plans are noncontributory, defined benefit plans that
provide benefits based on years of service and compensation level. The funding
policy varies for each plan. Depending on the plan, consideration is given to
net periodic pension cost for the year, the minimum funding required by the
Employee Retirement Income Security Act of 1974 ("ERISA") and the maximum tax
deductible amount based on IRS limits.
Plan assets primarily include equity securities and debt securities issued
by the U.S. government and its agencies or by corporations. Plan assets
include common stock of the Corporation having a fair value of $20 million in
1996 and $15 million in 1995.
Net periodic pension cost includes the following components for the years
ended December 31.
<TABLE>
<CAPTION>
1996 1995 1994
(IN MILLIONS) ----- ----- ----
<S> <C> <C> <C>
Service cost--benefits earned during period................. $ 61 $ 45 $ 53
Interest cost on projected benefit obligation............... 110 100 93
Actual loss (return) on assets.............................. (353) (351) 13
Net amortization and deferral............................... 197 206 (154)
----- ----- ----
Net periodic pension cost................................... $ 15 $ -- $ 5
===== ===== ====
</TABLE>
57
<PAGE>
The following table reconciles the aggregated funded status of the plans and
amounts recognized in the consolidated balance sheet at December 31.
<TABLE>
<CAPTION>
1996 1995
(IN MILLIONS) ------- -------
<S> <C> <C>
Actuarial present value of the projected benefit obligation,
based on employment service to date and current salary
levels:
Vested employees.......................................... $(1,164) $(1,105)
Nonvested employees....................................... (376) (88)
------- -------
Accumulated benefit obligation............................ (1,540) (1,193)
Additional amounts related to projected salary increases.... (19) (259)
------- -------
Projected benefit obligation................................ (1,559) (1,452)
Plan assets (at fair value)................................. 1,965 1,803
------- -------
Plan assets in excess of projected benefit obligation....... 406 351
Unrecognized net gain due to experience different from
assumptions................................................ (91) (6)
Unrecognized transition asset............................... (45) (55)
Unrecognized prior service cost............................. 114 97
------- -------
Prepaid pension cost included in the consolidated balance
sheet....................................................... $ 384 $ 387
======= =======
</TABLE>
The December 31, 1996, amounts include the effect of plan amendments
effective on January 1, 1997.
The assumptions used in determining the projected benefit obligation and net
periodic pension (credit) cost of such plans at December 31 are as follows.
<TABLE>
<CAPTION>
1996 1995 1994
----- --------- ---------
<S> <C> <C> <C>
Discount rate......................................... 7.75% 7.25% 8.0%-9.0%
Salary increase assumption............................ 5.25% 5.25% 5.0%-5.5%
Expected long-term rate of return on plan assets...... 9.5% 9.0%-9.5% 9.5%
</TABLE>
(B) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation sponsors postretirement life insurance plans and provides
health care benefits for certain retirees and grandfathered employees when
they retire. The postretirement life insurance benefit is noncontributory.
Retirees and employees eligible for postretirement health care benefits
participate on a contributory basis.
Net periodic postretirement benefit cost included the following components
for the years ended December 31.
<TABLE>
<CAPTION>
1996 1995 1994
(IN MILLIONS) ---- ---- ----
<S> <C> <C> <C>
Service cost..................................................... $ 2 $ 1 $ 1
Interest cost.................................................... 5 4 3
Net amortization................................................. -- 14 --
--- --- ---
Net periodic postretirement benefit cost......................... $ 7 $19 $ 4
=== === ===
</TABLE>
58
<PAGE>
The Corporation funds postretirement benefit cost as claims are incurred.
The following table reconciles the plan's funded status and amounts recognized
in the consolidated balance sheet at December 31.
<TABLE>
<CAPTION>
1996 1995
(IN MILLIONS) ---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees......................................................... $(52) $(55)
Fully eligible active plan participants.......................... (10) (11)
Other active plan participants................................... (14) (11)
---- ----
Total accumulated postretirement benefit obligation................ (76) (77)
Plan assets (at market value)...................................... -- --
---- ----
Accumulated postretirement benefit obligation in excess of plan
assets............................................................ (76) (77)
Unrecognized net (gain)............................................ (13) (9)
Unrecognized prior service cost.................................... 4 4
---- ----
Accrued postretirement benefit liability recognized in the
consolidated balance sheet........................................ $(85) $(82)
==== ====
</TABLE>
The December 31, 1996, amounts include the effect of plan amendments
effective on January 1, 1997.
The assumption used to measure postretirement benefit costs is an 8% annual
rate of increase in the per capita cost of covered health care benefits for
1997, trending downward to 5.5% by the year 2000, and remaining at that level
thereafter. This assumption has a significant effect on the amounts reported.
Increasing the assumed health care cost trend rates by one percentage point in
each year would have increased the accumulated postretirement benefit
obligation as of December 31, 1996, by $4 million and the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost for 1996 by approximately $0.4 million.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% at December 31, 1996, and 7.25% at
December 31, 1995.
The Corporation adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994. The cumulative effect of
adoption was a charge of $12 million ($8 million net of income taxes). The
effect of postemployment benefit costs on income before income taxes was not
significant in 1996 or 1995.
(C) EMPLOYEE SAVINGS PLANS
The Corporation maintains various savings plans for U.S.-based employees
meeting certain eligibility requirements.
Under the FCC 401(k) plan, participants contributed from 1% to 6% of their
salary on a pretax basis, and an additional 1% to 10% of salary on an after-
tax basis. The Corporation's contribution to the plan was 100% of the first
$750 of pretax contributions made by participants and 50% of any pretax
contributions in excess of $750. The plan also allowed a supplemental profit-
based contribution.
The NBD 401(k) plan required employer contributions equal to participants'
contributions up to 2% of their salary, plus an amount equal to one-half of
participants' contributions between 2% and 6% of their salary subject to
certain limitations imposed by the IRS.
Total expense for these plans was $43 million in 1996, $37 million in 1995,
and $36 million in 1994.
(D) STOCK-BASED COMPENSATION
The Corporation utilizes various stock-based awards as part of its overall
compensation program through its Stock Performance Plan. In addition, the
Corporation provides employees the opportunity to purchase its shares through
its Employee Stock Purchase and Savings Plan. The compensation cost that has
been charged against income for the Corporation's Stock Performance and
Employee Stock Purchase and Savings Plans was $26.3 million for 1996, $21.1
million for 1995, and $20.5 million for 1994. See Note 1(m) on page 47 for the
Corporation's accounting policies relating to stock-based compensation.
59
<PAGE>
STOCK PERFORMANCE PLAN
Under the Stock Performance Plan, the Corporation may grant to employees
various stock-based awards, including performance shares, restricted shares
and stock options. The Corporation is authorized to award up to 2% of its
shares annually, based on the number of outstanding shares at the prior year
end.
PERFORMANCE SHARES
The Corporation provides performance-based stock awards for its senior
managers. The level of performance shares eventually distributed depends on
the achievement of specific performance criteria that are set at the grant
date. The ultimate expense attributable to these awards is based on the market
value of the shares distributed at the end of the defined performance period.
The expense associated with such awards is recognized over the defined
performance period.
RESTRICTED SHARES
Restricted shares granted to key officers require them to continue
employment for up to four years from the grant date before restrictions on the
shares are removed. The market value of the restricted shares as of the date
of grant is amortized to compensation expense ratably over the period the
shares remain restricted.
STOCK OPTIONS
The Corporation also awards stock options to both senior managers and key
officers. The exercise price of such options is equivalent to the market value
of the Corporation's common stock at the award date. Options granted generally
vest one-third each year over a three-year period with a maximum term of ten
years. Stock options include the right to receive additional options not
exceeding the number of options exercised under the original grant if certain
criteria are met. The exercise price of an additional option is equal to the
fair market value of the common stock on the date the additional option is
granted. The vesting period for such additional options is six months. The
Corporation does not recognize any compensation expense with respect to stock
option awards.
The following tables summarize stock option activity for 1996 and provide
details of stock options outstanding at December 31, 1996.
<TABLE>
<CAPTION>
WTD.
AVG.
EXERCISE
SHARES PRICE
(SHARES IN THOUSANDS) ------ --------
<S> <C> <C>
Outstanding at January 1, 1996................................. 12,406 $25.23
Granted........................................................ 4,585 41.38
Exercised...................................................... (4,598) 24.19
Forfeited...................................................... (169) 32.22
------ ------
Outstanding at December 31, 1996............................... 12,224 $31.59
======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
(SHARES IN THOUSANDS) --------------------------------- ---------------------
NUMBER WTD. AVG.
OUTSTANDING WTD. AVG. REMAINING WTD. AVG.
RANGE OF DEC. 31, EXERCISE CONTRACTUAL NUMBER EXERCISE
EXERCISE PRICES 1996 PRICE LIFE EXERCISABLE PRICE
--------------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 6.26-$15.00 357 $13.01 2.7 yrs. 357 $13.01
15.01- 30.00 5,345 24.02 5.6 3,449 23.43
30.01- 45.00 5,935 37.72 7.2 2,787 36.35
45.01- 58.44 587 49.80 5.6 2 45.19
- ------------- ------ ------ -------- ----- ------
$ 6.26-$58.44 12,224 $31.59 6.3 yrs. 6,595 $28.33
====== =====
</TABLE>
60
<PAGE>
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
The Corporation also offers an Employee Stock Purchase and Savings Plan that
allows eligible employees to authorize payroll deductions of up to 10% of
their annual base earnings for deposit in an interest-bearing savings account
for up to two years. Employees then have the option to either withdraw their
savings balance in cash or purchase shares of the Corporation's common stock
at a price fixed under the plan. The purchase price of the stock for a
particular employee is fixed at 95% of the stock's market price on the day
that employee becomes eligible to participate in the plan. Under the plan, the
Corporation issued 1,370,779 shares in 1996 at prices ranging from $24.53 to
$36.34. The Corporation does not recognize any compensation expense with
respect to this plan.
PRO FORMA COSTS OF STOCK-BASED COMPENSATION
If the Corporation had determined compensation cost for awards under its
stock plans based on their fair value at their grant dates consistent with the
method contained in SFAS No. 123, the Corporation's net income would have been
$1,423.0 million and $1,143.6 million for the years ended December 31, 1996
and 1995, respectively. Primary and fully diluted earnings per share related
to these pro forma net income amounts are $4.35 and $4.28, respectively, for
1996, and $3.43 and $3.39, respectively, for 1995. These pro forma net income
amounts are not indicative of future pro forma amounts because they do not
include expenses related to stock-based compensation awards granted prior to
January 1, 1995, which would have been amortized to expense over the vesting
period of the award.
The following table summarizes stock-based compensation grants and their
related weighted average grant-date fair values for the year ended December
31, 1996:
<TABLE>
<CAPTION>
NUMBER
OF WTD. AVG. GRANT
SHARES DATE FAIR VALUE
(SHARES IN THOUSANDS) ------ ---------------
<S> <C> <C>
Performance Shares (1)................................... 0-462 $40.58
Restricted Shares........................................ 601 41.30
Stock Options............................................ 4,585 6.74
Employee Stock Purchase and Savings Plan (2)............. 2,127 5.78
</TABLE>
- --------
(1) Range of potential shares issuable based on performance level achieved.
(2) Estimated number of shares employees will purchase under the plan.
The grant date fair values of stock options granted under the Stock
Performance Plan and employees' purchase rights under the Employee Stock
Purchase and Savings Plan were estimated using the Black-Scholes option-
pricing model. This model was developed to estimate the fair value of traded
options, which have different characteristics than employee stock options, and
changes to the subjective input assumptions can result in materially different
fair market value estimates. Therefore, the Black-Scholes model may not
necessarily provide a reliable single measure of the fair value of employee
stock options and purchase rights.
The following assumptions were used to estimate the grant-date fair value of
employees' purchase rights under the Employee Stock Purchase and Savings Plan
for 1996: dividend yield of 3.70%; expected volatility of 18.82%; risk-free
interest rate of 6.10%; and an expected life of 2.2 years.
The following weighted average assumptions were used to estimate the grant-
date fair value of stock option awards under the Stock Performance Plan:
dividend yields of 3.46% and 4.24% in 1996 and 1995, respectively; expected
volatility of 18.74% and 17.28% in 1996 and 1995, respectively; risk-free
interest rates of 5.91% and 6.78% in 1996 and 1995, respectively; and expected
lives of 4.2 years and 3.9 years in 1996 and 1995, respectively.
61
<PAGE>
NOTE 13--INCOME TAXES
The components of total applicable income tax expense (benefit) in the
consolidated income statement for the years ended December 31, 1996, 1995 and
1994, are as follows.
<TABLE>
<CAPTION>
1996 1995 1994
(IN MILLIONS) ---- ---- ----
<S> <C> <C> <C>
Income tax expense (benefit)
Current
Federal..................................................... $561 $737 $397
Foreign..................................................... 17 27 14
State....................................................... 64 84 64
---- ---- ----
Total..................................................... 642 848 475
Deferred
Federal..................................................... 77 (216) 149
State....................................................... 7 (28) 8
---- ---- ----
Total..................................................... 84 (244) 157
---- ---- ----
Applicable income taxes......................................... $726 $604 $632
==== ==== ====
</TABLE>
The tax effects of fair value adjustments on securities available-for-sale,
foreign currency translation adjustments, and certain tax benefits related to
stock options are recorded directly to stockholders' equity. The net tax
expense (benefits) recorded directly in stockholders' equity amounted to $(56)
million, $133 million and $(86) million in 1996, 1995 and 1994, respectively.
A summary reconciliation of the differences between applicable income taxes
and the amounts computed at the applicable regular federal tax rate of 35% is
as follows.
<TABLE>
<CAPTION>
1996 1995 1994
(IN MILLIONS) ---- ---- ----
<S> <C> <C> <C>
Taxes at statutory federal income tax rate.................... $757 $614 $649
Increase (decrease) in taxes resulting from:
Tax-exempt income (net)..................................... (40) (54) (50)
State income taxes, net of federal income taxes............. 47 37 47
Other....................................................... (38) 7 (14)
---- ---- ----
Applicable income taxes....................................... $726 $604 $632
==== ==== ====
</TABLE>
A net deferred tax liability is included in other liabilities in the
consolidated balance sheet as a result of temporary differences between the
carrying amounts of assets and liabilities in the financial statements and
their related tax bases. The components of the net deferred tax liability as
of December 31, 1996 and 1995, are as follows.
<TABLE>
<CAPTION>
1996 1995
(IN MILLIONS) ------ ------
<S> <C> <C>
Deferred tax liabilities
Deferred income on lease financing............................. $ 867 $ 828
Appreciation on equity security investments.................... 123 111
Prepaid pension costs.......................................... 142 144
Other.......................................................... 215 244
------ ------
Gross deferred tax liabilities................................. 1,347 1,327
------ ------
Deferred tax assets
Allowance for credit losses.................................... 513 491
Securitization of credit card receivables...................... 81 102
Depreciation................................................... 70 66
Other.......................................................... 300 341
------ ------
Gross deferred tax assets...................................... 964 1,000
Valuation allowance............................................ -- --
------ ------
Gross deferred tax assets, net of valuation allowance.......... 964 1,000
------ ------
Net deferred tax liability....................................... $ 383 $ 327
====== ======
</TABLE>
62
<PAGE>
NOTE 14--LEASE COMMITMENTS
The Corporation has entered into a number of operating and capitalized lease
agreements for premises and equipment. The minimum annual rental commitments
under these leases are shown below.
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
1997................................................................. $ 84
1998................................................................. 78
1999................................................................. 73
2000................................................................. 61
2001................................................................. 48
2002 and thereafter.................................................. 209
----
$553
====
</TABLE>
Occupancy expense has been reduced by rental income from premises leased to
others in the amount of $32 million in 1996, $44 million in 1995 and $38
million in 1994.
NOTE 15--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Corporation is a party to financial
instruments containing credit and/or market risks that are not required to be
reflected in a balance sheet. These financial instruments include credit-
related instruments as well as certain derivative instruments.
The Corporation's risk management policies monitor and limit exposure to
credit, liquidity and market risks.
(A) CREDIT RISK
The following disclosures represent the Corporation's credit exposure,
assuming that every counterparty to financial instruments with off-balance-
sheet credit risk fails to perform completely according to the terms of the
contracts, and that the collateral, and other security if any, proves to be of
no value to the Corporation.
(B) MARKET RISK
This note does not address the amount of market losses the Corporation would
incur if future changes in market prices make financial instruments with off-
balance-sheet market risk less valuable or more onerous. The measurement of
market risk is meaningful only when all related and offsetting on- and off-
balance-sheet transactions are aggregated, and the resulting net positions are
identified.
(C) COLLATERAL AND OTHER SECURITY ARRANGEMENTS
The credit risk of both on- and off-balance-sheet financial instruments
varies based on many factors, including the value of collateral held and other
security arrangements. To mitigate credit risk, the Corporation generally
determines the need for specific covenant, guarantee and collateral
requirements on a case-by-case basis, depending on the nature of the financial
instrument and the customer's creditworthiness. The Corporation may also
receive comfort letters and oral assurances. The amount and type of collateral
held to reduce credit risk varies but may include real estate, machinery,
equipment, inventory and accounts receivable, as well as cash on deposit,
stocks, bonds and other marketable securities that are generally held in the
Corporation's possession or at another appropriate custodian or depository.
This collateral is valued and inspected on a regular basis to ensure both its
existence and adequacy. Additional collateral is requested when appropriate.
(D) CREDIT-RELATED FINANCIAL INSTRUMENTS
The table below summarizes credit-related financial instruments, including
both commitments to extend credit and letters of credit.
63
<PAGE>
COMMITMENTS AND LETTERS OF CREDIT
<TABLE>
<CAPTION>
1996 1995
DECEMBER 31 (IN BILLIONS) ----- -----
<S> <C> <C>
Unused loan commitments*........................................... $59.1 $54.0
Unused credit card lines........................................... 75.8 76.7
Unused home-equity lines........................................... 1.7 1.8
Commercial letters of credit....................................... 0.8 0.9
Standby letters of credit and foreign office guarantees............ 7.5 6.9
</TABLE>
- --------
*Includes unused commercial real estate exposure of $1.7 billion and $1.2
billion at December 31, 1996 and 1995, respectively.
Since many of the unused commitments are expected to expire unused or be
only partially used, the total amount of unused commitments in the preceding
table does not necessarily represent future cash requirements.
Loan commitments are agreements to make or acquire a loan or lease as long
as the agreed-upon terms (e.g., expiry, covenants or notice) are met. The
Corporation's commitments to purchase or extend loans help its customers meet
their liquidity needs. Credit card lines allow customers to use a credit card
to buy goods or services and to obtain cash advances. However, the Corporation
has the right to change or terminate any terms or conditions of the credit
card account. Extensions of credit under home-equity lines are secured by
residential real estate.
Commercial letters of credit are issued or confirmed to ensure payment of
customers' payables or receivables in short-term international trade
transactions. Generally, drafts will be drawn when the underlying transaction
is consummated as intended. However, the short-term nature of this instrument
serves to mitigate the risk associated with these contracts.
Standby letters of credit and foreign office guarantees are issued in
connection with agreements made by customers to counterparties. If the
customer fails to comply with the agreement, the counterparty may enforce the
standby letter of credit or foreign office guarantee as a remedy. Credit risk
arises from the possibility that the customer may not be able to repay the
Corporation for standby letters of credit or foreign office guarantees. At
December 31, 1996 and 1995, standby letters of credit and foreign office
guarantees had been issued for the following purposes.
STANDBY LETTERS OF CREDIT AND FOREIGN OFFICE GUARANTEES
<TABLE>
<CAPTION>
1996 1995
DECEMBER 31 (IN MILLIONS) ------ ------
<S> <C> <C>
Financial
Tax-exempt obligations.......................................... $2,921 $2,407
Insurance-related............................................... 804 849
Other financial................................................. 2,785 3,031
Performance....................................................... 996 616
------ ------
Total*........................................................ $7,506 $6,903
====== ======
</TABLE>
- --------
*Includes $818 million and $833 million participated to other institutions at
December 31, 1996, and December 31, 1995, respectively.
At December 31, 1996, $5.531 billion of standby letters of credit was due to
expire within three years and $1.975 billion was to expire after three years.
(E) DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation enters into a variety of derivative financial instruments in
its trading, asset and liability management, and corporate investment
activities. These instruments offer customers protection from rising or
64
<PAGE>
falling interest rates, exchange rates, commodity prices and equity prices.
They can either reduce or increase the Corporation's exposure to such changing
rates or prices.
Following is a brief description of such derivative financial instruments.
. Interest rate forward and futures contracts represent commitments to
either purchase or sell a financial instrument at a specified future date
for a specified price, and may be settled in cash or through delivery.
. An interest rate swap is an agreement in which two parties agree to
exchange, at specified intervals, interest payment streams calculated on
an agreed-upon notional principal amount with at least one stream based
on a specified floating rate index.
. Interest rate options are contracts that grant the purchaser, for a
premium payment, the right to either purchase or sell a financial
instrument at a specified price within a specified period of time or on a
specified date from the writer of the option.
. Interest rate caps and floors are contracts with notional principal
amounts that require the seller, in exchange for a fee, to make payments
to the purchaser if a specified market interest rate exceeds the fixed
cap rate or falls below the fixed floor rate on specified future dates.
. Forward rate agreements are contracts with notional principal amounts
that settle in cash at a specified future date based on the differential
between a specified market interest rate and a fixed interest rate.
. Foreign exchange contracts represent swap, spot, forward, futures and
option contracts to exchange currencies.
. Commodity price contracts represent swap, futures, cap, floor and option
contracts that derive their value from underlying commodity prices.
. Equity price contracts represent swap, forward, futures, cap, floor and
option contracts that derive their value from underlying equity prices.
The Corporation's objectives and strategies for using derivative financial
instruments for structural interest rate risk management and foreign exchange
risk management are discussed on pages 27 to 30.
Balance sheet exposure for derivative financial instruments includes the
amount of recognized gains in the market valuation of those contracts. Those
amounts fluctuate as a function of maturity, interest rates, foreign exchange
rates, commodity prices and equity prices.
The credit risk associated with exchange-traded derivative financial
instruments is limited to the relevant clearinghouse. Options written do not
expose the Corporation to credit risk, except to the extent of the underlying
risk in a financial instrument that the Corporation may be obligated to
acquire under certain written put options. Caps and floors written do not
expose the Corporation to credit risk.
On some derivative financial instruments, the Corporation may have
additional risk. This is due to the underlying risk in the financial
instruments that the Corporation may be obligated to acquire, or the risk that
the Corporation will deliver under a contract but the customer will fail to
deliver the countervailing amount. The Corporation believes its credit and
settlement procedures minimize these risks.
Not all derivative financial instruments have off-balance-sheet market risk.
Market risk associated with options purchased and caps and floors purchased is
recorded in the balance sheet.
The tables on page 35 report the Corporation's gross notional principal or
contractual amounts of derivative financial instruments as of December 31,
1996, and December 31, 1995. These instruments include swaps, forwards,
futures, options, caps, floors, forward rate agreements, and other conditional
and exchange contracts. The amounts do not represent the market or credit risk
associated with these contracts, as previously defined, but rather give an
indication of the volume of the transactions.
65
<PAGE>
NOTE 16--CONCENTRATIONS OF CREDIT RISK
The Corporation provides a wide range of financial services, including
credit products, to consumers, middle market businesses and large corporate
customers. Credit policies and processes emphasize diversification of risk
among industries, geographic areas and borrowers. The only significant
domestic credit concentrations for the Corporation were consumer, commercial
real estate and the U.S. government.
Information on the Corporation's consumer and commercial real estate loans
is presented in Note 7, on page 52, and information on unused consumer and
commercial real estate commitments is presented in Note 15, beginning on page
63.
U.S. government risk arises primarily from the holding of government
securities and short-term credits collateralized by such securities.
Information on foreign outstandings is presented in the "Foreign
Outstandings" table on page 77. In addition to these foreign outstandings, the
Corporation's credit risk from derivative financial instruments and other off-
balance-sheet commitments to banks in Japan was approximately $2.0 billion and
$2.9 billion at December 31, 1996, and December 31, 1995, respectively.
NOTE 17--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation is required to disclose the estimated fair value of its
financial instruments in accordance with SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments." These disclosures do not attempt to estimate
or represent an estimate of the Corporation's fair value as a whole. The
Corporation does not plan to dispose of, either through sale or settlement,
the majority of its financial instruments at these estimated fair values.
Certain limitations are inherent in the methodologies used to estimate fair
value. As a result, disclosed fair values may not be the amount realized in a
current transaction between willing parties. Specifically, the fair values
disclosed represent point-in-time estimates that may change in subsequent
reporting periods due to market conditions or other factors. Further, quoted
market prices may not be realized because the financial instrument may be
traded in a market that lacks liquidity; or a fair value derived using a
discounted cash flow approach may not be the amount realized because of the
subjectivity involved in selecting underlying assumptions, such as projecting
cash flows or selecting a discount rate. The fair value amount also may not be
realized because it ignores transaction costs and does not include potential
tax effects. Additionally, estimated fair values of certain financial
instruments ignore intangible value associated with the financial instruments;
for example, significant unrecognized value exists that is attributable to the
Corporation's credit card relationships and core deposits.
66
<PAGE>
The following table summarizes the carrying values and estimated fair values
of financial instruments as of December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
(IN MILLIONS) -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets
Cash and other short-term financial
instruments (a)..................... $17,494 $17,494 $29,236 $29,236
Trading assets (a)................... 4,812 4,812 8,150 8,150
Investment securities (a)............ 7,178 7,178 9,449 9,449
Loans (b)............................ 66,414 65,023 64,434 64,208
Allowance for credit losses.......... (1,407) -- (1,338) --
------- ------- ------- -------
Loans, net........................... 65,007 65,023 63,096 64,208
Derivative product assets
Trading purposes (1)(a)............ 4,895 4,895 6,644 6,644
Other than trading purposes (e).... 79 162 69 217
------- ------- ------- -------
Total derivative product assets.. 4,974 5,057 6,713 6,861
Other financial instruments (a)...... 1,655 1,655 1,666 1,666
Financial liabilities
Deposits (a)(c)...................... $63,669 $63,747 $69,106 $69,168
Securities sold but not yet purchased
(a)................................. 1,236 1,236 1,765 1,765
Other short-term financial
instruments (a)..................... 14,772 14,772 24,477 24,477
Long-term debt (a)(d)................ 8,454 8,570 8,163 8,504
Derivative product liabilities
Trading purposes (1)(a)............ 4,716 4,716 6,681 6,681
Other than trading purposes (e).... 37 66 42 55
------- ------- ------- -------
Total derivative product
liabilities..................... 4,753 4,782 6,723 6,736
</TABLE>
- --------
(1) The estimated average fair values of derivative financial instruments used
in trading activities during 1996 were $5.4 billion classified as assets
and $5.4 billion classified as liabilities.
Estimated fair values are determined as follows:
(A) FINANCIAL INSTRUMENTS WHERE CARRYING VALUE APPROXIMATES FAIR VALUE
A financial instrument's carrying value approximates its fair value when the
financial instrument has an immediate or short-term maturity (generally one
year or less), or is carried at fair value. Additionally, the carrying value
of financial instruments that reprice frequently, such as floating rate debt,
represents fair value.
The estimated fair values of debt investment securities, trading securities
and securities sold but not yet purchased were generally based on quoted
market prices or dealer quotes. See Note 1, beginning on page 45, and Note 6,
beginning on page 50, for information on methods for estimating the fair value
of equity investment securities. The estimated fair value of commercial real
estate loans held for accelerated disposition was based on their estimated
liquidation value. The estimated fair value of derivative product assets and
liabilities was based on quoted market prices or pricing and valuation models
on a present-value basis using current market information.
The majority of commitments to extend credit and letters of credit would
result in loans with a market rate of interest if funded. The fair value of
these commitments are the fees that would be charged customers to enter into
similar agreements with comparable pricing and maturity. The recorded book
value of deferred fee income approximates the fair value.
67
<PAGE>
(B) LOANS
The discounted cash flow method was used to estimate the fair value of
certain commercial and consumer installment loans. Discount rates used
represent current lending rates for new loans with similar characteristics.
The fair value of floating rate loans is equal to their carrying value.
The estimated fair value of consumer mortgage loans was based on committed
sales prices and a valuation model using current market information.
(C) DEPOSITS
The fair value of demand and savings deposits with no defined maturity is
the amount payable on demand at the report date. The fair value of fixed-rate
time deposits is estimated by discounting the future cash flows to be paid,
using the current rates at which similar deposits with similar remaining
maturities would be issued.
(D) LONG-TERM DEBT
Quoted market prices or the discounted cash flow method was used to estimate
the fair value of the Corporation's fixed-rate long-term debt. Discounting was
based on the contractual cash flows and the current rates at which debt with
similar terms could be issued.
(E) DERIVATIVE PRODUCT ASSETS AND LIABILITIES--OTHER THAN TRADING PURPOSES
The estimated fair values of derivative product assets and liabilities used
for risk management purposes were based on quoted market prices or pricing and
valuation models on a present-value basis using current market information.
NOTE 18--CONTINGENCIES
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, 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 these
matters will not have a material effect on the consolidated financial
statements.
68
<PAGE>
NOTE 19--FIRST CHICAGO NBD CORPORATION (PARENT COMPANY ONLY) CONDENSED
FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
1996 1995
DECEMBER 31 (IN MILLIONS) ------- -------
<S> <C> <C>
ASSETS
Cash and due from banks--bank subsidiaries...................... $ 3 $ 24
Interest-bearing due from banks
Bank subsidiaries............................................. 1,138 313
Other......................................................... 249 500
Resale agreement with bank subsidiary........................... -- 3
Trading assets.................................................. 67 74
Investment securities--available-for-sale....................... 46 43
Loans and receivables--subsidiaries
Bank subsidiaries............................................. 2,044 1,789
Nonbank subsidiaries.......................................... 989 1,072
Investment in subsidiaries
Bank subsidiaries............................................. 9,054 8,701
Nonbank subsidiaries.......................................... 1,229 1,051
Other assets.................................................... 76 127
------- -------
Total assets................................................ $14,895 $13,697
======= =======
LIABILITIES
Short-term borrowings
Nonbank subsidiaries.......................................... $ 76 $ 139
Other......................................................... 224 288
Long-term debt
Nonbank subsidiaries.......................................... 771 --
Other......................................................... 4,463 4,439
Other liabilities............................................... 354 381
------- -------
Total liabilities........................................... 5,888 5,247
STOCKHOLDERS' EQUITY............................................ 9,007 8,450
------- -------
Total liabilities and stockholders' equity.................. $14,895 $13,697
======= =======
</TABLE>
69
<PAGE>
FIRST CHICAGO NBD CORPORATION (PARENT COMPANY ONLY) CONDENSED INCOME STATEMENT
<TABLE>
<CAPTION>
1996 1995 1994
FOR THE YEAR (IN MILLIONS) ------ ------ ------
<S> <C> <C> <C>
OPERATING INCOME
Dividends
Bank subsidiaries...................................... $ 957 $ 686 $ 575
Nonbank subsidiaries................................... 94 114 111
Interest income
Bank subsidiaries...................................... 159 163 139
Nonbank subsidiaries................................... 53 67 62
Other.................................................. 37 48 29
Other income
Bank subsidiaries...................................... -- 8 9
Nonbank subsidiaries................................... -- 1 1
Other.................................................. 5 -- 26
------ ------ ------
Total................................................ 1,305 1,087 952
OPERATING EXPENSE
Interest expense
Nonbank subsidiaries................................... 11 4 1
Other.................................................. 345 367 298
Merger-related charges................................... -- 69 --
Other expense............................................ 39 39 31
------ ------ ------
Total................................................ 395 479 330
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARIES............................. 910 608 622
Applicable income taxes (benefit)........................ (62) (59) (26)
INCOME BEFORE EQUITY IN UNDISTRIBUTED NET INCOME OF
SUBSIDIARIES............................................ 972 667 648
Equity in undistributed net income of subsidiaries
Bank subsidiaries...................................... 322 418 552
Nonbank subsidiaries................................... 142 65 21
------ ------ ------
NET INCOME............................................... $1,436 $1,150 $1,221
====== ====== ======
</TABLE>
The Parent Company Only Statement of Stockholders' Equity is the same as the
Consolidated Statement of Stockholders' Equity (see page 43).
70
<PAGE>
FIRST CHICAGO NBD CORPORATION (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
FOR THE YEAR (IN MILLIONS) ------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $ 1,436 $ 1,150 $ 1,221
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of subsidiaries............... (1,515) (1,282) (1,259)
Dividends received from subsidiaries............... 1,036 800 677
Depreciation and amortization...................... 7 8 9
Merger-related charges............................. -- 45 --
Net (increase) in trading assets................... -- (74) --
Net (increase) decrease in accrued income
receivable........................................ 4 (2) (2)
Net increase (decrease) in accrued expenses
payable........................................... 2 (7) (5)
Other noncash adjustments.......................... (15) (88) 46
------- ------- -------
Total adjustments.................................. (481) (600) (534)
------- ------- -------
Net cash provided by operating activities............ 955 550 687
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans to subsidiaries..... (176) 35 66
Net decrease in resale agreements with bank
subsidiary.......................................... 3 39 179
Net (increase) decrease in capital investments in
subsidiaries........................................ (46) 101 (141)
Purchase of investment securities--available-for-
sale................................................ (143) (71) (225)
Proceeds from maturities of investment securities--
available-for-sale.................................. 143 78 52
Proceeds from sales of investment securities--
available-for-sale.................................. 7 48 107
Purchases of premises and equipment.................. -- (1) --
Sales of premises and equipment...................... -- 51 --
Other, net........................................... 9 -- --
------- ------- -------
Net cash provided by (used in) investing activities.. (203) 280 38
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings..... (131) 155 (80)
Proceeds from issuance of long-term debt............. 1,297 772 935
Redemption and repayment of long-term debt........... (492) (335) (640)
Net (decrease) in other liabilities.................. (32) (86) (29)
Dividends paid....................................... (488) (447) (397)
Proceeds from issuance of common and treasury stock.. 59 23 52
Purchase of treasury stock........................... (412) (513) (397)
Payment for redemption of preferred stock............ -- (121) (150)
------- ------- -------
Net cash (used in) financing activities.............. (199) (552) (706)
NET INCREASE IN CASH AND CASH EQUIVALENTS............ 553 278 19
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....... 837 559 540
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR............. $ 1,390 $ 837 $ 559
======= ======= =======
OTHER CASH FLOW DISCLOSURES
Interest paid...................................... $ 351 $ 364 $ 322
Income tax payment (receipt)....................... (56) (53) 6
</TABLE>
71
<PAGE>
Dividends that may be paid by national bank subsidiaries are subject to two
statutory limitations. Under the first, dividends cannot exceed the level of
undivided profits. In addition, a bank cannot declare a dividend, without
regulatory approval, in an amount in excess of its net income for the current
year combined with the retained net profits for the preceding two years. State
bank subsidiaries may also be subject to limitations on dividend payments.
Based on these statutory requirements, the Principal Banks could, in the
aggregate, have declared additional dividends of up to approximately $0.9
billion without regulatory approval at January 1, 1997. The payment of
dividends by any bank may also be affected by other factors, such as the
maintenance of adequate capital. As of December 31, 1996, all of the Principal
Banks significantly exceeded the regulatory guidelines for "well-capitalized"
status.
The Principal Banks are subject to various regulatory capital requirements
that require them to maintain minimum ratios of total and Tier 1 capital to
risk-weighted assets and of Tier 1 capital to average assets. Refer to the
"Capital Management" section, beginning on page 37, for the Principal Banks'
capital ratios as well as the minimum capital ratios required by regulation.
Failure to meet minimum capital requirements results in certain actions by
bank regulators that could have a direct material effect on the Principal
Banks' financial statements. As of December 31, 1996, management believes that
each of the Principal Banks meets all capital adequacy requirements to which
it is subject and is correctly categorized as well-capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that categorization that management believes have changed the
institution's category.
Federal banking law also restricts each bank subsidiary from extending
credit to the Corporation in excess of 10% of the subsidiary's capital stock
and surplus, as defined. Any such extensions of credit are subject to strict
collateral requirements.
In connection with issuances of commercial paper, the Corporation has
agreements providing future credit availability (back-up lines of credit) with
various nonaffiliated banks. The agreements aggregated $300 million at
December 31, 1996. The commitment fees paid under each agreement range between
.07% and .09%. The back-up lines of credit, together with overnight money
market loans, short-term investments and other sources of liquid assets,
exceeded the amount of commercial paper issued at December 31, 1996.
72
<PAGE>
REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
To the Stockholders of First Chicago NBD Corporation:
FINANCIAL STATEMENTS
The Management of First Chicago NBD Corporation and its subsidiaries is
responsible for the preparation, integrity and objectivity of the financial
statements and footnotes contained in this Form 10-K. The financial statements
have been prepared in accordance with generally accepted accounting principles
and are free from material fraud or error. The other financial information in
this Form 10-K is consistent with the financial statements. Where financial
information must of necessity be based upon estimates and judgments, they
represent the best estimates and judgments of Management.
The Corporation's financial statements have been audited by Arthur Andersen
LLP, independent public accountants, whose appointment is ratified by the
stockholders. The independent public accountants' responsibility is to express
an opinion on the Corporation's financial statements. As described further in
the report that follows, their opinion is based on their audit, which was
conducted in accordance with generally accepted auditing standards and is
believed by them to provide a reasonable basis for their opinion. Management
has made available to Arthur Andersen LLP all of the Corporation's financial
records and related data. Furthermore, Management believes that all
representations made to Arthur Andersen LLP during their audit were valid and
appropriate.
INTERNAL CONTROL STRUCTURE OVER FINANCIAL REPORTING
Management is also responsible for establishing and maintaining the
Corporation's internal control structure that provides reasonable, but not
absolute, assurance as to the integrity and reliability of the financial
statements. Management continually monitors the internal control structure for
compliance with established policies and procedures. The Corporation maintains
a strong internal auditing program that independently assesses the
effectiveness of the internal control structure. The Audit Committee of the
Board of Directors, composed entirely of outside Directors, oversees the
Corporation's financial reporting process on behalf of the Board of Directors
and has responsibility for recommending the independent public accountants for
the Corporation who are appointed by the Board of Directors. The Audit
Committee reviews with the independent public accountants the scope of their
audit and audit reports and meets with them on a scheduled basis to review
their findings and any action to be taken thereon. In addition, the Audit
Committee meets with the internal auditors and with Management to review the
scope and findings of the internal audit program and any actions to be taken
by Management. The independent public accountants and the internal auditors
meet periodically with the Audit Committee without Management being present.
Management also recognizes its responsibility for fostering a strong ethical
climate so that the Corporation's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized by and reflected in the Corporation's integrity policies, which
address, among other things, the necessity of ensuring open communication
within the Corporation; potential conflicts of interest; compliance with all
domestic and foreign laws, including those related to financial disclosure;
and the confidentiality of proprietary information. The Corporation maintains
a systematic program to assess compliance with these policies.
There are inherent limitations in the effectiveness of any internal control
structure, including the possibility of human error or the circumvention or
overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurance with respect to reliability of
financial statements and safeguarding of assets. Furthermore, because of
changes in conditions, internal control structure effectiveness may vary over
time.
73
<PAGE>
The Corporation assessed its internal control structure over financial
reporting as of December 31, 1996, in relation to the criteria described in
the "Internal Control--Integrated Framework" issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
the Corporation believes that as of December 31, 1996, in all material
respects, the Corporation maintained an effective internal control structure
over financial reporting.
/s/ Verne G. Istock
Chicago, Illinois Verne G. Istock
January 15, 1997 Chairman, President and Chief
Executive Officer
/s/ Robert A. Rosholt
Robert A. Rosholt
Executive Vice President and
Chief Financial Officer
74
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of First Chicago NBD Corporation:
We have audited the accompanying consolidated balance sheet of First Chicago
NBD Corporation (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
First Chicago NBD Corporation's management. Our responsibility is to express
an opinion of these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Chicago NBD Corporation and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Chicago, Illinois,
January 15, 1997
/s/ Arthur Andersen LLP
75
<PAGE>
SELECTED STATISTICAL INFORMATION
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1996 1995 1994
DECEMBER 31 (IN MILLIONS) ------ ------ -------
<S> <C> <C> <C>
Debt securities
U.S. government and federal agency
Held-to-maturity...................................... $ -- $ -- $ 6,469
Available-for-sale.................................... 4,598 6,840 4,910
------ ------ -------
Total............................................... 4,598 6,840 11,379
States and political subdivisions
Held-to-maturity...................................... -- -- 1,591
Available-for-sale.................................... 1,208 1,462 76
------ ------ -------
Total............................................... 1,208 1,462 1,667
Other bonds, notes and debentures
Held-to-maturity...................................... -- -- 5
Available-for-sale.................................... 259 94 276
------ ------ -------
Total............................................... 259 94 281
------ ------ -------
Total debt securities............................... 6,065 8,396 13,327
Equity securities (1)..................................... 1,113 1,053 1,688
------ ------ -------
Total............................................... $7,178 $9,449 $15,015
====== ====== =======
</TABLE>
- --------
(1) Includes Federal Reserve stock.
MATURITY OF DEBT INVESTMENT SECURITIES
As of December 31, 1996, debt investment securities had the following
maturity and yield characteristics.
<TABLE>
<CAPTION>
BOOK
VALUE YIELD
(DOLLARS IN MILLIONS) ------ -----
<S> <C> <C>
U.S. government and federal agency
Within one year................................................... $1,065 5.75%
After one but within five years................................... 2,633 6.58
After five but within ten years................................... 835 6.90
After ten years................................................... 65 7.58
------ -----
$4,598 6.46%
====== =====
States and political subdivisions*
Within one year................................................... $ 222 10.52%
After one but within five years................................... 543 10.11
After five but within ten years................................... 240 8.75
After ten years................................................... 203 8.96
------ -----
$1,208 9.73%
====== =====
Other bonds, notes and debentures
Within one year................................................... $ 26 4.90%
After one but within five years................................... 223 6.16
After five but within ten years................................... 4 6.97
After ten years................................................... 6 7.36
------ -----
$ 259 6.07%
====== =====
</TABLE>
- --------
*Yields for obligations of states and political subdivisions are calculated on
a tax-equivalent basis using a tax rate of 35%.
76
<PAGE>
SECURITIZATION OF CREDIT CARD RECEIVABLES
Since 1987, the Corporation has actively packaged and sold credit card
assets as securities to investors. The securitization of credit card
receivables is an effective balance sheet management tool since capital is
freed for other uses. In addition, while such securitizations affect net
interest income, the provision for credit losses and noninterest income, net
income is essentially unaffected.
Credit Card continues to service credit card accounts even after receivables
are securitized. Net interest income and certain fee revenue on the
securitized portfolio are not recognized; however, these are offset by
servicing fees as well as by lower provisions for credit losses.
At year-end 1996, $8.9 billion in credit card receivables was securitized,
compared with $7.9 billion at year-end 1995.
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>
1996 1995
--------------------------------- ---------------------------------
CREDIT CARD CREDIT CARD
REPORTED SECURITIZATIONS ADJUSTED REPORTED SECURITIZATIONS ADJUSTED
(IN MILLIONS) -------- --------------- -------- -------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Net interest income--
tax-equivalent basis... $ 3,722 $ 667 $ 4,389 $ 3,311 $ 658 $ 3,969
Provision for credit
losses................. 735 447 1,182 510 336 846
Noninterest income...... 2,548 (220) 2,328 2,591 (322) 2,269
Noninterest expense..... 3,271 -- 3,271 3,535 -- 3,535
Net income.............. 1,436 -- 1,436 1,150 -- 1,150
Assets--year-end........ 104,619 8,888 113,507 122,002 7,877 129,879
- --average............... 112,565 7,672 120,237 122,370 7,179 129,549
</TABLE>
FOREIGN OUTSTANDINGS
The Corporation's cross-border outstandings consist of loans (including
accrued interest), acceptances, interest-bearing deposits with other banks,
equity investments, other interest-bearing investments and other nonlocal
currency monetary assets. The table below presents a breakout of cross-border
outstandings for each of the past three year-ends where such outstandings
exceeded 1.0% of total assets.
<TABLE>
<CAPTION>
BANKS AND
GOVERNMENT OTHER COMMERCIAL
(IN MILLIONS) AND OFFICIAL FINANCIAL AND
COUNTRY DECEMBER 31 INSTITUTIONS INSTITUTIONS INDUSTRIAL OTHER TOTAL
- ------------- ----------- ------------ ------------ ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Japan............ 1996 $ -- $3,677 $ 59 $-- $3,736
1995 -- 6,140 169 20 6,329
1994 -- 4,724 156 30 4,910
Korea............ 1996 $ -- $ 676 $544 $20 $1,240
1995 * * * * *
1994 * * * * *
United Kingdom... 1996 $ * $ * $ * $ * $ *
1995 360 671 292 45 1,368
1994 * * * * *
France........... 1996 $ * $ * $ * $ * $ *
1995 162 1,077 25 -- 1,264
1994 * * * * *
</TABLE>
- --------
*Outstandings were less than 1% of total assets.
77
<PAGE>
At December 31, 1996, the only country for which cross-border outstandings
totaled between 0.75% and 1.0% of total assets was the United Kingdom; such
outstandings totaled $940 million.
At December 31, 1995, the only country for which cross-border outstandings
totaled between 0.75% and 1.0% of total assets was Korea; such outstandings
totaled $1.023 billion.
At December 31, 1994, the only countries for which cross-border outstandings
totaled between 0.75% and 1.0% of total assets were the United Kingdom and
Korea; such outstandings totaled $1.921 billion.
MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY OF LOANS
The following table shows a distribution of the maturity of loans and, for
those loans due after one year, a breakdown between those loans that have
floating interest rates and those that have predetermined interest rates. The
amounts exclude domestic consumer loans and domestic lease financing
receivables.
<TABLE>
<CAPTION>
ONE YEAR ONE TO OVER
DECEMBER 31, 1996 OR LESS FIVE YEARS FIVE YEARS TOTAL
(IN MILLIONS) -------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Domestic
Commercial............................ $15,323 $ 9,977 $2,418 $27,718
Real estate........................... 1,875 2,900 1,385 6,160
------- ------- ------ -------
Total domestic...................... 17,198 12,877 3,803 33,878
Foreign................................. 2,557 755 344 3,656
------- ------- ------ -------
Total............................... $19,755 $13,632 $4,147 $37,534
======= ======= ====== =======
Loans with floating interest rates...... $ 9,332 $2,912 $12,244
Loans with predetermined interest rates. 4,300 1,235 5,535
------- ------ -------
Total............................... $13,632 $4,147 $17,779
======= ====== =======
</TABLE>
NONPERFORMING LOANS
The following table shows a breakout of nonperforming loans for the past
five years.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
DECEMBER 31 (DOLLARS IN MILLIONS) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans.................................. $262 $344 $267 $478 $712
Accrual renegotiated loans........................ -- 19 27 7 5
---- ---- ---- ---- ----
Total nonperforming loans..................... $262 $363 $294 $485 $717
==== ==== ==== ==== ====
Nonperforming loans
Domestic........................................ $257 $360 $284 $421 $589
Foreign......................................... 5 3 10 64 128
---- ---- ---- ---- ----
Total nonperforming loans..................... $262 $363 $294 $485 $717
==== ==== ==== ==== ====
Nonperforming loans/loans outstanding............. 0.4% 0.6% 0.5% 1.0% 1.5%
</TABLE>
LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING INTEREST
The amounts above exclude those domestic loans that were 90 days or more
past due and still accruing interest. Such loans totaled $268 million, $197
million, $150 million, $121 million and $122 million at December 31, 1996,
1995, 1994, 1993 and 1992, respectively.
78
<PAGE>
ALLOCATED ALLOWANCE FOR CREDIT LOSSES
While the allowance for credit losses is available to absorb credit losses
in the entire portfolio, the tables below present an estimate of the allowance
for credit losses allocated by loan type and the percentage of loans in each
category to total loans.
<TABLE>
<CAPTION>
1996 1995 1994 1993
DECEMBER 31 (DOLLARS IN MILLIONS) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Commercial
Domestic...................................... $ 927 $ 929 $ 848 $ 789
Foreign....................................... 66 57 59 81
Consumer
Credit card................................... 355 303 215 201
Other......................................... 59 49 36 35
------ ------ ------ ------
Total....................................... $1,407 $1,338 $1,158 $1,106
====== ====== ====== ======
Percentage of loans to total loans
Commercial
Domestic...................................... 54% 53% 56% 56%
Foreign....................................... 6 6 6 6
Consumer
Credit card................................... 14 15 13 13
Other......................................... 26 26 25 25
------ ------ ------ ------
Total....................................... 100% 100% 100% 100%
====== ====== ====== ======
</TABLE>
Allocation for potential losses not specifically identified is included in
the commercial segment. Allocation information is not available for 1992.
DEPOSITS
The following tables show a maturity distribution of domestic time
certificates of deposit of $100,000 and over, other domestic time deposits of
$100,000 and over, and deposits in foreign offices, predominantly in amounts
in excess of $100,000, at December 31, 1996.
DOMESTIC TIME CERTIFICATES OF DEPOSIT OF $100,000 AND OVER
<TABLE>
<CAPTION>
AMOUNT PERCENT
(DOLLARS IN MILLIONS) ------ -------
<S> <C> <C>
Three months or less............................................. $2,436 61%
Over three months to six months.................................. 506 13
Over six months to twelve months................................. 400 10
Over twelve months............................................... 620 16
------ ---
Total........................................................ $3,962 100%
====== ===
</TABLE>
DOMESTIC OTHER TIME DEPOSITS OF $100,000 AND OVER
<TABLE>
<CAPTION>
AMOUNT PERCENT
(DOLLARS IN MILLIONS) ------ -------
<S> <C> <C>
Three months or less............................................. $ 618 52%
Over three months to six months.................................. 215 18
Over six months to twelve months................................. 143 12
Over twelve months............................................... 205 18
------ ---
Total........................................................ $1,181 100%
====== ===
</TABLE>
79
<PAGE>
FOREIGN OFFICES
<TABLE>
<CAPTION>
AMOUNT PERCENT
(DOLLARS IN MILLIONS) ------- -------
<S> <C> <C>
Three months or less............................................ $10,987 98%
Over three months to six months................................. 156 1
Over six months to twelve months................................ 105 1
Over twelve months.............................................. 3 --
------- ---
Total....................................................... $11,251 100%
======= ===
</TABLE>
SHORT-TERM BORROWINGS
Borrowings with original maturities of one year or less are classified as
short-term. The following is a summary of short-term borrowings for each of the
three years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(DOLLARS IN MILLIONS) ------- ------- -------
<S> <C> <C> <C>
Federal funds purchased
Outstanding at year-end............................ $ 3,938 $ 3,447 $ 2,562
Weighted average rate at year-end.................. 5.58% 5.49% 5.72%
Daily average outstanding for the year............. $ 3,025 $ 3,505 $ 2,846
Weighted average rate for the year................. 5.68% 6.24% 4.48%
Highest outstanding at any month-end............... $ 3,938 $ 4,824 $ 3,087
Securities under repurchase agreements
Outstanding at year-end............................ $ 3,921 $12,264 $14,357
Weighted average rate at year-end.................. 5.78% 5.79% 4.65%
Daily average outstanding for the year............. $ 9,699 $16,536 $13,519
Weighted average rate for the year................. 5.15% 5.88% 4.27%
Highest outstanding at any month-end............... $15,459 $20,439 $17,977
Bank notes
Outstanding at year-end............................ $ 4,346 $ 7,027 $ 6,070
Weighted average rate at year-end.................. 5.60% 5.93% 5.72%
Daily average outstanding for the year............. $ 7,359 $ 5,731 $ 5,181
Weighted average rate for the year................. 5.62% 5.96% 4.71%
Highest outstanding at any month-end............... $ 9,102 $ 7,027 $ 6,537
Other short-term borrowings
Outstanding at year-end............................ $ 3,226 $ 2,775 $ 2,352
Weighted average rate at year-end.................. 5.51% 5.45% 4.51%
Daily average outstanding for the year............. $ 3,250 $ 3,436 $ 3,448
Weighted average rate for the year................. 4.27% 5.72% 3.88%
Highest outstanding at any month-end............... $ 4,839 $ 4,212 $ 4,722
Total short-term borrowings
Outstanding at year-end............................ $15,431 $25,513 $25,341
Weighted average rate at year-end.................. 5.62% 5.75% 5.00%
Daily average outstanding for the year............. $23,333 $29,208 $24,994
Weighted average rate for the year................. 5.24% 5.92% 4.33%
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
COMMON STOCK AND STOCKHOLDER DATA* ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Market price
High for the year.................... $58 7/8 $42 1/2 $33 $36 3/8 $33 1/8
Low for the year..................... 34 3/4 27 3/8 26 3/4 28 5/8 26 3/4
At year-end.......................... 53 3/4 39 1/2 27 3/8 29 3/4 32 3/4
Book value (at year-end)............... 27.31 25.25 22.60 21.25 18.27
Dividend payout ratio.................. 34% 39% 34% 28% 89%
</TABLE>
- --------
* There were 39,438 common stockholders of record as of December 31, 1996.
80
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
FINANCIAL RATIOS ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income as a percentage of:
Average stockholders' equity.................. 16.4% 13.8% 15.8% 18.5% 6.4%
Average common stockholders' equity........... 17.0 14.3 16.6 19.9 6.3
Average total assets.......................... 1.28 0.94 1.13 1.33 0.42
Average earning assets........................ 1.48 1.09 1.32 1.52 0.48
Stockholders' equity at year-end as a percentage
of:
Total assets at year-end...................... 8.6 6.9 6.9 8.1 7.0
Total loans at year-end....................... 13.6 13.1 14.2 15.4 13.2
Total deposits at year-end.................... 14.2 12.2 12.0 12.9 10.4
Average stockholders' equity as a percentage of:
Average assets................................ 7.8 6.8 7.2 7.2 6.5
Average loans................................. 13.5 14.1 15.4 14.8 12.6
Average deposits.............................. 13.6 12.4 12.8 11.7 9.9
Income to fixed charges:
Excluding interest on deposits................ 2.2X 1.8x 2.2x 3.0x 1.3x
Including interest on deposits................ 1.5X 1.4x 1.6x 1.8x 1.1x
</TABLE>
QUARTERLY DIVIDENDS AND MARKET PRICE SUMMARY
<TABLE>
<CAPTION>
STOCK MARKET
DIVIDENDS PRICE RANGE (1)
DECLARED ---------------
PER SHARE LOW HIGH
--------- ------- -------
<S> <C> <C> <C>
1996
First quarter....................................... $0.36 $34 3/4 $44 1/4
Second quarter...................................... 0.36 38 5/8 45 1/2
Third quarter....................................... 0.36 36 5/8 45 1/4
Fourth quarter...................................... 0.40 45 58 7/8
-----
Year.............................................. $1.48 34 3/4 58 7/8
=====
1995
First quarter....................................... $0.33 $27 3/8 $32 7/8
Second quarter...................................... 0.33 30 1/8 33 1/4
Third quarter....................................... 0.33 31 1/2 39 1/4
Fourth quarter...................................... 0.36 36 1/2 42 1/2
-----
Year.............................................. $1.35 27 3/8 42 1/2
=====
</TABLE>
- --------
(1) The principal market for the Corporation's common stock is the New York
Stock Exchange (the "NYSE"). In addition to the NYSE, the Corporation's
common stock is listed on the Chicago Stock Exchange and the Pacific Stock
Exchange.
81
<PAGE>
CONSOLIDATED SUMMARY OF QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1996 (IN MILLIONS, EXCEPT PER SHARE DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
DATA) ----------- ------------ ------- --------
<S> <C> <C> <C> <C>
Interest income..................... $1,747 $1,908 $1,922 $1,992
Net interest income................. 883 942 910 885
Provision for credit losses......... 190 185 185 175
Noninterest income.................. 682 597 643 626
Noninterest expense................. 813 816 814 828
Net income.......................... 377 358 361 340
Earnings per share
Primary........................... $1.15 $1.09 $1.10 $1.04
Fully diluted..................... 1.14 1.08 1.09 1.03
<CAPTION>
1995 (IN MILLIONS, EXCEPT PER SHARE DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
DATA) ----------- ------------ ------- --------
<S> <C> <C> <C> <C>
Interest income..................... $2,066 $2,054 $2,011 $1,959
Net interest income................. 834 796 784 794
Provision for credit losses......... 210 125 90 85
Noninterest income.................. 655 702 631 603
Noninterest expense................. 1,088 827 821 799
Net income.......................... 126 357 331 336
Earnings per share
Primary........................... $0.37 $1.07 $0.99 $1.01
Fully diluted..................... 0.37 1.06 0.98 0.99
</TABLE>
82
<PAGE>
[This Page Intentionally Left Blank]
83
<PAGE>
AVERAGE BALANCES/NET INTEREST MARGIN/RATES
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1996 1995
YEAR ENDED DECEMBER 31 -------------------------- --------------------------
(INCOME AND RATES ON TAX- AVERAGE AVERAGE AVERAGE AVERAGE
EQUIVALENT BASIS) BALANCE INTEREST RATE BALANCE INTEREST RATE
(DOLLARS IN MILLIONS) -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing due from
banks (1)................ $ 7,995 $ 463 5.79% $ 10,011 $ 620 6.19%
Federal funds sold and
securities under resale
agreements............... 9,597 510 5.31 15,701 922 5.87
Trading assets............ 6,990 397 5.68 7,300 469 6.42
Investment securities (2)
U.S. government and
federal agency.......... 5,165 343 6.64 10,023 681 6.79
States and political
subdivisions............ 1,319 118 8.95 1,546 141 9.12
Other.................... 1,259 72 5.72 1,781 71 3.99
-------- ------ ---- -------- ------ ----
Total investment
securities............ 7,743 533 6.88 13,350 893 6.69
Loans (3)(4)
Domestic offices......... 61,441 5,532 9.12 55,530 5,043 9.21
Foreign offices.......... 3,508 236 6.73 3,414 246 7.21
-------- ------ ---- -------- ------ ----
Total loans............ 64,949 5,768 8.99 58,944 5,289 9.09
-------- ------ ---- -------- ------ ----
Total earning assets
(5)................... 97,274 7,671 7.89 105,306 8,193 7.78
Cash and due from banks... 6,248 6,328
Allowance for credit
losses................... (1,396) (1,198)
Other assets.............. 10,439 11,934
-------- --------
Total assets........... $112,565 $122,370
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits--interest-bearing
Savings.................. $ 10,940 $ 244 2.23% $ 11,716 $ 298 2.54%
Money market............. 9,904 364 3.68 8,942 369 4.13
Time..................... 16,008 880 5.50 17,346 1,008 5.81
Foreign offices (6)...... 13,452 687 5.11 15,821 906 5.73
-------- ------ ---- -------- ------ ----
Total deposits--
interest-bearing...... 50,304 2,175 4.32 53,825 2,581 4.80
Federal funds purchased
and securities under
repurchase agreements.... 12,724 671 5.27 20,041 1,192 5.95
Other short-term
borrowings............... 10,609 552 5.20 9,167 538 5.87
Long-term debt............ 8,173 551 6.74 7,941 571 7.19
-------- ------ ---- -------- ------ ----
Total interest-bearing
liabilities........... 81,810 3,949 4.83 90,974 4,882 5.37
Demand deposits........... 13,724 13,254
Other liabilities......... 8,295 9,807
Preferred stock........... 483 570
Common stockholders'
equity................... 8,253 7,765
-------- --------
Total liabilities and
stockholders' equity.. $112,565 $122,370
======== ========
Interest income/earning
assets (5)............... $7,671 7.89% $8,193 7.78%
Interest expense/earning
assets................... 3,949 4.06 4,882 4.64
------ ---- ------ ----
Net interest margin....... $3,722 3.83% $3,311 3.14%
====== ==== ====== ====
</TABLE>
- --------
(1) Principally balances in overseas offices.
(2) The combined amounts for investment securities available-for-sale and
held-to-maturity are based on their respective carrying values. Based on
the amortized cost of investment securities available-for-sale, the
combined average balance for 1996 and 1995 would be $7.597 billion and
$13.428 billion, respectively, and the average earned rate in 1996 and
1995 would be 7.02% and 6.65%, respectively.
(3) Average lease-financing receivables are reduced by related deferred tax
liabilities in calculating the average rate.
(4) Nonperforming loans are included in average balances used to determine
rates.
(5) Includes tax-equivalent adjustments based on federal income tax rate of
35% for 1996, 1995, 1994 and 1993, and 34% for 1992.
(6) Includes International Banking Facilities' deposit balances in domestic
offices and balances of Edge Act and overseas offices.
84
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------- -------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8,497 $ 395 4.65% $ 8,098 $ 332 4.10% $ 8,136 $ 406 4.99%
14,340 624 4.35 11,740 350 2.98 8,356 291 3.48
4,927 286 5.80 4,876 229 4.70 4,556 270 5.93
11,093 698 6.29 8,973 585 6.52 8,084 613 7.58
1,649 146 8.85 1,757 151 8.59 2,009 179 8.91
1,990 48 2.41 2,054 57 2.78 2,552 95 3.72
-------- ------ ---- ------- ------ ---- ------- ------ ----
14,732 892 6.05 12,784 793 6.20 12,645 887 7.01
47,208 3,832 8.24 44,262 3,441 7.88 45,514 3,678 8.17
2,894 194 6.70 3,131 211 6.74 3,727 293 7.86
-------- ------ ---- ------- ------ ---- ------- ------ ----
50,102 4,026 8.15 47,393 3,652 7.80 49,241 3,971 8.15
-------- ------ ---- ------- ------ ---- ------- ------ ----
92,598 6,223 6.72 84,891 5,356 6.31 82,934 5,825 7.02
6,553 6,171 5,425
(1,132) (1,062) (1,117)
9,827 6,642 6,968
-------- ------- -------
$107,846 $96,642 $94,210
======== ======= =======
$ 11,815 $ 274 2.32% $11,100 $ 265 2.39% $ 9,732 $ 296 3.04%
9,280 261 2.81 10,163 247 2.43 10,211 311 3.05
13,650 570 4.18 14,204 543 3.82 18,665 910 4.88
12,347 548 4.44 10,944 417 3.81 11,972 566 4.73
-------- ------ ---- ------- ------ ---- ------- ------ ----
47,092 1,653 3.51 46,411 1,472 3.17 50,580 2,083 4.12
16,365 704 4.30 13,245 404 3.05 13,419 469 3.50
8,629 378 4.38 7,374 253 3.43 3,896 159 4.08
6,755 445 6.59 4,817 334 6.93 4,025 310 7.70
-------- ------ ---- ------- ------ ---- ------- ------ ----
78,841 3,180 4.03 71,847 2,463 3.43 71,920 3,021 4.20
13,377 13,078 11,620
7,898 4,730 4,505
686 794 581
7,044 6,193 5,584
-------- ------- -------
$107,846 $96,642 $94,210
======== ======= =======
$6,223 6.72% $5,356 6.31% $5,825 7.02%
3,180 3.43 2,463 2.90 3,021 3.64
------ ---- ------ ---- ------ ----
$3,043 3.29% $2,893 3.41% $2,804 3.38%
====== ==== ====== ==== ====== ====
</TABLE>
85
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table shows the approximate effect on net interest income of
volume and rate changes for 1996 and 1995. For purposes of this table, changes
that are not due solely to volume or rate changes are allocated to volume.
<TABLE>
<CAPTION>
1996 OVER 1995 1995 OVER 1994
------------------- ------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
YEAR ENDED DECEMBER 31 (IN MILLIONS) ------ ---- ----- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
Interest income
Interest-bearing due from banks...... $(117) $(40) $(157) $ 94 $131 $ 225
Federal funds sold and securities
under resale agreements............. (324) (88) (412) 80 218 298
Trading assets....................... (18) (54) (72) 152 31 183
Investment securities
U.S. government and federal agency. (323) (15) (338) (73) 56 (17)
States and political subdivisions.. (20) (3) (23) (9) 4 (5)
Other.............................. (30) 31 1 (8) 31 23
Loans
Domestic offices................... 532 (43) 489 756 455 1,211
Foreign offices.................... 6 (16) (10) 37 15 52
----- ------
Total.............................. (522) 1,970
Increase (decrease) in
Interest expense
Deposits
Savings............................ (17) (37) (54) (3) 27 24
Money market....................... 35 (40) (5) (14) 122 108
Time............................... (74) (54) (128) 215 223 438
Foreign offices.................... (121) (98) (219) 199 159 358
Federal funds purchased and
securities under repurchase
agreements.......................... (386) (135) (521) 219 269 488
Other short-term borrowings.......... 75 (61) 14 32 128 160
Long-term debt....................... 16 (36) (20) 85 41 126
----- ------
Total.............................. (933) 1,702
----- ------
Increase in net interest income...... $ 411 $ 268
===== ======
</TABLE>
ITEM 2. PROPERTIES
The Corporation's headquarters are at One First National Plaza, Chicago,
Illinois, a 60-story building located in the center of the Chicago "Loop"
business district. The building is master-leased by FNBC and has approximately
1,850,000 square feet of rentable space, of which the Corporation occupies
approximately 57% and the balance is subleased to others. The Corporation also
owns a 23-story office building in Chicago's west Loop business district, to
be used for future operations consolidation and expansion, and three buildings
in Elgin, Illinois, used for FCCNB operations. In 1996, the Corporation
purchased 23.2 acres of land in Springfield, Missouri, on which construction
of a 150,000-square-foot FCCNB processing center has begun.
NBD Michigan owns and occupies a 14-story, 540,000-square-foot main office
building in Detroit's central financial and business district; a 14-story,
300,000-square-foot office building in Troy, Michigan, housing its retail
support activities; and a 380,000-square-foot facility in Van Buren Township,
near Detroit Metropolitan Airport, housing its data center and check
processing operations. NBD Michigan also owns approximately 143 acres of land
in Farmington Hills, Michigan, for possible future facility needs. In
addition, NBD Michigan leases
86
<PAGE>
and occupies a 200,000-square-foot office center in Troy, Michigan, and NBD
Indiana leases and occupies the majority of a 380,000-square-foot office
building in Indianapolis, Indiana.
At December 31, 1996, the Corporation and its subsidiaries occupied a total
of 892 locations within the United States. The Corporation has foreign offices
in: Adelaide, Melbourne and Sydney, Australia; Beijing; Buenos Aires;
Frankfurt; Hong Kong; London; Mexico City; Seoul; Singapore; Taipei; Tokyo;
and Toronto and Windsor, Canada. These offices all are located in leased
premises.
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is set forth in Note 18 to the
Consolidated Financial Statements, on page 68 of this Form 10-K, and is
expressly incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
PRESENT POSITION HELD WITH THE CORPORATION AND
NAME AND AGE EFFECTIVE DATE FIRST ELECTED TO OFFICE INDICATED
- ------------ ------------------------------------------------
<S> <C>
Verne G. Istock (56).... Director (10-1-85), Chairman of the Board (5-10-96), Chief
Executive Officer (1-1-94) and President (12-1-95)
Thomas H. Jeffs II (58). Director and Vice Chairman of the Board (10-1-85)
Scott P. Marks, Jr.
(51)................... Director and Vice Chairman of the Board (12-1-95)
David J. Vitale (50).... Director and Vice Chairman of the Board (12-1-95)
Frederick M. Adams, Jr.
(52)................... Executive Vice President (6-15-92)
John W. Ballantine (51). Executive Vice President (12-1-95)
David P. Bolger (39).... Executive Vice President (10-11-96)
William H. Elliott III
(55)................... Executive Vice President (10-15-96)
Sherman I. Goldberg Executive Vice President, General Counsel and Secretary (12-1-
(54)................... 95)
Philip S. Jones (54).... Executive Vice President (6-15-92)
W.G. Jurgensen (45)..... Executive Vice President (12-1-95)
Thomas J. McDowell (58). Executive Vice President (1-1-95)
Timothy P. Moen (44).... Executive Vice President (12-1-95)
Susan S. Moody (43)..... Executive Vice President (1-1-95)
Andrew J. Paine, Jr.
(59)................... Executive Vice President (10-15-92)
Robert A. Rosholt (47).. Executive Vice President and Chief Financial Officer (12-1-95)
Willard A. Valpey (53).. Executive Vice President (3-8-96)
</TABLE>
Excluding Mr. Elliott, each of the executive officers has served as an
officer of the Corporation or a subsidiary, or their respective predecessors,
for more than five years. Prior to joining the Corporation in 1996, Mr.
Elliott held various executive positions with AT&T and its subsidiaries for
more than five years. Executive officers of the Corporation serve until the
annual meeting of the Board of Directors (May 9, 1997).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is set forth in this Form 10-K in the
"Common Stock and Stockholder Data" table on page 80 and the "Quarterly
Dividends and Market Price Summary" table on page 81, and is expressly
incorporated herein by reference.
87
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in this Form 10-K in the
"Selected Financial Data" table on page 13 and the "Financial Ratios" table on
page 81, and is expressly incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is set forth on pages 13 to 40 of this
Form 10-K, and is expressly incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth in this Form 10-K in the
"Selected Financial Data" table on page 13, the "Selected Statistical
Information" table on page 30, the "Loan Composition" table on page 31, the
Consolidated Financial Statements and the Notes thereto on pages 41 to 72, the
"Report of Independent Public Accountants" on page 75 and the "Selected
Statistical Information" section on pages 76 to 86, and is expressly
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this Item has been previously reported in the
Corporation's Current Report on Form 8-K dated September 18, 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item pertaining to executive officers of
the Corporation is set forth on page 87 of this Form 10-K under the heading
"Executive Officers of the Registrant," and is expressly incorporated herein
by reference. The information required by this Item pertaining to directors of
the Corporation is set forth under the heading "Election of Directors" in the
Corporation's definitive proxy statement dated March 28, 1997, and is
expressly incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the headings
"Compensation of Executive Officers," "Director Meeting Attendance and Fee
Arrangements" and "Committees of the Board of Directors--Organization,
Compensation and Nominating Committee--Committee Interlocks and Insider
Participation" in the Corporation's definitive proxy statement dated March 28,
1997, and is expressly incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth under the heading
"Beneficial Ownership of the Corporation's Common Stock" in the Corporation's
definitive proxy statement dated March 28, 1997, and is expressly incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth under the headings
"Committees of the Board of Directors--Organization, Compensation and
Nominating Committee--Committee Interlocks and Insider Participation" and
"Transactions with Directors, Executive Officers, Stockholders and Associates"
in the Corporation's definitive proxy statement dated March 28, 1997, and is
expressly incorporated herein by reference.
88
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet--December 31, 1996 and 1995................. 41
Consolidated Income Statement--Three Years Ended December 31, 1996..... 42
Consolidated Statement of Stockholders' Equity--Three Years Ended
December 31, 1996..................................................... 43
Consolidated Statement of Cash Flows--Three Years Ended December 31,
1996.................................................................. 44
Notes to Financial Statements.......................................... 45
</TABLE>
(2) Financial Statement Schedules.
All schedules normally required by Form 10-K are omitted since they either
are not applicable or the required information is shown in the financial
statements or the notes thereto.
(3) Exhibits.
<TABLE>
<C> <S> <C>
3(A). Restated Certificate of Incorporation of the Corporation,
as amended [Exhibit 3(A) to the Corporation's 1995 Annual
Report on Form 10-K (File No. 1-7127) incorporated herein
by reference].
3(B). By-Laws of the Corporation, as amended.
4. Instruments defining the rights of security holders, in-
cluding indentures.+
10(A). NBD Bancorp, Inc. Performance Incentive Plan, as amended
[Exhibit 10(a) to the Corporation's 1991 Annual Report on
Form 10-K (File No. 1-7127) incorporated herein by refer-
ence].*
10(B). First Chicago NBD Corporation Plan for Deferring the Pay-
ment of Directors' Fees [Exhibit 10(D) to the Corpora-
tion's 1995 Annual Report on Form 10-K (File No. 1-7127)
incorporated herein by reference].*
10(C). Form of First Chicago NBD Corporation Executive Estate
Plan.*
10(D). First Chicago NBD Corporation Financial Planning Program
for Executives.*
10(E). Supplemental Disability and Split-Dollar Life Insurance
Policies of NBD Indiana, Inc. covering the named executive
officers [Exhibit 10(i) to the Corporation's 1992 Annual
Report on Form 10-K (File No. 1-7127) incorporated herein
by reference].*
10(F). Form of First Chicago NBD Corporation Long-Term Disability
Restoration Plan.*
10(G). First Chicago Corporation Stock Incentive Plan [Exhibit
10(A) to FCC's 1990 Annual Report on Form 10-K (File No.
1-6052) incorporated herein by reference].*
10(H). First Chicago Corporation Strategic Stock Incentive Plan,
as amended [Exhibit 10(A) to FCC's 1988 Annual Report on
Form 10-K (File No. 1-6052) incorporated herein by
reference].*
10(I). First Chicago Corporation 1983 Stock Option Plan, as
amended and restated [Exhibit 28 to FCC's Post-Effective
Amendment No. 1 to Form S-8 Registration Statement (File
No. 33-15779) incorporated herein by reference].*
10(J). Form of First Chicago NBD Corporation Deferred Compensa-
tion Plan.*
10(K). Form of First Chicago NBD Corporation Supplemental Savings
and Investment Plan.*
10(L). Form of First Chicago NBD Corporation Supplemental Per-
sonal Pension Account Plan.*
10(M). Form of Individual Change of Control Employment Agree-
ment.*
</TABLE>
89
<PAGE>
<TABLE>
<C> <S> <C>
10(N). Form of Individual Executive Employment Agreement.*
10(O). First Chicago Corporation Trust Agreement (Trust A) [Ex-
hibit 10(K) to FCC's 1992 Annual Report on Form 10-K (File
No. 1-6052) incorporated herein by reference].*
10(P). First Chicago Corporation Trust Agreement (Trust B) [Ex-
hibit 10(L) to FCC's 1992 Annual Report on Form 10-K (File
No. 1-6052) incorporated herein by reference].*
10(Q). NBD Bancorp, Inc. Benefit Protection Trust Agreement.*
10(R). First Chicago NBD Corporation Director Stock Plan [Exhibit
10(X) to the Corporation's 1995 Annual Report on Form 10-K
(File No. 1-7127) incorporated herein by reference].*
10(S). First Chicago NBD Corporation Stock Performance Plan [Ex-
hibit 10(Y) to the Corporation's 1995 Annual Report on
Form 10-K (File No. 1-7127) incorporated herein by
reference].*
10(T). First Chicago NBD Corporation Senior Management Annual In-
centive Plan [Exhibit 10(Z) to the Corporation's 1995 An-
nual Report on Form 10-K (File No. 1-7127) incorporated
herein by reference].*
10(U). Agreement and Plan of Merger, dated as of July 11, 1995,
between NBD Bancorp, Inc. and First Chicago Corporation,
as amended [Exhibit 10(AA) to the Corporation's 1995 An-
nual Report on Form 10-K (File No. 1-7127) incorporated
herein by reference].
12. Statements re computation of ratios.
21. Subsidiaries of the Corporation.
23. Consents of experts and counsel.
27. Financial Data Schedule.
</TABLE>
(b) The Corporation filed the following Current Reports on Form 8-K during the
quarter ended December 31, 1996:
<TABLE>
<CAPTION>
DATE ITEM REPORTED
---- -------------
<S> <C>
October 15, 1996 The Corporation's earnings for the quarter ended
September 30, 1996.
</TABLE>
- --------
+ The Corporation hereby agrees to furnish to the Commission upon request
copies of instruments defining the rights of holders of long-term debt of
the Corporation and its consolidated subsidiaries; the total amount of
such debt does not exceed 10% of the total assets of the Corporation and
its subsidiaries on a consolidated basis.
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
90
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE CORPORATION HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, THIS 14TH DAY OF
FEBRUARY, 1997.
First Chicago NBD Corporation
(Registrant)
/s/ Verne G. Istock
By __________________________________
Verne G. Istock
Principal Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
CORPORATION AND IN THE CAPACITIES INDICATED, THIS 14TH DAY OF FEBRUARY, 1997.
/s/ Terence E. Adderley /s/ Scott P. Marks, Jr.
- ------------------------------------- -------------------------------------
Terence E. Adderley Scott P. Marks, Jr.
Director Director
/s/ James K. Baker /s/ William T. McCormick, Jr.
- ------------------------------------- -------------------------------------
James K. Baker William T. McCormick, Jr.
Director Director
/s/ John H. Bryan /s/ Earl L. Neal
- ------------------------------------- -------------------------------------
John H. Bryan Earl L. Neal
Director Director
/s/ Siegfried Buschmann /s/ James J. O'Connor
- ------------------------------------- -------------------------------------
Siegfried Buschmann James J. O'Connor
Director Director
/s/ James S. Crown /s/ Thomas E. Reilly, Jr.
- ------------------------------------- -------------------------------------
James S. Crown Thomas E. Reilly, Jr.
Director Director
/s/ Maureen A. Fay /s/ Patrick G. Ryan
- ------------------------------------- -------------------------------------
Maureen A. Fay Patrick G. Ryan
Director Director
/s/ Charles T. Fisher III /s/ Adele Simmons
- ------------------------------------- -------------------------------------
Charles T. Fisher III Adele Simmons
Director Director
/s/ Donald V. Fites /s/ Richard L. Thomas
- ------------------------------------- -------------------------------------
Donald V. Fites Richard L. Thomas
Director Director
/s/ Verne G. Istock /s/ David J. Vitale
- ------------------------------------- -------------------------------------
Verne G. Istock David J. Vitale
Director Director
/s/ Thomas H. Jeffs II /s/ Robert A. Rosholt
- ------------------------------------- -------------------------------------
Thomas H. Jeffs II Robert A. Rosholt
Director Principal Financial Officer
/s/ Richard A. Manoogian /s/ William J. Roberts
- ------------------------------------- -------------------------------------
Richard A. Manoogian William J. Roberts
Director Principal Accounting Officer
91
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX TO EXHIBITS PAGE
- ------- ----------------- ----
<C> <S> <C>
3(A). Restated Certificate of Incorporation of the Corporation,
as amended [Exhibit 3(A) to the Corporation's 1995 Annual
Report on Form 10-K (File No. 1-7127) incorporated herein
by reference].
3(B). By-Laws of the Corporation, as amended.
4. Instruments defining the rights of security holders, in-
cluding indentures.+
10(A). NBD Bancorp, Inc. Performance Incentive Plan, as amended
[Exhibit 10(a) to the Corporation's 1991 Annual Report on
Form 10-K (File No. 1-7127) incorporated herein by refer-
ence].
10(B). First Chicago NBD Corporation Plan for Deferring the Pay-
ment of Directors' Fees [Exhibit 10(D) to the Corpora-
tion's 1995 Annual Report on Form 10-K (File No. 1-7127)
incorporated herein by reference].
10(C). Form of First Chicago NBD Corporation Executive Estate
Plan.
10(D). First Chicago NBD Corporation Financial Planning Program
for Executives.
10(E). Supplemental Disability and Split-Dollar Life Insurance
Policies of NBD Indiana, Inc. covering the named executive
officers [Exhibit 10(i) to the Corporation's 1992 Annual
Report on Form 10-K (File No. 1-7127) incorporated herein
by reference].
10(F). Form of First Chicago NBD Corporation Long-Term Disability
Restoration Plan.
10(G). First Chicago Corporation Stock Incentive Plan [Exhibit
10(A) to FCC's 1990 Annual Report on Form 10-K (File No.
1-6052) incorporated herein by reference].
10(H). First Chicago Corporation Strategic Stock Incentive Plan,
as amended [Exhibit 10(A) to FCC's 1988 Annual Report on
Form 10-K (File No. 1-6052) incorporated herein by
reference].
10(I). First Chicago Corporation 1983 Stock Option Plan, as
amended and restated [Exhibit 28 to FCC's Post-Effective
Amendment No. 1 to Form S-8 Registration Statement (File
No. 33-15779) incorporated herein by reference].
10(J). Form of First Chicago NBD Corporation Deferred Compensa-
tion Plan.
10(K). Form of First Chicago NBD Corporation Supplemental Savings
and Investment Plan.
10(L). Form of First Chicago NBD Corporation Supplemental Per-
sonal Pension Account Plan.
10(M). Form of Individual Change of Control Employment Agree-
ment.
10(N). Form of Individual Executive Employment Agreement.
10(O). First Chicago Corporation Trust Agreement (Trust A) [Ex-
hibit 10(K) to FCC's 1992 Annual Report on Form 10-K (File
No. 1-6052) incorporated herein by reference].
10(P). First Chicago Corporation Trust Agreement (Trust B) [Ex-
hibit 10(L) to FCC's 1992 Annual Report on Form 10-K (File
No. 1-6052) incorporated herein by reference].
10(Q). NBD Bancorp, Inc. Benefit Protection Trust Agreement.
10(R). First Chicago NBD Corporation Director Stock Plan [Exhibit
10(X) to the Corporation's 1995 Annual Report on Form 10-K
(File No. 1-7127) incorporated herein by reference].
10(S). First Chicago NBD Corporation Stock Performance Plan [Ex-
hibit 10(Y) to the Corporation's 1995 Annual Report on
Form 10-K (File No. 1-7127) incorporated herein by
reference].
10(T). First Chicago NBD Corporation Senior Management Annual In-
centive Plan [Exhibit 10(Z) to the Corporation's 1995 An-
nual Report on Form 10-K (File No. 1-7127) incorporated
herein by reference].
10(U). Agreement and Plan of Merger, dated as of July 11, 1995,
between NBD Bancorp, Inc. and First Chicago Corporation,
as amended [Exhibit 10(AA) to the Corporation's 1995 An-
nual Report on Form 10-K (File No. 1-7127) incorporated
herein by reference].
12. Statements re computation of ratios.
21. Subsidiaries of the Corporation.
23. Consents of experts and counsel.
27. Financial Data Schedule.
</TABLE>
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+ The Corporation hereby agrees to furnish to the Commission upon request copies
of instruments defining the rights of holders of long-term debt of the
Corporation and its consolidated subsidiaries; the total amount of such debt
does not exceed 10% of the total assets of the Corporation and its
subsidiaries on a consolidated basis.
<PAGE>
EXHIBIT 3(B)
BY-LAWS
As Amended and Restated
July 12, 1996
First Chicago NBD Corporation
(A Delaware Corporation)
________________________________________________________________________________
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation is
located at 1209 Orange Street, Wilmington, Delaware 19801. The Corporation may,
by resolution of the Board of Directors, change the location to any other place
in Delaware.
Section 2. Other Offices. The Corporation may have such other offices, within
or without the State of Delaware, as the Board of Directors may from time to
time establish.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of the stockholders for the
election of directors and for the transaction of any other business as may
properly come before the meeting shall be held on the second Friday in May of
each year or on such other date as from time to time may be designated by the
Board of Directors.
Section 2. Special Meetings. A special meeting of the stockholders may be
called at any time only by the Board of Directors pursuant to a resolution
approved by a majority of the Board of Directors.
Section 3. Place of Meetings. The Board of Directors may designate any place,
either within or without the State of Delaware, as the place of meeting for any
annual meeting or for any special meeting of stockholders.
Section 4. Notice of Meetings. Written notice stating the place, date and hour
of the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or under the direction of the
Secretary, to each stockholder of record entitled to vote at such meeting.
Except as otherwise required by statute, the written notice shall be given not
less than ten nor more than sixty days before the date of the meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid,
<PAGE>
directed to the stockholder at his address as it appears on the records of the
Corporation. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Any previously scheduled meeting of the
stockholders may be postponed, and (unless the Certificate of Incorporation
otherwise provides) any special meeting of the stockholders may be cancelled, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.
Section 5. Quorum. Except as otherwise required by statute, the presence at
any meeting, in person or by proxy, of a majority of the shares then issued and
outstanding and entitled to vote shall be necessary and sufficient to constitute
a quorum for the transaction of business. The Chairman of the meeting or a
majority of the shares so represented may adjourn the meeting from time to time,
whether or not there is such a quorum. The stockholders present at a duly called
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 6. Voting Lists. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders of record entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder of record
who is present.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Proxies. Each stockholder of record entitled to vote at a meeting
of stockholders may authorize another person or persons (but no more than two)
to act for him by proxy, but no such proxy shall be voted or acted upon other
than at the meeting specified in the proxy or any adjournment of such meeting.
Section 9. Voting Rights. Except as otherwise provided by statute or by the
Certificate of Incorporation, and subject to the provisions of Article VI of
these By-Laws, each stockholder of record shall at every meeting of the
stockholders be entitled to one vote for each share of the capital stock having
voting power held by such stockholder.
Section 10. Notice of Stockholder Business and Nominations.
A. Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation may be made at an annual meeting of
stockholders pursuant the procedures set forth in the Certificate
of Incorporation. Proposals of other business to be considered by
the stockholders may be made at an annual meeting of stockholders
(a) pursuant to the Corporation's notice of meeting, (b) by or at
the direction of the Board of Directors or (c) by any stockholder
of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this By-Law, who is entitled to
vote at the meeting and who complies with the notice procedures
set forth in this By-Law.
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<PAGE>
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c)
of paragraph (A)(1) of this By-Law, the stockholder must have
given timely notice thereof in writing to the Secretary of the
Corporation and such business must otherwise be a proper matter
for stockholder action. To be timely, a stockholder's notice
shall be delivered to or mailed, postage prepaid, and received by
the Secretary at the principal executive offices of the
Corporation at least 60 days but no more than 90 days prior to
the anniversary date of the immediately preceding annual meeting
of stockholders; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more
than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than
the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later of
the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of
such meeting is first made by the Corporation. In no event shall
the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set
forth (a) as to director nominations, that information which is
required by the Certificate of Incorporation; (b) as to any
business, other than the nomination of director candidates, that
the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this By-Law to the contrary, in the event that the
number of directors to be elected to the Board of Directors of
the Corporation is increased and there is no public announcement
by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least
70 days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by this By-Law
shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business
on the 10th day following the day on which such public
announcement is first made by the Corporation.
B. Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors of the Corporation
may be made at a special meeting of stockholders (a) by the Board
of Directors, on behalf of the Board of Directors by any
nominating committee appointed by the Board of Directors, or (b)
provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of
the Corporation entitled to vote for the election of directors at
the meeting. In the event the Corporation calls a special meeting
of stockholders for the purpose of electing one or more directors
to the Board of Directors, any such stockholder may nominate a
person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting,
if the stockholder's notice required by paragraph (A)(2) of this
By-Law shall be delivered to the Secretary at the principal
executive offices of the Corporation at least 60 days but no more
than 90 days prior to such special meeting or the 10th day
following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event
shall the public announcement of an adjournment of a special
meeting commence a new time period for the giving of a
stockholder's notice as described above.
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<PAGE>
C. General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in the Certificate of Incorporation and this
By-Law shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the
procedures set forth in this By-Law. Whenever the language of a
proposed resolution is included in a written notice of a meeting
of stockholders the resolution may be adopted at such meeting
with only such clarifying or other amendments as do not enlarge
its original purpose without further notice to stockholders not
present in person or by proxy. Except as otherwise provided by
law, the Certificate of Incorporation or these By-Laws, the
Chairman of the meeting shall have the power and duty to
determine whether any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance
with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with the Certificate
of Incorporation or this By-Law, to declare that such defective
proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or
15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this By-Law. Nothing in this
By-Law shall be deemed to affect any rights (i) of stockholders
to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii)
of the holders of any series of Preferred Stock to elect
directors under specified circumstances.
Section 11. Required Vote. Except as otherwise required by statute or by the
Certificate of Incorporation, in all matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall decide any question brought before a meeting of the stockholders at which
a quorum is present.
Section 12. Elections of Directors. Elections of directors shall be by ballot,
and, subject to the rights of the holders of any series of Preferred Stock to
elect directors under specified circumstances, a plurality of the votes cast
thereat shall elect directors.
Section 13. Inspectors of Elections; Opening and Closing the Polls. The Board
of Directors by resolution shall appoint one or more inspectors, which inspector
or inspectors may include individuals who serve the Corporation in other
capacities, including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the date and
time of the opening and the closing of the polls for each matter upon which the
stockholders will vote at a meeting.
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business of the Corporation shall be managed by
the Board of Directors, except as otherwise provided by statute or by the
Certificate of Incorporation.
Section 2. Number. The number of the Directors of the Corporation shall be
fixed from time to time by resolution adopted by the affirmative vote of a
majority of the entire Board of Directors of the Corporation, except that the
minimum number of directors shall be fixed at no less than 15 and the maximum
number of directors shall be fixed at no more than 30. The directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly equal in number as possible, of one-third of the
total number of directors constituting the entire Board of Directors. At the
1986 annual meeting of stockholders, Class I directors shall be elected for a
one-year term, Class II directors for a two-year term and Class III directors
for a three-year term. At each succeeding annual meeting of stockholders
beginning in 1987, successors of the class of directors whose term expires at
that annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible.
Section 3. Election and Term of Office. Except as otherwise provided in these
By-laws, directors shall be elected at the annual meeting of stockholders.
Newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum, or by a sole remaining director. Any director of any
class chosen to fill a vacancy in such class shall hold office for a term that
shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
A director shall hold office until the annual meeting for the year in which his
or her term expires and until such director's successor shall have been elected
and qualified.
Section 4. First Meetings. The first meeting of each newly elected Board of
Directors shall be held without notice immediately after the annual meeting of
the stockholders for the purpose of the organization of the Board, the election
of officers, and the transaction of such other business as may properly come
before the meeting.
Section 5. Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such times and at such places, within or without the
State of Delaware, as shall from time to time be determined by the Board.
Section 6. Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board or the President. Such meetings shall be
held at such times and at such places, within or without the State of Delaware,
as shall be determined by the officer calling the meeting. Notice of any special
meeting of directors shall be given to each director at his business or
residence in writing by hand delivery, first-class or overnight mail or courier
service, telegram or facsimile transmission, or orally by telephone. If mailed
by first-class mail, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon prepaid,
at least two (2) days before such meeting. If by telegram, overnight mail or
courier service, such notice shall be deemed adequately delivered when the
telegram is delivered to the telegraph company or the notice is delivered to the
overnight mail or courier service company at least twenty-four (24) hours before
such meeting. If by facsimile transmission, such notice shall be deemed
adequately delivered when the notice is transmitted at least twelve (12) hours
before such meeting. Such notice need not state the purposes of the meeting. Any
or all directors may waive notice of any meeting, either before or after the
meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except when the director attends for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Section 7. Quorum, Required Vote, and Adjournment. The presence, at any
meeting, of a majority of the whole Board shall be necessary and sufficient to
constitute a quorum for the transaction of business. Except as otherwise
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<PAGE>
required by statute or by the Certificate of Incorporation, the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum, a
majority of the directors present at the time and place of any meeting may
adjourn such meeting from time to time until a quorum be present.
Section 8. Consent of Directors in Lieu of Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all the members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 9. Participation in Meetings by Telephone. A member of the Board or
any committee thereof may participate in a meeting of such Board or committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.
Section 10. Compensation. The Board of Directors may authorize the payment to
directors of a fixed fee and expenses for attendance at meetings of the Board or
any committee thereof, and annual fees for service as directors. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor.
ARTICLE IV
BOARD COMMITTEES
Section 1. Executive Committee. There shall be an Executive Committee composed
and created as the Board of Directors may designate by resolution approved by a
majority of the entire Board. During intervals between regular meetings of the
Board of Directors, the Executive Committee, to the extent permitted by law, the
Certificate of Incorporation and these By-Laws, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation.
Section 2. Other Committees. The Board of Directors may, by resolution,
designate one or more other regular and special committees, consisting of
directors, officers or other persons which shall have and may exercise such
powers and functions as the Board may prescribe in the management of the
business and affairs of the Corporation. Such committees shall keep regular
minutes of their proceedings and report the same to the Board of Directors when
required. The Board of Directors may from time to time suspend, alter, continue
or terminate any such committee or the powers and functions thereof.
ARTICLE V
OFFICERS
Section 1. Number, Election, Term of Office and Qualification. The number,
titles and duties of the officers shall be determined by the Board of Directors
from time to time, subject to the provisions of applicable law, the Certificate
of Incorporation, and these By-Laws. Each officer shall be elected in the manner
prescribed by the Board of Directors and shall hold office until such officer's
successor is elected and qualified or until such officer's death, resignation or
removal. The election of officers shall be held annually at the first meeting of
the Board of Directors held after each annual meeting of stockholders, subject
to the power of the Board of Directors to designate any office at any time and
elect any person thereto. The officers shall include a Chairman of the Board and
a President, and may include one or more Vice Chairmen of the Board, one or more
Vice Presidents, a Secretary, a Treasurer, and such other officers as the Board
of Directors may determine. The same person may hold any two or more offices,
and in any such case, these By-Laws shall be construed and understood
accordingly; provided that the same person may not hold the offices of Chairman
of the Board and Secretary or President and Secretary. No officer other than the
Chairman of the Board, President or Vice Chairman of the Board need be a
director of the Corporation.
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<PAGE>
Section 2. Removal. Any officer or agent may be removed at any time, with or
without cause, by the Board of Directors.
Section 3. Vacancies. Any vacancy occurring in any office of the Corporation
may be filled for the unexpired term in the manner prescribed by these By-Laws
for the regular election to such office.
Section 4. Chief Executive Officer. The Board of Directors shall designate one
of the officers to be the Chief Executive Officer. Subject to the direction and
under the supervision of the Board of Directors, the Chief Executive Officer
shall have general charge of the business, affairs and property of the
Corporation, and control over its officers, agents and employees.
Section 5. The Secretary. The Secretary shall keep the minutes of the
proceedings of the stockholders and of the Board of Directors in one or more
books to be kept for that purpose. The Secretary shall have custody of the seal
of the Corporation, and the Secretary, and any Assistant Secretary, shall have
authority to cause such seal to be affixed to any instrument requiring it and
when so affixed, it may be attested by the signature of the Secretary or
Assistant Secretary. The Secretary shall, in general, perform all duties and
have all powers incident to the office of Secretary and shall perform such other
duties and have such other powers as may from time to time be assigned to the
Secretary by these By-Laws, by the Board of Directors or by the Chief Executive
Officer.
Section 6. Treasurer. The Treasurer shall have custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation. The Treasurer shall cause
all moneys and other valuable effects to be deposited in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall cause the funds of the Corporation to be
disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements, and shall render to the Chief Executive Officer
and the Board of Directors, whenever requested, an account of all transactions
conducted by the Treasurer for the Corporation and of the financial condition of
the Corporation. The Treasurer shall, in general, perform all duties and have
all powers incident to the office of Treasurer and shall perform such other
duties and have such other powers as may from time to time be assigned to the
Treasurer by these By-Laws, by the Board of Directors or by the Chief Executive
Officer.
ARTICLE VI
FIXING RECORD DATE
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty days nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action. If no record date is fixed, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held
and the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE VII
EXECUTION OF DOCUMENTS AND INSTRUMENTS
Section 1. Execution of Documents and Instruments Generally. Any officer of
the Corporation and such other
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<PAGE>
persons as may be authorized by the Chairman of the Board, the President, or any
Vice Chairman of the Board from time to time are severally and respectively
authorized to execute documents and to take actions in the Corporation's name in
connection with transactions conducted in the ordinary course of the
Corporation's business. With respect to all other transactions, all documents,
instruments or writings of any nature shall be signed, executed, verified,
acknowledged and delivered by such officer or officers or such agent or agents
of the Corporation and in such manner as the Board of Directors from time to
time may determine.
Section 2. Checks, Drafts, Etc. All notes, drafts, acceptances, checks,
endorsements, and all evidence of indebtedness of the Corporation whatsoever,
shall be signed by such officer or officers or such agent or agents of the
Corporation and in such manner as the Board of Directors from time to time may
determine. Endorsements for deposit to the credit of the Corporation in any of
its duly authorized depositories shall be made in such manner as the Board of
Directors from time to time may determine.
Section 3. Proxies and Consents. Proxies to vote and written consent with
respect to shares of stock of other corporations owned by or standing in the
name of the Corporation may be executed and delivered from time to time on
behalf of the Corporation by the Chairman, the President, any Vice Chairman, any
Vice President, the Secretary or the Treasurer of the Corporation, or by any
other person or persons duly authorized by the Board of Directors.
ARTICLE VIII
CAPITAL STOCK
Section 1. Stock Certificates. The interest of every holder of stock in the
Corporation shall be evidenced by a certificate or certificates signed by, or in
the name of the Corporation by the Chairman, President, Vice Chairman or a Vice
President, and by the Secretary or an Assistant Secretary of the Corporation
certifying the number of shares owned by him in the Corporation and in such form
not inconsistent with the Certificate of Incorporation or applicable law as the
Board of Directors may from time to time prescribe. If such certificate is
countersigned (1) by a transfer agent, whether or not a subsidiary of the
Corporation, other than the Corporation or its employee, or (2) by a registrar,
whether or not a subsidiary of the Corporation, other than the Corporation or
its employee, the signatures of the officers of the Corporation may be
facsimiles. In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the date of issue.
Section 2. Transfer of Stock. Shares of stock of the Corporation shall be
transferred on the books of the Corporation only by the holder of record thereof
or by his attorney duly authorized in writing, upon surrender to the Corporation
of the certificates for such shares endorsed by the appropriate person or
persons, with such evidence of the authenticity of such endorsement, transfer,
authorization and other matters as the Corporation may reasonably require, and
accompanied by all necessary stock transfer tax stamps. In that event it shall
be the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction on its books.
Section 3. Rights of Corporation with Respect to Registered Owners. Prior to
the surrender to the Corporation of the certificates for shares of stock with a
request to record the transfer of such shares, the Corporation may treat the
registered owner as the person entitled to receive dividends, to vote, to
receive notifications, and otherwise to exercise all the rights and powers of an
owner.
Section 4. Transfer Agents and Registrars. The Board of Directors may make
such rules and regulations as it may deem expedient concerning the issuance and
transfer of certificates for shares of the stock of the Corporation and may
appoint transfer agents or registrars or both, and may require all certificates
of stock to bear the signature of either or both. Nothing herein shall be
construed to prohibit the Corporation or any subsidiary of it from acting as its
own transfer agent or registrar at any of its offices.
Section 5. Lost, Destroyed and Stolen Certificates. Where the owner of a
certificate for shares claims that such certificate has been lost, destroyed or
wrongfully taken, the Corporation shall issue a new certificate in place of the
-8-
<PAGE>
original certificate if the owner satisfies such reasonable requirements,
including evidence of such loss, destruction, or wrongful taking, as may be
imposed by the Corporation, including but without limitation, the delivery to
the Corporation of an indemnity bond satisfactory to it.
ARTICLE IX
INDEMNIFICATION
Section 1. Contract Right. The right to indemnification conferred in the
Certificate of Incorporation and this By-Law shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition, such advances
to be paid by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
advance or advances from time to time; provided, however, that the payment of
-------- -------
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking by or on behalf of such director or officer, to repay all
amounts so advanced unless it shall ultimately be determined that such director
or officer is entitled to be indemnified under this By-Law or otherwise.
Section 2. Submission of Claim. To obtain indemnification under this By-Law, a
claimant shall submit to the Corporation a written request, including therein or
therewith such documentation and information as is reasonably available to the
claimant and is reasonably necessary to determine whether and to what extent the
claimant is entitled to indemnification. In the event the determination of
entitlement to indemnification is to be made by Independent Counsel (as
hereinafter defined) as set forth in the Certificate of Incorporation, the
Independent Counsel shall be selected by the Board of Directors unless there
shall have occurred within two years prior to the date of the commencement of
the action, suit or proceeding for which indemnification is claimed a "Change of
Control" as defined in the Corporation's Stock Performance Plan, in which case
the Independent Counsel shall be selected by the claimant unless the claimant
shall request that such selection be made by the Board of Directors. If it is so
determined that the claimant is entitled to indemnification, payment to the
claimant shall be made within 10 days after such determination.
Section 3. Unpaid Claim. If a claim under Section 1 of this By-Law is not paid
in full by the Corporation within thirty days after a written claim pursuant to
Section 2 of this By-Law has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed. It shall also be a defense if indemnification is not permissible under
applicable banking statutes or regulations. The burden of proving any such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, Independent Counsel or stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Corporation
(including its Board of Directors, Independent Counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 4. Binding Determination. If a determination shall have been made
pursuant to Section 2 of this By-Law that the claimant is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding commenced pursuant to Section 3 of this By-Law.
Section 5. Binding Effect on Corporation. The Corporation shall be precluded
from asserting in any judicial proceeding commenced pursuant to Section 3 of
this By-Law that the procedures and presumptions of this By-Law
-9-
<PAGE>
are not valid, binding and enforceable and shall stipulate in such proceeding
that the Corporation is bound by all the provisions of this By-Law.
Section 6. Non-exclusivity. The right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
conferred in this By-Law shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-Laws, agreement, vote of stockholders or
Disinterested Directors or otherwise. No repeal or modification of this By-Law
shall in any way diminish or adversely affect the rights of any director,
officer, employee or agent of the Corporation hereunder in respect of any
occurrence or matter arising prior to any such repeal or modification.
Section 7. Employees and Agents. The Corporation may, to the extent authorized
from time to time by the Board of Directors, grant rights to indemnification,
and rights to be paid by the Corporation the expenses incurred in defending any
proceeding in advance of its final disposition, to any employee or agent of the
Corporation to the fullest extent of the provisions of this By-Law with respect
to the indemnification and advancement of expenses of directors and officers of
the Corporation.
Section 8. Validity. If any provision or provisions of this By-Law shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this By-Law
(including, without limitation, each portion of any Section of this By-Law
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this By-Law (including, without limitation, each such portion of
any Section of this By-Law containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
Section 9. Definitions. For purposes of this By-Law:
A. "Disinterested Director" means a director of the Corporation
who is not and was not a party to the matter in respect of
which indemnification is sought by the claimant.
B. "Independent Counsel" means a law firm, a member of a law firm,
or an independent practitioner, that is experienced in matters
of corporation law and shall include any person who, under the
applicable standards of professional conduct then prevailing,
would not have a conflict of interest in representing either
the Corporation or the claimant in an action to determine the
claimant's rights under this By-Law.
Section 10. Notice. Any notice, request or other communication required or
permitted to be given to the Corporation under this By-Law shall be in writing
and either delivered in person or sent by telecopy, telex, telegram, overnight
mail or courier service, or certified or registered mail, postage prepaid,
return receipt requested, to the Secretary of the Corporation and shall be
effective only upon receipt by the Secretary.
ARTICLE X
SEAL
The corporate seal, subject to alteration by the Board of Directors, shall be in
the form of a circle and shall bear the name of the Corporation and the year of
its incorporation and shall indicate its formation under the laws of the State
of Delaware. Such seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
-10-
<PAGE>
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year except as
otherwise provided by the Board of Directors.
ARTICLE XII
AMENDMENTS
The By-Laws of the Corporation may be amended or repealed, or new By-Laws not
inconsistent with law or any provision of the Certificate of Incorporation, as
amended, may be made and adopted by a majority vote of the whole Board of
Directors at any regular or special meeting of the Board.
-11-
<PAGE>
EXHIBIT 10(C)
DRAFT
FIRST CHICAGO NBD CORPORATION
EXECUTIVE ESTATE PLAN
SECTION 1 - PURPOSE
The FIRST CHICAGO NBD CORPORATION EXECUTIVE ESTATE PLAN (hereinafter called
the "Plan") is established and maintained to promote and advance the performance
of First Chicago NBD Corporation (hereinafter called the "Corporation") by
providing designated senior officers of the Corporation and of its affiliated
companies who have significant responsibility for such performance with
competitive death benefit coverage and to assist the Corporation in attracting
and retaining as senior officers individuals of superior ability by enhancing
the value of the death benefit coverage benefits. This document is an amendment
and restatement of the NBD Bancorp, Inc. Executive Estate Plan and the First
Chicago Corporation Executive Estate Plan.
SECTION 2 - DEFINITIONS
(a) The term "Affiliated Companies" shall mean those corporations a
majority of the outstanding voting capital stock of which is directly or
indirectly owned or controlled by the Corporation.
(b) The term "After-Tax Equivalent" shall mean such amount that would
provide the recipient of a taxable death benefit under the Plan with an amount,
after the payment of federal income tax, approximately equal to the death
benefit the recipient would have received if the taxable death benefit were not
subject to federal income taxation when made.
(c) The term "Committee" shall mean the Organization, Compensation and
Nominating Committee of the Board of Directors of the Corporation, the members
of which shall be "disinterested persons" under Rule 16b-3 of the Securities and
Exchange Commission or any successor regulation issued under the federal
securities laws and shall be ineligible to participate in the Plan.
(d) The term "Disability" shall mean the incapability of a Participant to
perform the principal duties of his or her customary employment or position as
the result of a physical or mental condition that is expected to be permanent
and continuous during the remainder of the Participant's life, as determined in
the sole discretion of the Committee on the basis of evidence satisfactory to
it.
(e) The term "Disabled Participant" shall mean a Participant who incurs a
Disability hereunder while a Participant under the Plan from which he or she has
not recovered.
<PAGE>
(f) The term "Participant" shall mean a senior officer of the Corporation
or of one of its Affiliated Companies who becomes and remains a Participant in
the Plan as provided in Section 7 of the Plan.
(g) The term "Retired Participant" shall mean a Participant whose
employment with the Corporation and all its Affiliated Companies terminates as
the result of Retirement hereunder and who does not subsequently resume such
employment.
(h) The term "Retirement" shall mean the cessation of employment with the
Corporation and all its Affiliated Companies on or after the date a Participant
(i) attains age sixty-five (65), or (ii) completes fifteen (15) years of
service, attains age fifty-five (55), and receives the consent of the Committee.
SECTION 3 - EFFECTIVE DATE AND DURATION
The Plan shall be effective as of January 1, 1997. The Plan shall continue
until it is terminated by the Board of Directors of the Corporation as provided
in Section 12.
SECTION 4 - PRE-EFFECTIVE DATE TERMINATIONS OF EMPLOYMENT
Except as specifically provided herein, benefits provided under the Plan
with respect to any Participant whose employment with the Affiliated Companies
terminated before January 1, 1997, will be governed by the Plan as in effect on
the date of the Participant's termination of employment.
SECTION 5 - ADMINISTRATION
The Committee shall be responsible for the general operation and
administration of the Plan and shall have the authority to interpret the Plan
and to adopt administrative rules and regulations governing its operation. The
Committee may delegate the performance of administrative functions to the
Secretary of the Committee.
SECTION 6 - FUND
The death benefits payable under the Plan shall be paid out of the general
assets of the Corporation.
SECTION 7 - PARTICIPATION
(a) Eligibility for participation in the Plan shall be limited to
executive officers of the Corporation as designated by the Chief Executive
Officer of the Corporation. In addition, participants under the NBD Bancorp,
Inc. Executive Estate Plan who are not executive officers of the Corporation and
are employed by the Corporation or one of its Affiliated Companies on January 1,
1997 shall also be eligible.
(b) Participation in the Plan by an eligible officer shall be solely
within the
<PAGE>
discretion of the Chief Executive Officer of the Corporation. The Chief
Executive Officer of the Corporation shall individually select and designate
each eligible officer for participation, who shall become a Participant as of
the date specified by the Committee.
(c) A Participant shall remain a Participant only for so long as he
continues in the employ of the Corporation or one of its Affiliated Companies or
is a Retired Participant or a Disabled Participant. The Committee in its sole
discretion may terminate a Participant's participation in the Plan only as
provided in Section 11.
SECTION 8 - AMOUNT OF PRE-RETIREMENT DEATH BENEFIT
(a) Upon the death of a Participant prior to his or her Retirement from
the Corporation and its Affiliated Companies, the Corporation shall pay to his
or her designated beneficiary an After-Tax Equivalent death benefit equal to
four hundred percent (400%) of the Participant's base salary at the time of
death.
(b) If a Disabled Participant dies before attaining age sixty-five (65),
the Corporation shall pay to his or her designated beneficiary an After-Tax
Equivalent death benefit equal to four hundred percent (400%) of the
Participant's annual base salary determined as of the date of his or her
Disability. If a Disabled Participant attains age sixty-five (65), such
Participant shall thereupon be deemed to be a Retired Participant and entitled
to benefit coverage only in accordance with Section 9, based on the
Participant's annual base salary determined as of the date of his or her
Disability. If a Disabled Participant recovers from Disability before attaining
age sixty-five (65), the Participant shall be deemed to be a Retired Participant
as of the date he or she recovers from the Disability if such Participant is at
least age fifty-five (55) on that date and does not then return to employment
with the Corporation or any Affiliated Company. In all other cases, a Disabled
Participant who recovers from Disability shall have no further interest or
rights under the Plan, except as may be provided by such person's subsequent
participation in the Plan.
SECTION 9 - AMOUNT OF POST-RETIREMENT DEATH BENEFIT
Upon the death of a Retired Participant (i) during the first twelve (12)
months following Retirement, the Corporation shall pay to the Participant's
designated beneficiary an After-Tax Equivalent death benefit equal to two
hundred percent (200%) of the Participant's annual base salary at the time of
the Participant's Retirement; (ii) during the second twelve (12) month period
following Retirement, the Corporation shall pay to the Participant's designated
beneficiary an After-Tax Equivalent death benefit equal to one hundred
seventy-five percent (175%) of the Participant's annual base salary at the time
of the Participant's Retirement; (iii) during the third twelve (12) month period
following Retirement, the Corporation shall pay to the Participant's designated
beneficiary an After-Tax Equivalent
3
<PAGE>
death benefit equal to one hundred fifty percent (150%) of the Participant's
annual base salary at the time of the Participant's Retirement; or (iv) during
or subsequent to the thirty-seventh month following Retirement, the Corporation
shall pay to the Participant's designated beneficiary an After-Tax Equivalent
death benefit equal to one hundred percent (100%) of the Participant's annual
base salary at the time of the Participant's Retirement plus Twenty-Five
Thousand Dollars ($25,000).
SECTION 10 - BENEFICIARY DESIGNATION AND PAYMENT
(a) Each Participant shall complete a beneficiary designation form as
prescribed by the Committee designating the beneficiary or beneficiaries to
receive the amounts hereunder upon the Participant's death. Each Participant may
designate one or more individuals, trusts or organizations as the primary
beneficiary(ies). If more than one primary beneficiary is designated, the
Participant shall specify the percentage to be paid to each primary beneficiary.
Each Participant shall also designate a contingent beneficiary(ies), who shall
receive payment hereunder only if the designated primary beneficiary(ies) does
not survive the Participant.
(b) Unless a Participant has previously made an irrevocable beneficiary
designation, a Participant may change his or her beneficiary designation at any
time without the consent of any previously designated beneficiary by completing
a new beneficiary designation form and delivering such form to the Secretary of
the Committee. Such new beneficiary designation shall be effective when the
completed form is received by the Secretary of the Committee.
(c) In the event a Participant failed to make a beneficiary designation,
the amount payable under Section 8 or Section 9 shall be paid to the
Participant's estate. The amount payable under Section 8 or Section 9 shall be
paid within sixty (60) days of the receipt by the Secretary of the Committee of
a certified copy of the death certificate of the deceased Participant. Any
amount not paid within sixty (60) days of such receipt shall bear interest at
the rate of interest announced from time to time as the corporate base rate
announced from time to time by The First National Bank of Chicago or its
successor by merger during the period from the date the payment shall have been
made to the date it is made. The Corporation shall withhold from such payment
any applicable federal, state or local taxes thereon.
SECTION 11 - GENERAL
(a) Neither the establishment of the Plan nor any provisions of the Plan
or modification thereof shall be held or construed as giving any Participant in
the Plan the right to be retained in the service of the Corporation or its
Affiliated Companies, and the Corporation and its Affiliated Companies expressly
reserve the right to discharge any such Participant whenever the interests of
the Corporation and its Affiliated Companies may so require.
4
<PAGE>
(b) Notwithstanding any other provision in the Plan to the contrary, but
subject to Paragraph (c) of this Section 11, and as determined solely by the
Committee, (i) no benefit or coverage shall be provided under the Plan to any
Participant, including a Retired Participant or Disabled Participant, who
engages in any activity that, in the opinion of the Committee, is competitive
with any activity of the Corporation or any Affiliated Company (except that
employment at the request of the Corporation with an entity in which the
Corporation has, directly or indirectly, a substantial ownership interest, or
other employment specifically approved by the Committee, shall not be considered
to be an activity that is competitive with any activity of the Corporation or
any Affiliated Company) or otherwise acts, either prior to or after termination
of employment, in any manner inimical or in any way contrary to the best
interests of the Corporation; and (ii) no benefit or coverage under the Plan
shall be provided to any Participant, including a Disabled Participant or
Retired Participant, if the Participant's employment with the Corporation or an
Affiliated Company terminates because of dishonesty, fraud, misappropriation of
funds, the commission of a felony, or willful or gross misconduct or willful or
gross negligence in the performance of such person's duties, or if during the
course of such employment, the Participant engages in, or had engaged in, such
conduct.
(c) Any right of a Participant and his beneficiary hereunder shall be that
of an unsecured general creditor of the Corporation, and no Participant or
beneficiary shall have any preferred claims on, or any beneficial ownership in,
the assets of the Corporation, including any assets in which the Corporation may
invest to aid in meeting its obligations under the Plan.
(d) To the maximum extent permitted by law, a Participant's or
beneficiary's interest and rights shall not be assignable in law or in equity or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution, or encumbrances of any kind,
except that a Participant shall have the right under Section 10 to designate
irrevocably a beneficiary to receive the amounts hereunder upon the
Participant's death.
(e) If the Committee determines that a beneficiary is legally incompetent
to receive a distribution hereunder, the Committee may cause any distribution
due to such beneficiary to be made to the guardian or other legal representative
of such beneficiary, or in the absence of such guardian or other legal
representative, to such other person or institution who is otherwise maintaining
and has custody of such beneficiary. Such distribution, to the extent made,
shall be a valid and complete discharge of liability therefor under the Plan.
SECTION 12 - AMENDMENT, SUSPENSION AND TERMINATION
The Board of Directors of the Corporation reserves the right at any time to
amend, suspend or terminate the Plan; provided, however, no such amendment,
suspension or termination shall adversely affect the rights hereunder of any
Participant in the Plan unless the prior written approval of the Participant so
affected is obtained.
5
<PAGE>
SECTION 13 - GOVERNING LAW
The Plan and all determinations made and action taken pursuant thereto
shall be governed by the laws of the State of Delaware and construed in
accordance therewith.
6
<PAGE>
EXHIBIT 10(D)
FIRST CHICAGO NBD CORPORATION
FINANCIAL PLANNING PROGRAM
FOR EXECUTIVES
SUMMARY OF PROGRAM
Effective Date: January 1, 1997
Eligibility: Executive officers of First Chicago NBD Corporation as
designated by the Chief Executive Officer
Annual Limits
on Reimbursements: Chairman and Chief Executive Officer $10,000
Vice Chairman: $ 7,500
Executive Vice President: $ 5,000
Below Executive Vice President (if designated) $ 2,500
(no carry forward of unused amounts)
Benefit Following
Retirement: An amount equal to one and one-half times the normal annual
limit to be available at any time during the two calendar
years immediately following the year of retirement
(exclusive of the annual reimbursement allowed in the year
of retirement).
Services Covered: Tax counseling and preparation
Financial planning and advisory services
Legal fees associated with wills, trusts, medical
instruments, guardianships and similar arrangements.
Services Excluded: Brokerage fees or similar investment fees
Fees associated with sale or purchase of personal property
<PAGE>
EXHIBIT 10(F)
Draft
FIRST CHICAGO NBD CORPORATION
LONG-TERM DISABILITY RESTORATION PLAN
-------------------------------------
Section 1 - Effective Date
- --------------------------
This plan is effective as of January 1, 1997.
Section 2 - Purpose
- --------------------
The principal purpose of this Plan is to provide for the payment of
certain long-term disability benefits to certain officers of First Chicago NBD
Corporation, and its affiliated corporations (hereinafter "FCNBD") in excess of
(a) the limitations on benefits imposed by Section 505(b)(7) of the Internal
Revenue Code of 1986, as amended (hereinafter the "Code"), and (b) the
limitation on the maximum monthly benefit contained in the First Chicago NBD
Corporation Long-Term Disability Plan (hereinafter the "LTD Plan"). This Plan
is established to insure that the total long-term disability benefits of all
totally disabled officers of FCNBD entitled to receive benefits under the LTD
plan can be determined on the same basis.
Section 3 - Administration
- --------------------------
(a) This Plan shall be administered by the Organization, Compensation and
Nominating Committee of the Board of Directors of FCNBD (hereinafter the
"Compensation Committee") as an unfunded plan. The Compensation Committee's
decisions in all matters involving the interpretation and application of this
Plan shall be conclusive.
(b) The Plan shall at all times be maintained by FCNBD and administered by
the Compensation Committee as a plan wholly separate from the LTD Plan.
Section 4 - Eligibility
- -----------------------
Officers whose long-term disability benefits under the LTD Plan are
limited by the provisions set forth therein to conform to Section 505(b)(7) of
the Code or whose monthly long-term disability benefit payment is limited by the
maximum monthly benefit limitation contained in the LTD Plan shall be eligible
for benefits provided by this Plan. In no event shall an officer who is not
entitled to benefits under the LTD Plan be eligible for any benefits under this
Plan.
Section 5 - Amount of Benefits
- ------------------------------
The benefits payable to an eligible officer or his or her eligible
survivors hereunder shall equal the excess, if any, of:
<PAGE>
(a) the benefits that would have been paid to such officer or his or her
eligible survivors under the LTD Plan if the provisions of the LTD Plan were
administered and benefits paid as if the officer had elected the 60% of pay
option and without regard to the benefit limitations contained in the LTD Plan
to conform it to Section 505(b)(7) of the Code or the maximum monthly benefit
limitation contained in the LTD Plan over
(b) the benefits that are payable to such officer or his or her eligible
survivors under the LTD Plan.
Section 6 - Payment of Benefits
- -------------------------------
(a) Payment of benefits under this Plan shall be made coincident with the
payment of benefits under the LTD Plan or as soon as practicable thereafter.
(b) Benefits under the Plan shall be payable solely from the general
assets of FCNBD. The Plan shall remain unfunded during the entire period of its
existence.
Section 7 - Rights of Employees
- -------------------------------
Except to the extent provided in Section 8 hereinbelow, no officer or his
or her eligible survivors shall at any time have any vested right to receive the
benefits provided by this Plan.
Section 8 - Amendment and Discontinuance
- ----------------------------------------
FCNBD expects to continue this Plan indefinitely, but reserves the right
to amend or discontinue it if, in its sole judgment, such amendment or
discontinuance is deemed necessary or desirable. However, if FCNBD should amend
or discontinue this Plan, FCNBD shall be liable for any benefits that have
accrued under this Plan as of the date of such action (determined on the basis
of an eligible officer's total disability as of the date of such amendment or
discontinuance).
<PAGE>
EXHIBIT 10(J)
DRAFT
1-08-97
FIRST CHICAGO NBD CORPORATION
DEFERRED COMPENSATION PLAN
Effective January 1, 1997
<PAGE>
FIRST CHICAGO NBD CORPORATION DRAFT
----------------------------- 1/08/97
DEFERRED COMPENSATION PLAN
--------------------------
Effective January 1, 1997
1. Purpose. The purpose of the First Chicago NBD Corporation
-------
Deferred Compensation Plan is to permit eligible Employees of First Chicago NBD
Corporation and its subsidiaries and affiliates to elect to defer the payment of
all or a portion of their Covered Compensation.
2. Definitions.
-----------
2.1 Beneficiary means any person or entity designated by a
-----------
Participant on a form provided by the Plan Administrator to receive benefits in
the event of the death of the Participant. Each designation shall revoke a
Participant's previous designations and shall be effective only when filed in
writing with the Plan Administrator during the Participant's lifetime. If a
Participant fails to designate a Beneficiary in the manner provided above, the
Participant's account hereunder shall be distributed to the legal representative
or representatives of the Participant's estate.
2.2 Board means the Board of Directors of the Corporation,
-----
excluding any member who is an officer or Employee of the Corporation.
<PAGE>
2.3 Corporation means First Chicago NBD Corporation or its
-----------
successor or successors and its fifty percent (50%) or more owned subsidiaries.
2.4 Covered Compensation means ninety percent of the annual
--------------------
cash bonus or fifty percent the bi-weekly salary earned by a Participant and any
other cash compensation designated by the Organization, Compensation and
Nominating Committee of the Board as eligible for deferral.
2.5 Effective Date means the effective date of this Plan,
--------------
January 1, 1997.
2.6 Employee means an employee or retiree of the Corporation.
--------
2.7 Exchange Act means the Securities Exchange Act of 1934, as
------------
amended.
2.8 FCC Plan means the First Chicago Compensation Deferral Plan
--------
as in existence immediately prior to the Effective Date.
2.9 Investment Funds means those investment alternatives under
----------------
the Plan which will be used to calculate the periodic investment experience of
each Participant's account and shall be the investment alternatives offered
under the First Chicago NBD Corporation Savings and Investment Plan or any other
investment alternatives designated by the Organization, Compensation and
Nominating Committee.
2.10 NBD Plan means the NBD Bancorp, Inc. Executive Incentive
--------
Plan Deferred Compensation Program as in existence immediately prior to the
Effective Date.
2.11 Participant means either (a) an Employee who has met the
-----------
eligibility requirements of Section 3 to participate in the Plan and who has
elected to defer all or a portion of Covered Compensation or (b) an individual
whose account balance from another deferral plan is transferred to this Plan as
described in Section 3.
2.12 Plan means the First Chicago NBD Corporation Deferred
----
Compensation Plan. This Plan is an amendment and restatement of the NBD Plan and
the FCC
<PAGE>
Plan.
2.13 Plan Administrator means Corporate Compensation; provided
------------------
however, the Organization, Compensation and Nominating Committee of the Board
shall be the Plan Administrator with respect to any Participant who is an
"officer" as defined in Section 16 of the Exchange Act.
3. Eligibility. The Organization, Compensation and Nominating
-----------
Committee of the Board shall designate the Employees who are eligible to
participate in this Plan. In addition, each individual with a balance under the
NBD Plan or FCC Plan in effect prior to January 1, 1997 shall participate in
this Plan to the extent of any deferred amounts which remain unpaid.
Subject to the approval of the Plan Administrator, the Plan may accept
the transfer of an individual's account balance or accrued benefit from another
deferral plan maintained by the Corporation or an entity acquired by the
Corporation at which time the individual will become a Participant to the extent
of the transferred balance. Such transferred balance shall be credited to the
Participant's account under this Plan and shall become subject to the terms and
conditions of this Plan except that the timing of the distribution of such
transferred balance (and subsequent earnings thereon) shall be governed by the
Participant's election as filed under the prior plan except as otherwise
determined by the Plan Administrator or permitted under this Plan.
4. Election to Defer Covered Compensation.
--------------------------------------
(a) Initial Election to Defer. Each eligible Employee may file
-------------------------
an irrevocable election to defer any portion of Covered Compensation until the
January of a future calendar year or years which date must be at least six
months after such Covered Compensation would otherwise be paid to the Employee.
An Employee's election to defer must be in writing on a
3
<PAGE>
form prescribed by the Plan Administrator, must be filed with the Plan
Administrator on or before the date prescribed and must defer an amount which is
at least equal to the minimum deferral amount as set by the Plan Administrator.
(b) Additional Deferral. A Participant may elect on a one
-------------------
time basis with respect to any deferred amount of Covered Compensation to
further defer the payment of such Covered Compensation provided such election to
defer is made more than 12 months in advance of the payment of such deferred
Covered Compensation (in the case of an installment payment, such election must
be filed more than 12 months before the first installment is otherwise scheduled
to be paid). In case of a Participant who retires before the end of the 12-month
period and who is entitled to a distribution under Section 9, the election on
file prior to the new 12-month election shall be effective.
5. Participant's Account.
---------------------
(a) The amount of Covered Compensation which has been deferred
shall be credited to a memorandum or book entry account maintained on behalf of
the Participant. Amounts credited pursuant to this Plan are credited for
bookkeeping purposes only, shall not represent either a cash deposit or actual
shares or units in any of the Investment Funds, shall not give any Participant
any special right in cash or shares held or owned by the Corporation, and shall
not give rise to any cause of action by Participants against the Corporation,
except at such time as the Participant shall become entitled to receive payment
in cash in accordance with the terms of this Plan. The Plan Administrator shall
furnish quarterly statements to Participants showing the balances in each of
their Investment Funds as of the statement date.
(b) Transferred balances which represent benefits from a plan,
program or arrangement maintained solely for the purpose of providing retirement
benefits for employees in
4
<PAGE>
excess of the limitations imposed by the Internal Revenue Code of 1986, as
amended ("Code") (including Sections 401(a)(17), 401(k), 402(g) and 415 of the
Code) must be accounted for separately and may not be aggregated with other
defined amounts.
6. Investment of Participant's Account. A Participant shall elect
-----------------------------------
to have his or her account treated as if invested in one of the Investment
Funds. The Participant's account will be adjusted periodically to reflect the
investment experience of the Investment Funds which the Participant elected.
Each Participant may file an election with the Plan Administrator (on a form or
in any other manner prescribed by the Plan Administrator) to reallocate the
investment of his account among the Investment Funds. The frequency, timing and
form of investment reallocation directions shall be limited in the same manner
as under the First Chicago NBD Corporation Savings and Investment Plan. Any
"Officer," as defined under Section 16 of the Exchange Act, may not invest his
balance in the to First Chicago NBD Corporation common stock alternative.
7. Investment of Participant's Account - Pre-December 1, 1993
----------------------------------------------------------
Deferred Amounts. Each Participant with amounts deferred under the FCC Plan as
- ----------------
in effect prior to December 1, 1993, shall continue to have the periodic
investment experience of his account attributable to pre-December 1, 1993
deferrals calculated pursuant to the terms of his income deferral election in
effect at the time of his deferral unless such Participant elects to participate
in the Investment Funds (in which case such Participant shall become subject to
Section 6).
8. Benefit. A Participant shall be entitled to a distribution of
-------
his account balance equal to the amount deferred, adjusted for the investment
experience attributable to such deferred amounts had such amounts been invested
in the Investment Funds as directed by the Participant.
5
<PAGE>
9. Distribution of Account Balances Pursuant to Participant's
----------------------------------------------------------
Election. A Participant's account shall be distributed in cash only (and in no
- --------
case in equity securities) and paid to the Participant, at the time or times
elected or, if earlier, upon the Participant's retirement after attaining age 55
with 15 complete years of service (complete years of service shall be defined in
the same manner as service is defined for purposes of determining pay-based
credits under the Corporation's Personal Pension Account Plan). A Participant,
at the time he files an election to defer, may elect to receive payment in (a) a
lump sum payment or (b) a series of substantially equal monthly, quarterly or
annual installments over a period of time not exceeding fifteen (15) years (each
installment shall be determined by dividing the Participant's remaining balance
which is subject to the election by the number of payments remaining).
10. Distribution upon Participant's Death or Termination of
-------------------------------------------------------
Employment. If prior to the distribution of the entire account balance under
- ----------
this Plan, a Participant (a) dies or (b) terminates employment before attaining
age 55 with 15 complete years of service (complete years of service shall be
defined in the same manner as service is defined for purposes of determining
pay-based credits under the Corporation's Personal Pension Account Plan), then
the remaining account balance will be distributed in cash in the form of a
single lump sum payment to either (i) the Beneficiary, in the case of the
Participant's death, or (ii) the Participant, in the case of termination of
employment; however, in the case of a Participant whose account balance (or a
portion thereof) is transferred from another deferral plan maintained by the
Corporation or an entity acquired by the Corporation, the portion of such
Participant's account balance attributable to the transferred account balance
will be distributed in cash pursuant to the terms of the deferral election as
filed with respect to the transferred balance.
6
<PAGE>
11. Emergency Payments.
------------------
(a) In the event of an unforeseeable emergency as determined
hereunder, the Plan Administrator may authorize the distribution of all or a
portion of the Participant's account, without regard to the payment dates
provided in paragraph 4, but only if the Plan Administrator determines that such
action is necessary to prevent severe financial hardship to the Participant.
Such action shall be taken only if a Participant (or his legal representatives
or successors) shall sign an application describing fully the circumstances
which are deemed to justify the payment, together with an estimate of the
amounts necessary to prevent severe financial hardship. Each such application
shall be approved by the Plan Administrator, who shall certify that according to
the best of his knowledge and belief the statements on the application are true.
In the case of a distribution pursuant to this Section 11(a), the Participant
may not elect to defer Covered Compensation for 12 months following receipt of
the payment.
(b) For the purpose of this paragraph 11, the term
"unforeseeable emergency" shall mean a severe financial hardship to a
Participant or his dependents (as defined in section 152(a) of the Internal
Revenue Code of 1986, as amended), loss of a Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances beyond
the Participant's control. Hardship payments shall only be made to the extent
necessary to satisfy the emergency need, and shall not be made to the extent
that the hardship is or may be relieved through other means, including
reimbursement or compensation, by insurance or otherwise, or by cessation of
deferrals pursuant to this Plan.
(c) Upon the request of a Participant, the Plan Administrator
may also authorize the distribution of all or a portion of the Participant's
account, without regard to the payment dates provided in paragraph 4, provided
the portion of the Participant's account from which such distribution is made is
first reduced by an amount that shall equal the greater of either (i) 10%
7
<PAGE>
of the applicable portion of the Participant's account, (ii) 125% of the
interest rate The First National Bank of Chicago announces from time to time as
its corporate base rate multiplied by the applicable portion of the
Participant's account or (iii) a "substantial penalty" as determined by the Plan
Administrator upon advice of counsel so as to assure there is no constructive
receipt of Participants' accounts under the Plan.
12. Acceleration of Payment. The inside directors of the Corporation
-----------------------
may, in their sole discretion, accelerate any payment under this Plan for any
Participants who are not "officers" as defined under Section 16 of the Exchange
Act.
The Organization, Compensation and Nominating Committee of the Board
of Directors of the Corporation may, in its sole discretion, accelerate any
payment under this Plan for Participants who are "officers" defined under
Section 16 of the Exchange Act.
13. Valuation of Account Prior to Distribution. A Participant's
------------------------------------------
distributable account shall be valued as of the beginning of the month of
payment.
14. Administration. This Plan shall be administered by the Plan
--------------
Administrator and its decision on any matter involving the interpretation of the
Plan shall be binding on everyone; provided, however, that the Plan
Administrator may not take any action with respect to any benefits payable to
the Plan Administrator under the Plan unless such action could have been taken
even if he were not the Plan Administrator. The Plan Administrator shall have
the responsibility, and the full power and authority, to administer the Plan
and, within the limits provided by the Plan:
(a) To determine, in its sole discretion, all questions arising
concerning the construction and interpretation of the Plan and in its
administration, including, but not by way of
8
<PAGE>
limitation, the determination of the rights of eligibility under the Plan of
employees, Participants, and Beneficiaries, and the amount of their respective
benefits, and to interpret and remedy, if necessary, ambiguities,
inconsistencies, or omissions;
(b) To adopt such rules and regulations as it may deem
reasonably necessary for the proper and efficient administration of the Plan and
consistent with its purpose;
(c) To enforce the Plan, in accordance with its terms and with
the Plan Administrator's rules and regulations; and
(d) To do all other acts, in its judgment necessary or
desirable, for the proper and advantageous administration of the Plan.
15. Miscellaneous.
-------------
15.1 Prohibition of Alienation. Benefits under the Plan may not
-------------------------
be anticipated, alienated, assigned or encumbered and any attempt to do so shall
be void.
15.2 Litigation by Participants or Other Persons. To the extent
-------------------------------------------
permitted by law, if a legal action begun against the Corporation or an Employee
or director thereof, or the Board, or any member thereof, by or on behalf of any
person results adversely to that person, or if a legal action arises because of
conflicting claims to a grant payable to a Participant or Beneficiary, the cost
to the Corporation or Employee or director thereof, or the Board or any member
thereof, of defending the action will be charged to the extent possible to the
sums, if any, that were involved in the action or were payable to, or on account
of, the Participant or Beneficiary concerned.
15.3 Indemnification. Any person who is or was a director,
---------------
officer, or Employee of the Corporation and each member of the Board shall be
indemnified and saved harmless by the Corporation from and against any and all
liability or claims of liability to which
9
<PAGE>
such person may be subjected by reason of any act done or omitted to be done in
good faith with respect to the administration of the Plan, including all
expenses reasonably incurred in the Participant's defense in the event that the
Corporation fails to provide such defense.
15.4 Rights to Employment. Participation in the Plan shall not
--------------------
confer upon any Participant any right with respect to continued employment by
the Corporation.
15.5 Expenses. All expenses of administering the Plan shall be
--------
borne by the Corporation.
15.6 Other Plans. Nothing contained herein shall prevent the
-----------
Corporation from establishing or maintaining other plans in which Participants
in this Plan may also participate.
15.7 Facility of Payment. When, in the Plan Administrator's
-------------------
opinion, a Participant or Beneficiary is under a legal disability or
incapacitated in any way so to be unable to manage the Participant's or
Beneficiary's financial affairs, the Plan Administrator may direct that the
amount of the Participant's or Beneficiary's payment hereunder be made to the
Participant's or Beneficiary's legal representative or to another person for
such Participant's or Beneficiary's benefit, or the Plan Administrator may
direct that such amount be applied for the benefit of the Participant or
Beneficiary in any way the Plan Administrator considers advisable.
15.8 Notices. Any communication, statement or notice addressed
-------
to a Participant at the Participant's last post office address shown on his
employer's records, will be binding upon the Participant for all purposes of the
Plan. Neither the Plan Administrator nor the Corporation shall be obliged to
search for or ascertain the whereabouts of any Participant. For purposes of this
section 15.8, the term "Participant" includes any person entitled by reason of a
Participant's death or legal disability to that Participant's deferred Covered
Compensation under the Plan.
15.9 Records. All records held by Corporation Compensation with
-------
respect
10
<PAGE>
to an Employee shall be binding upon everyone for purposes of the Plan.
16. Amendment and Termination. The Corporation, by a resolution of
-------------------------
the Organization, Compensation and Nominating Committee of the Board, may amend
or terminate the Plan at any time; provided, however, that, except as may
otherwise be required by law, no such amendment to or termination of the Plan
shall reduce the benefits to which a Participant (or his Beneficiary) is
entitled under the Plan as of the date of such amendment or termination. The
Chief Executive Officer or the Head of Human Resources may amend the Plan in any
non-material respect. Whether the amendment is material or not shall be
determined by Chief Executive Officer or Head of Human Resources in his sole
discretion.
17. Financing of Plan Benefits. Any benefits payable to a
--------------------------
Participant under the Plan shall be financed from the general assets of his
employer, and no Participant, or group of Participants, shall acquire any claim
upon any specific asset of an employer solely by reason of his being a
Participant in the Plan. This paragraph shall not prohibit the Corporation from
transferring assets to a grantor trust for the purpose of providing benefits
hereunder, which grantor trust shall remain subject to the claims of creditors.
The accounting and recordkeeping of this Plan shall be entirely separate from
any other plan.
18. Gender and Number. Words denoting the masculine gender shall
-----------------
include the feminine and neuter genders, the singular shall include the plural
and the plural shall include the singular wherever required by the context.
19. Benefits Intended for Select Group of Management or Highly
----------------------------------------------------------
Compensated
- -----------
11
<PAGE>
Employees. This Plan is intended to be maintained primarily for the purpose of
- ---------
providing deferred compensation for a select group of management or highly
compensated employees and shall be interpreted and administered accordingly.
20. Controlling Laws. To the extent not superseded by Federal law,
----------------
the laws of Illinois, without regard to its laws of conflict, shall be
controlling in all matters relating to the Plan.
12
<PAGE>
EXHIBIT 10(K)
FIRST CHICAGO NBD CORPORATION
SUPPLEMENTAL SAVINGS AND INVESTMENT PLAN
Effective January 1, 1997
<PAGE>
FIRST CHICAGO NBD CORPORATION SUPPLEMENTAL SAVINGS DRAFT
-------------------------------------------------- 3-20-97
AND INVESTMENT PLAN
-------------------
Effective January 1, 1997
1. Purpose. The purpose of the First Chicago NBD Corporation
-------
Supplemental Savings and Investment Plan ("Supplemental Plan") is to provide
supplemental benefits to certain employees described in Section 3 below of First
Chicago NBD Corporation and its subsidiaries (collectively the "Corporation")
who are participants in the First Chicago NBD Corporation Savings and Investment
Plan ("SIP") and whose ability to make contributions to the SIP is limited
because of Sections 401(a)(17), 401(k)(3), 401(m), 402(g) or 415 of the Internal
Revenue Code of 1986, as amended (the "Code") (or any comparable section or
sections of any future legislation that amend, supplement or supersede those
sections).
This Supplemental Plan is an amendment and restatement of the First Chicago
Corporation Supplemental Savings Incentive Plan. The rights and benefits of any
Participant whose employment terminated prior to January 1, 1997 will be
governed by the Plan as in effect on the date of the Participant's termination
of employment.
2. Definitions. Unless the context clearly implies or indicates the
-----------
contrary, a word, term or phrase used or defined in the SIP is similarly used or
defined in the Supplemental Plan.
<PAGE>
The masculine pronoun whenever used herein is deemed to include the feminine and
the singular shall be deemed to include the plural whenever the context
requires.
3. Eligibility. Each individual who, on or after January 1, 1997,
-----------
is a participant in the SIP and whose contributions thereto are limited because
of the application of Sections 401(a)(17), 402(g) or 415 of the Code shall be
eligible to participate in this Supplemental Plan. In addition, any such
individual whose contributions to the SIP would have been limited thereto
because of the application of Sections 401(k)(3) or 401(m) of the Code and whose
contributions to the SIP would have been limited by any of the Code Sections
described in the previous sentence but for the earlier application of Sections
401(k)(3) and 401(m) of the Code shall also be eligible to participate in this
Supplemental Plan.
4. Participation. An individual eligible to participate pursuant to
-------------
Section 3 above shall participate in this Supplemental Plan automatically
pursuant to his election under the SIP and shall participate in the same manner
with the same rights and under the same terms and conditions as his
participation under the SIP, except as may otherwise be prescribed herein. The
Committee shall notify each participant of his automatic participation.
5. Supplemental Benefit. A participant hereunder shall be entitled
--------------------
to a distribution of his account balance equal to the amount of Before-Tax
Contributions and Matching Contributions that would have been made to the SIP on
his behalf but for the application of Sections 401(a)(17), 401(k)(3), 401(m),
402(g) and 415 of the Code, adjusted
<PAGE>
for the investment results attributable to such contributions had such
contributions been invested in the Investment Funds in the same manner and
proportions as contributions made on his behalf to the SIP were invested under
the SIP.
6. Distribution of Account Balances. A participant's account
--------------------------------
hereunder shall be distributed in cash in one lump sum payment as soon as
practicable following the Participant's termination of employment. A participant
shall have no right to an in-service distribution except: (i) in the case of a
participant's total and permanent disability as defined in The First Chicago NBD
Corporation Personal Pension Account Plan, or (ii) in the case of a Change of
Control (as defined in the First Chicago NBD Corporation Stock Performance
Plan). A participant shall not have the right to receive any portion of his
distribution in Company Stock.
Notwithstanding the above, in the event of a Change of Control, a
participant shall have his account balance distributed to him in a lump sum as
soon as practicable following such Change of Control.
7. Survivor's Benefits. In the case of a participant's death before
-------------------
distribution of his entire account balance under this Supplemental Plan, the
remaining account balance will be distributed to the Designated Beneficiary in a
lump sum.
3
<PAGE>
8. No Right to Withdrawal or Loans During Employment. Except as
-------------------------------------------------
otherwise provided in Section 6 above with respect to a Change of Control or in
the case of a total and permanent disability as defined in The First Chicago NBD
Corporation Personal Pension Account Plan, no form of in-service distribution,
including withdrawals or loans, shall be permitted under the Supplemental Plan.
9. Administration. The Supplemental Plan shall be administered by
--------------
the Committee and its decision on any matter involving the interpretation of the
Supplemental Plan shall be binding on everyone; provided, however, that a
Committee member may not take any action with respect to any benefits payable to
him under the Supplemental Plan unless he could take such action even if he were
not a Committee member.
10. Prohibition of Alienation. Except as to a payment required under
-------------------------
a qualified domestic relations order, as defined in Section 414(p) of the Code,
benefits under the Supplemental Plan may not be anticipated, alienated, assigned
or encumbered and any attempt to do so shall be void.
11. Records. All records held by the Corporation's Human Resources
-------
Department with respect to an employee shall be binding upon everyone for
purposes of the Supplemental Plan.
4
<PAGE>
12. Amendment and Termination. The Corporation, by a resolution of
-------------------------
the Organization, Compensation and Nominating Committee of the Board of
Directors or by anyone authorized by the Board of Directors, may amend or
terminate the Supplemental Plan at any time; provided, however, that, except as
may otherwise be required by law, no such amendment to or termination of the
Supplemental Plan shall reduce the benefits to which a participant (or his
Designated Beneficiary) is entitled under the Supplemental Plan as of the date
of such amendment or termination.
13. Financing of Supplemental Plan Benefits. Any benefits payable to
---------------------------------------
a participant under the Supplemental Plan shall be financed from the general
assets of his employer, and no participant, or group of participants, shall
acquire any claim upon any specific asset of an employer solely by reason of his
being a participant in the Supplemental Plan. This paragraph shall not prohibit
the Corporation from transferring assets to a grantor trust for the purpose of
providing benefits hereunder, which grantor trust shall remain subject to the
claims of creditors. The accounting and recordkeeping of this Supplemental Plan
shall be entirely separate from any other plan.
14. Benefits Intended for Select Group of Management or Highly
----------------------------------------------------------
Compensated Employees. This Supplemental Plan is intended to be maintained
- ---------------------
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees and shall be interpreted and
administered accordingly.
5
<PAGE>
15. Controlling Laws. To the extent not superseded by Federal laws,
----------------
the laws of Illinois (except its laws of conflict) shall be controlling in all
matters relating to the Supplemental Plan.
6
<PAGE>
EXHIBIT 10(L)
FIRST CHICAGO NBD CORPORATION DRAFT
----------------------------- 3-20-97
PERSONAL PENSION ACCOUNT SUPPLEMENTAL PLAN
---------------------------------------
(As Amended and Restated Effective January 1, 1997)
<PAGE>
FIRST CHICAGO NBD CORPORATION DRAFT
----------------------------- 3-20-97
PERSONAL PENSION ACCOUNT SUPPLEMENTAL PLAN
-------------------------------------------
(Effective January 1, 1997)
---------------------------
1. Purpose. The purpose of the First Chicago NBD Corporation
-------
Personal Pension Account Supplemental Plan (the "Supplemental Plan") is to
provide supplemental benefits to those participants in First Chicago NBD
Corporation Personal Pension Account Plan, including any supplements thereto,
(the "PPAP") whose benefits are reduced because of Sections 401(a)(4),
401(a)(17) or 415 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any comparable section or sections of any future legislation that amend,
supplement or supersede said Sections 401(a)(4), 401(a)(17) or 415).
The Supplemental Plan as set forth herein is an amendment, restatement and
continuation, effective January 1, 1997, of the Pension Restoration
/Supplemental Plan for Certain Officers of NBD Bancorp, Inc. and The First
National Bank of Chicago Supplemental Pension Plan as they were both constituted
on December 31, 1996. The rights and benefits of any participant terminating
employment prior to January 1, 1997 shall be governed by the plan as in effect
on the date of the participant's employment termination.
2. Definitions. Unless the context clearly implies or indicates
-----------
the contrary, a word, term or phrase used or defined in the PPAP is similarly
used or defined in the Supplemental Plan.
3. Eligibility. Each individual who, on or after the effective
-----------
date, is a participant in the PPAP shall be eligible for a benefit hereunder if
(a) such individual's employment terminates after completing five years of
vesting service under the PPAP or (b) a Change of Control shall have occurred.
4. Supplemental Retirement Benefit. Each participant hereunder
-------------------------------
shall be entitled to a supplemental benefit in the amount, if any, determined in
accordance with the following:
(a) First, there shall be determined the maximum annual
pension benefit to which the participant would have
been entitled under the PPAP, as amended and in effect
on his employment termination date or date there is a
Change of Control but disregarding any limitations on
compensation or benefits that are set forth in the PPAP
as of that date pursuant to Sections 401(a)(17) or 415
of the Code;
(b) Then, there shall be determined the maximum annual
----
pension benefit to which the participant is entitled
under the PPAP, as amended and in effect as of his
employment termination date or date there is a Change
of Control,
<PAGE>
without disregarding any limitations on compensation or
benefits that are set forth in the PPAP as of that date
pursuant to Sections 401(a)(17) or 415 of the Code; and
(c) Finally, the excess, if any, of (a) above over (b)
-------
above shall be the amount of the supplemental benefit
payable under the Supplemental Plan.
5. Payment of Supplemental Plan Benefits. Except as provided
-------------------------------------
below, payment of a supplemental benefit shall be made in one lump sum payment
as soon as practicable following the earlier of (a) a participant's termination
of employment, or (b) a Change of Control. The lump sum payment shall be the
actuarial equivalent (determined in the same manner as a lump sum under the
PPAP) of the supplemental benefit to which the participant is entitled under
paragraph 4. In the event a supplemental benefit becomes later payable to such
participant upon his subsequent termination of employment, the supplemental
benefit then payable shall not include, as actuarially determined, any plan lump
sum payment or other benefit payment previously paid. Notwithstanding the
foregoing, a participant, by making a written election at least one year prior
to the participant's termination of employment in accordance with rules
established by the Retirement Committee, may have his supplemental benefit paid
in any of the optional forms offered under the PPAP, in a period certain
(monthly 5, 10 or 15 years) form of payment or, in the case of a participant
having attained age 55 with 15 years of service at the time of termination of
employment, deferred under the First Chicago NBD Corporation Deferred
Compensation Plan.
6. Survivor's Benefits. A benefit will be paid (a) in a lump
-------------------
sum to a participant's Designated Beneficiary, in the case of the death of a
participant prior to his retirement or termination of employment, provided that
such participant would have been entitled to a benefit under paragraph 4 above
if he had actually retired or terminated employment on the date of his death, or
(b) to a participant's Designated Beneficiary pursuant to any distribution
election on file with the Retirement Committee, in the case of the death, after
retirement or termination of employment, of a participant whose supplemental
benefit was not paid or begun to be paid under paragraph 5 next above. The
benefit will be paid in an amount or actuarial equivalent amount equal to the
difference between:
(x) The amount of benefit to which such Designated
Beneficiary, spouse or child would have been entitled
under the PPAP, as amended and in effect on the date of
the participant's death but disregarding any
limitations on compensation or benefits that are set
forth in the PPAP as of that date pursuant to Sections
401(a)(17) or 415 of the Code; and
(y) The amount of benefit to which such spouse or child is
entitled under the PPAP, as amended and in effect on
the
<PAGE>
date of the participant's death, without disregarding
any limitations on compensation or benefits that are
set forth in the PPAP as of that date pursuant to
Sections 401(a)(17) or 415 of the Code.
7. Administration. The Supplemental Plan shall be administered
--------------
by the Retirement Committee and its decision on any matter involving the
interpretation of the Supplemental Plan shall be binding on everyone; provided,
however, that a Retirement Committee member may not take any action with respect
to any benefits payable to him under the Supplemental Plan unless he could take
such action even if he were not a Retirement Committee member. Any matters
relating to the Retirement Committee including its powers shall be the
determined and/or defined in accordance with section 10 of the PPAP.
8. Prohibition of Alienation. Except as to debts owing to the
-------------------------
Corporation or any of its subsidiaries, or payments required under a qualified
domestic relations order, as defined in Section 414(p) of the Code, benefits
under the Supplemental Plan may not be anticipated, alienated, assigned or
encumbered and any attempt to do so shall be void.
9. Records. All records held by the Corporation's Human
-------
Resources Department with respect to any employee shall be binding upon everyone
for purposes of the Supplemental Plan.
10. Amendment and Termination. The Corporation, acting through
-------------------------
the Organization, Compensation and Nominating Committee of its Board of
Directors or by anyone authorized by the Board of Directors, may amend the
Supplemental Plan from time to time and may terminate it at any time; provided,
however, that, except as may otherwise be required by law, no such amendment or
termination shall be permitted upon or following a Change of Control so long as
the PPAP continues without termination and, provided, further, upon and
following any termination of the PPAP, no such amendment to or termination of
the Supplemental Plan shall reduce the benefits to which a participant (or his
beneficiary) is entitled under the Supplemental Plan as of the date of such
amendment or termination.
11. Financing of Supplemental Plan Benefits. Any benefits payable
---------------------------------------
to a participant under the Supplemental Plan shall be financed from the general
assets of his employer, and no participant, or group of participants, shall
acquire any claim upon any specific asset of an employer solely by reason of his
being a participant in the Supplemental Plan. This paragraph shall not prohibit
the Bank from transferring assets to a grantor trust for the purpose of
providing benefits hereunder.
12. Controlling Laws. To the extent not superseded by Federal
----------------
law, the laws of Illinois (except its laws of conflict) shall be controlling in
all matters relating to the Supplemental Plan.
3
<PAGE>
SUPPLEMENT A TO
THE FIRST CHICAGO NBD CORPORATION
SUPPLEMENTAL PERSONAL PENSION ACCOUNT PLAN
FORMER FIRST CHICAGO CORPORATION EXECUTIVE RETIREMENT PLAN PARTICIPANTS
-----------------------------------------------------------------------
Effective January 1, 1997
1. Purpose. Effective January 1, 1997, the purpose of this
-------
Supplement A to the First Chicago Corporation Supplemental Personal Pension
Account Plan ("Supplemental Plan") is to permit employees of First Chicago NBD
Corporation and its subsidiaries who (i) were participants in the First Chicago
Corporation Pension Plan ("FCC Pension Plan"), (ii) had attained "Rule of 65"
under the FCC Pension Plan on or before December 31, 1996 and (iii) had accrued
a benefit under the First Chicago Corporation Executive Retirement Plan
("Executive Plan") to receive additional retirement benefits based upon
compensation which is not considered in calculating such participants' benefits
under Supplement A to the First Chicago NBD Corporation Personal Pension Account
Plan ("PPAP").
2. Definitions. Unless the context clearly implies or indicates
-----------
the contrary, a word, term or phrase used or defined in the PPAP is similarly
used or defined in this Supplement.
3. Eligibility. Effective January 1, 1997, only employees of
-----------
First Chicago NBD Corporation and its subsidiaries who (1) had attained Rule of
65 under the FCC Pension Plan as of December 31, 1996 and (2) had otherwise
accrued a benefit under the Executive Plan as of December 31, 1996 shall be
eligible for a benefit hereunder.
4. Executive Plan Retirement Benefit. Each participant hereunder
---------------------------------
shall be entitled to a benefit in the amount, if any, determined in accordance
with the following:
(a) A participant's Covered Compensation under this
Supplement shall be determined as follows: First, the "Covered Bonus" amount for
each year shall be determined by limiting the participant's annual management
bonus amount awarded for a given year, or other cash incentive award designated
by the Organization, Compensation and Nominating Committee, to an amount not
greater than 50% of the participant's highest salary for that same year. Next,
the five highest such Covered Bonus amounts shall be averaged. If the
participant has fewer than five years in which he has a Covered Bonus amount,
then the Covered Bonus amounts from such lesser number of years shall be
averaged based on the actual number of Covered Bonuses. A participant's Covered
Compensation under this Supplement shall be the average of the Covered Bonus
amounts so determined.
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<PAGE>
(b) The participant's benefit under this Supplement shall
be the annual amount of benefit determined by multiplying the participant's
vested accrued pension percentage under Supplement A to the PPAP by the Covered
Compensation under Paragraph 4(a) above.
(c) A participant's benefit under this Supplement shall
only be paid to the participant if the benefit when combined with the benefits
accrued under Supplement A to the PPAP and under the Supplemental PPAP (as it
applies to any benefit limited under Supplement A to the PPAP by Sections
401(a)(17) or 415 of the Code) exceed the participant's accrued benefit computed
under the pay-based credits formula under Article 4 of the PPAP and the
Supplemental PPAP (as it applies to any benefit computed under the pay-based
credits formula which is limited by Sections 401(a)(17) or 415 of the Code). The
benefits payable under this Supplement when combined with the benefit accrued
under Supplement A to the PPAP and the Supplemental PPAP may only be paid in
lieu of, and not in addition to, any other benefit accrued under the PPAP and
attributable to the pay- based credit formula.
5. Payment of Executive Plan Benefits. Payment of a benefit
----------------------------------
hereunder shall be made in any of the forms of benefit available under the
Supplemental Plan and according to the procedures set out in the Supplemental
Plan. A participant may elect to receive his payment hereunder in a form
different from the form of benefit, if any, elected under the Supplemental
Plan.
6. Survivor's Benefits. A benefit will be paid (a) in a lump
-------------------
sum to a participant's Designated Beneficiary, in the case of the death of a
participant prior to his retirement or termination of employment provided that
such participant would have been entitled to a benefit under paragraph 4 above
if he had actually retired or terminated employment on the date of his death, or
(b) to a participant's Designated Beneficiary pursuant to any distribution
election on file with the Retirement Committee, in the case of the death, after
retirement or termination of employment, of a participant whose supplemental
benefit was not paid or begun to be paid under paragraph 5 next above.
7. Pre-1997 Benefit of Non-Rule of 65 Participant. The benefit
-----------------------------------------------
accrued under the Executive Plan as of December 31, 1996 by any participant who
had not attained Rule of 65 as of December 31, 1996 is frozen and the lump sum
value of such participant's accrued benefit as of December 31, 1996 shall be
credited to such participant's opening account balance under the Supplemental
PPAP.
8. Prohibition of Alienation. Except as to debts owing to First
-------------------------
Chicago NBD Corporation or its subsidiaries, benefits under this Supplement may
not be anticipated, alienated, assigned or encumbered and any attempt to do so
shall be void.
9. Benefits Intended for Select Group of Management or Highly
----------------------------------------------------------
Compensated Employees. Benefits under this Supplement are intended to be
- ---------------------
maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees and shall be
interpreted and administered accordingly.
5
<PAGE>
EXHIBIT 10(M)
FORM OF INDIVIDUAL CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
Each of the following individuals is a party to a Change of Control
Employment Agreement with the Corporation, the form and terms of which are
substantially as attached.
Frederick M. Adams, Jr.
John W. Ballantine
David P. Bolger
William H. Elliott III
Sherman I. Goldberg
Verne G. Istock
Thomas H. Jeffs II
Philip S. Jones
W.G. Jurgensen
Scott P. Marks, Jr.
Thomas J. McDowell
Timothy P. Moen
Susan S. Moody
Andrew J. Paine, Jr.
Robert A. Rosholt
David J. Vitale
Willard A. Valpey
<PAGE>
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between First Chicago NBD Corporation, a Delaware corporation
(the "Company"), and _______________ (the "Executive"), dated as of the 11th day
of July, 1995.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Change of Control Period shall be automatically extended so as
to terminate three years from such Renewal Date, unless at least 60 days prior
to the Renewal Date the Company shall give notice to the Executive that the
Change of Control Period shall not be so extended.
<PAGE>
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities"),
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board, provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, the corporation resulting from such Business
Combination or the combined voting power of the then
2
<PAGE>
outstanding voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
Notwithstanding the foregoing, the merger of the Company with First Chicago
Corporation shall not constitute a Change of Control.
3. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company, subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base
3
<PAGE>
salary which has been earned but deferred, to the Executive by the Company and
its affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed no more than 12 months after
the last salary increase awarded to the Executive prior to the Effective Date
and thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer to Annual
Base Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall
be awarded, for each fiscal year ending during the Employment Period, an annual
bonus in cash at least equal to the Executive's average bonus under the
Company's annual incentive plans, for the last three full fiscal years prior to
the Effective Date (annualized in the event that the Executive was not employed
by the Company for the whole of such fiscal year) (the "Recent Average Bonus").
Each such annual bonus shall be paid no later than the end of the third month of
the fiscal year next following the fiscal year for which the annual bonus is
awarded, unless the Executive shall elect to defer the receipt of such annual
bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the
4
<PAGE>
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement of all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall
be entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the
5
<PAGE>
Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
6
<PAGE>
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially greater
extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
7
<PAGE>
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
Recent Average Bonus and (y) a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid (the sum
of the amounts described in clauses (1), (2) and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and one-half (2.5) and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the Recent Average
Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent of the
benefit under the Company's qualified defined benefit retirement plan (the
"Retirement Plan") (utilizing actuarial assumptions no less favorable to the
Executive than those in effect under the Company's Retirement Plan immediately
prior to the Effective Date), and any excess or supplemental retirement plan in
which the Executive participates (together, the "SERP") which the Executive
would receive if the Executive's employment continued for thirty months after
the Date of Termination assuming for this purpose that all accrued benefits are
fully vested, and assuming that the Executive's compensation in each of the
three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b)
the actuarial equivalent of the Executive's actual benefit (paid or payable), if
any, under the Retirement Plan and the SERP as of the Date of Termination.
(ii) for thirty months after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
8
<PAGE>
considered to have remained employed until thirty months after the Date of
Termination and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least to the most favorable of
those generally provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any time during the
120-day period immediately preceding the Effective Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
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(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f) shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise
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<PAGE>
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payment, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations required
to be made under this Section 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up
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Payment. Such notification shall be given as soon as practicable but no later
than ten business days after the Executive is informed in writing of such claim
and shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
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(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no
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force or effect. This Agreement may not be amended or modified otherwise than by
a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
Name of Executive
Street Address
City, Michigan 48XXX
If to the Company:
------------------
Fred J. Johns
Secretary to the Compensation Committee
Board of Directors
First Chicago NBD Corporation
One First National Plaza
Chicago, IL 60670
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time, in which case the Executive shall have no
further rights under this Agreement. From and after the Effective Date this
Agreement shall supersede any other agreement between the parties with respect
to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
FIRST CHICAGO NBD CORPORATION
By:
--------------------------------------
-----------------------------------------
[Name of Executive]
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EXHIBIT 10(N)
FORM OF INDIVIDUAL EXECUTIVE EMPLOYMENT AGREEMENT
Each of the following individuals is a party to an Executive Employment
Agreement with the Corporation, the form and terms of which are substantially as
attached.
Frederick M. Adams, Jr.
John W. Ballantine
David P. Bolger
William H. Elliott III
Sherman I. Goldberg
Verne G. Istock
Thomas H. Jeffs II
Philip S. Jones
W.G. Jurgensen
Scott P. Marks, Jr.
Thomas J. McDowell
Timothy P. Moen
Susan S. Moody
Andrew J. Paine, Jr.
Robert A. Rosholt
David J. Vitale
Willard A. Valpey
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT by and between First Chicago NBD Corporation, a Delaware
corporation (the "Company") and _________ (the "Executive"), dated as of the
______ day of December, 1995.
In light of the merger of First Chicago Corporation and the Company
("Merger"), the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive to provide
the Company after the Merger with continuity of management. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the effective date of
the Merger.
2. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on December 1, 1997 (the "Employment
Period").
3. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive shall serve as _______, with such authority, duties
and responsibilities as are assigned to the Executive on the Effective Date and
as may be consistent with such position as may be assigned to him by the Chief
Executive Officer of the Company and (B) the Executive's services shall be
performed at any Company office located in the Midwestern United States.
(ii) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
substantially all of his attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
<PAGE>
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) Incentive, Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans applicable generally to other peer executives of the Company
and its affiliated companies.
(iii) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
provided by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, employee life, accidental
death and travel accident insurance plans) to the extent applicable generally to
other peer executives of the Company and its affiliated companies.
(iv) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the Company's policies.
(v) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, in accordance with Company policy as in effect from
time to time.
(vi) Office and Support Staff. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments as provided generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company and its affiliated companies as in effect generally at
any time with respect to other peer executives of the Company and its affiliated
companies.
4. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment
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Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the continued failure of the Executive to perform substantially the
Executive's duties with the Company or one of its affiliates (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company, or
(iii) conviction of a felony or any other offense involving dishonesty or
breach of trust, or entry of a guilty or nolo contendere plea by the Executive
or participation in a pre-trial diversion with respect thereto, or
(iv) a material breach of the covenants contained in
Section 9.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-
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fourths of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together with counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean in the absence of a written consent of the Executive:
(i) any action by the Company which results in a diminution of officer title
or a material diminution in the position, authority, duties or responsibilities
associated with such officer title as are assigned to the Executive as of the
Effective Date, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any material failure by the Company to comply with any of the
provisions of Section 3(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any office or
location outside of the Midwestern United States;
(iv) any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 10(c) of
this Agreement.
For purposes of this Section 4(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 12(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than thirty days
after the giving of such notice). The failure by the Executive or the Company
to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any
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right of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or circumstance
in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein within 30 days of such notice, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
Executive's average bonus under the Company's annual incentive plans with
respect to the last three full fiscal years prior to the Date of Termination
(the "Average Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of Termination occurs
through the Date of Termination, and the denominator of which is 365; and
B. the amount equal to the product of (1) two and one-half and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Average Annual
Bonus;
(ii) the Company shall pay the following to the Executive after the Date of
Termination pursuant to the terms of the applicable plan and/or deferral
election:
A. any compensation previously deferred (other than pursuant to a
qualified plan) by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent
not theretofore paid (the sum of the amounts described in clauses (i)(A)(1),
(i)(A)(2), and this (ii)(A) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. an amount equal to the excess of (a) the actuarial equivalent of the
benefit under the Company's qualified defined benefit retirement plan (the
"Retirement Plan") (utilizing actuarial assumptions no less favorable to the
Executive than those in effect
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<PAGE>
under the Company's Retirement Plan immediately prior to the Effective Date),
and any excess and/or supplemental retirement plans in which the Executive
participates (together, the "SERPs") which the Executive would receive if the
Executive's employment continued for thirty months after the Date of
Termination assuming for this purpose that all accrued benefits are fully
vested, and, assuming that the Executive's compensation in each of the three
years is that required by Section 3(b)(i) and assuming an annual bonus equal
to the Average Annual Bonus, over (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under the Retirement
Plan and the SERPs as of the Date of Termination;
(iii) for thirty months after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, the
Company shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in accordance
with the plans, described in Section 3(b)(iii) of this Agreement if the
Executive's employment had not been terminated; provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans, the
Executive shall be considered to have remained employed until thirty months
after the Date of Termination and to have retired on the last day of such
period;
(iv) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services at a cost not to exceed $35,000; provided
that the provider of such services must be approved by the Company; and
(v) to the extent not theretofore paid or provided, the Company shall
provide to the Executive for one year following the Date of Termination
reasonable and appropriate office space, secretarial support and use of a
Company provided automobile, but only if such automobile was provided prior to
the Date of Termination.
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
of death benefits as in effect on the date of the Executive's death with respect
to other peer executives of the Company and its affiliated companies and their
beneficiaries. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the
-6-
<PAGE>
timely payment, after the Disability Effective Date, of disability benefits as
in effect on the Disability Effective Date with respect to other peer executives
of the Company and its affiliated companies. Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment shall
be terminated for Cause or the Executive terminates his employment without Good
Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive (such deferred
amounts payable pursuant to the terms of the applicable plan or deferral
election) and (z) any accrued vacation pay, in each case to the extent
theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
7. Set-Off; No Mitigation; Legal Expenses. Notwithstanding any provision of
this Agreement, the Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder are subject to
and may be reduced by all rights of set-off, counterclaim, recoupment, defense
or other claim, right or action which the Company may have against the Executive
or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 5(a)(iii), such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay as incurred,
to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the application Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
-7-
<PAGE>
8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 8(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Executive, after
taking into account the Payments and the Gross-Up Payment, would not receive a
net after-tax benefit of at least $50,000 (taking into account both income taxes
and any Excise Tax) as compared to the net after-tax proceeds to the Executive
resulting from an elimination of the Grosse-Up Payment and a reduction of the
Payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations required
to be made under this Section 8, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Arthur Andersen LLP
or such other certified public accounting firm reasonably acceptable to the
Company as may be designated by the Executive (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the surviving corporation following the Merger, the Executive may
appoint another nationally recognized accounting firm reasonably acceptable to
the Company to make the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the
Company to the Executive within five days of the later of (i) the due date for
the payment of any Excise Tax or (ii) the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive.
-8-
<PAGE>
As a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim; provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 8(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for
-9-
<PAGE>
a refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
9. Confidential Information. (a) The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. A violation of the provisions of this Section 9 shall
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
(b) In the event of a breach or threatened breach of this Section 9, the
Executive agrees that the Company shall be entitled to injunctive relief in a
court of appropriate jurisdiction to remedy any such breach or threatened breach
and the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of this Agreement shall
have no effect on the continuing operation of this Section 9.
-10-
<PAGE>
10. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
11. Non-Solicitation. The Executive acknowledges that the Executive has and
will learn confidential information relating to the customers of the Company and
its affiliated companies. The Executive further acknowledges that the Company's
relationship with its customers are extremely valuable to them, are generally
the result of the investment of substantial time and effort by them, and tend to
be near permanent. Therefore, the Executive agrees that in the event
Executive's employment terminates during the Employment Period for any reason
whatsoever, the Executive shall not, for a period of one year after the
occurrence of such termination, for himself, or as the agent of, on behalf of,
or in conjunction with, any person or entity, solicit or attempt to solicit,
whether directly or indirectly: (i) any employee of the Company or its
affiliated companies to terminate such employee's employment relationship with
the Company or its affiliated companies, or (ii) any business of the type
provided by the Company or its affiliated companies from any person or entity
that is or was a client, employee, or customer of the Company or its affiliated
companies and had dealt with the Executive or any other employee of the Company
or its affiliated companies under the supervision of the Executive.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
-11-
<PAGE>
If to the Executive:
-------------------
Name of Executive
One First National Plaza
Chicago, Illinois 60670
If to the Company:
-----------------
First Chicago Corporation
One First National Plaza
Chicago, Illinois 60670
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will", and prior
to the Effective Date, the Executive's employment may be terminated by either
the Executive or the Company at any time for any reason, in which case the
Executive shall have no further rights under this Agreement. From and after the
Effective Date this Agreement shall supersede any other employment, severance or
change of control agreement between the parties with respect to the subject
matter hereof other than the Change of Control Employment Agreement dated July
11, 1995 between the parties, which shall, upon a Change of Control (as defined
therein) supersede this Agreement.
-12-
<PAGE>
(g) Notwithstanding any provision of this Agreement, the Company shall have
no obligation to make any payments to the Executive if or to the extent such
payments are prohibited by any applicable law or regulation, including, without
limitation, Section 18(k) of the Federal Deposit Insurance Act and regulations
regarding golden parachute and indemnification payments promulgated thereunder.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
-------------------------
[Name of Executive]
FIRST CHICAGO NBD CORPORATION
By:
----------------------------
-13-
<PAGE>
EXHIBIT 10(Q)
FIRST AMENDMENT
TO
NBD BANCORP, INC.
BENEFIT PROTECTION TRUST AGREEMENT
----------------------------------
THIS AMENDATORY AGREEMENT made this____ day of November, 1995, by and
between NBD BANCORP, INC., a corporation duly organized and existing under the
laws of the State of Delaware and having its principal office and place of
business at Detroit, Michigan ("NBD"), and BANKERS TRUST COMPANY, a corporation
duly organized and existing under the laws of the State of New York and having
its principal office and place of business at New York, New York (the
"Trustee").
WITNESSETH:
WHEREAS, effective August 30, 1993, NBD established the NBD Bancorp, Inc.
Benefit Protection Trust (the "Trust") under agreement (the "Trust Agreement")
with the Trustee; and
WHEREAS, NBD now desires to amend the Trust Agreement to provide authority
for the investment of Trust assets in any registered investment company or
mutual fund for which the Trustee provides, for compensation, custodial,
advisory or other services; and
WHEREAS, NBD and the Trustee have reserved in Section 13 of the Trust
Agreement the right to amend the Trust Agreement by written instrument;
NOW, THEREFORE, NBD and the Trustee agree that the Trust Agreement is
hereby amended as follows:
I.
Effective Immediately Section 6(a) is amended in its entirety to read as
follows:
"(a) Subject to the provisions of paragraph (b), the Trustee shall, in is
sole discretion, invest and reinvest the Trust assets in any property, real or
personal, or part interest therein,
<PAGE>
wherever situated, including but without being limited to, common and preferred
stocks, personal, corporate and governmental obligations, trust and
participation certificates, leaseholds, mortgages and other interests in realty,
notes and other evidences of indebtedness or ownership, secured or unsecured,
and including specifically real property, stocks, securities, obligations and
interests of NBD and its affiliates. Such investments shall be limited to
investments that are rated in one of the two highest rating categories by a
nationally recognized rating agency. Such investments shall not be restricted to
property and securities of the character authorized for investment by trustees
under any present or future laws. All rights, privileges, options and elections
contained in any policies or contracts issued by insurance companies and
acquired pursuant to the foregoing shall vest in the Trustee and shall be
exercised, assigned, or otherwise disposed of in its discretion. Without
liability for interest, the Trustee may keep a portion of the Trustee assets
uninvested and may deposit any uninvested assets with itself or other banks. The
Trustee is further authorized and empowered in its sole discretion to invest and
reinvest all or any part of the Trust assets to any registered investment
company or mutual fund for which the Trustee provides, for compensation,
custodial, advisory or other services."
II.
Except as hereinabove provided, the Trust Agreement as heretofore in effect
is hereby ratified and confirmed and shall continue unchanged in full force and
effect.
IN WITNESS WHEREOF, this Amendatory Agreement has been executed on the ____
day of November, 1995, by NBD BANCORP, INC., as Grantor, and on the ___ day of
November, 1995, by BANKERS TRUST COMPANY, as Trustee, and their respective
corporate seals affixed and attested by officers hereunto duly authorized.
ATTEST: NBD BANCORP, INC.
By: /s/ Joseph J. Borkowski By: /s/ Fred J. Johns
---------------------------------- --------------------------------
Joseph J. Borkowski Fred J. Johns
Its Vice President Its Senior Vice President
(Corporate Seal)
ATTEST: BANKERS TRUST COMPANY, Trustee
By: /s/ Yolanda Diaz By: /s/ Vanessa Finn
---------------------------------- --------------------------------
Yolanda Diaz Vanessa Finn
Its Assistant Vice President Its Vice President
(Corporate Seal)
<PAGE>
STATE OF MICHIGAN)
) SS.
COUNTY OF WAYNE )
On this 16th day of November, 1995, before me, a notary public in and for
said County, personally appeared FRED J. JOHNS, who, being by me duly sworn, did
depose and say that he is a senior vice president of NBD BANCORP, INC., one of
the corporations described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
/s/ Sharon D. Szczepankowski
----------------------------------------------
Notary Public, Wayne County,
State of Michigan
My Commission Expires 2/12/97
(Notarial Seal)
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On this 4th day of December, 1995, before me, a notary public in and for
said County, personally appeared Vanessa Finn, who, being by me duly sworn, did
depose and say that he/she is a Vice President of BANKERS TRUST COMPANY, one of
the corporations described in and which executed the foregoing instrument; that
he/she knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by authority of the
Board of Directors of said corporation, and that he/she signed his/her name
thereto by like authority.
/s/ Marie B. Colaninno
---------------------------------------
Notary Public, Queens County
State of New York
My Commission Expires: 8/5/97
(Notarial Seal)
3
<PAGE>
NBD BANCORP, INC.
BENEFIT PROTECTION TRUST AGREEMENT
This TRUST AGREEMENT made this 30 day of August, 1993, by and between NBD
---
BANCORP, INC., a corporation duly organized and existing under the laws of the
State of Delaware and having its principal office and place of business at
Detroit, Michigan ("NBD"), and BANKERS TRUST COMPANY, a corporation duly
organized and existing under the laws of the State of New York and having its
principal office and place of business at New York, New York (the "Trustee").
WITNESSETH:
WHEREAS, NBD has adopted the nonqualified deferred compensation plans (the
"Plans") listed in Appendix A;
WHEREAS, NBD has incurred and expects to incur liability under the terms of
such Plans with respect to the individuals participating in such Plans;
WHEREAS, NBD wishes to establish a trust (hereinafter called the "Trust")
and to contribute to the Trust assets that shall be held therein, subject to the
claims of NBD's creditors in the event of NBD's Insolvency, as herein defined,
until paid to Plan participants and their beneficiaries in such manner and at
such times as specified in the Plans;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plans
as unfunded plans maintained for the purpose of providing deferred compensation
for a select group of management or highly compensated employees for purposes of
Title I of the Employee Retirement Income Security Act of 1974; and
WHEREAS, it is the intention of NBD to make contributions to the Trust to
provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plans;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
----------------------
(a) NBD hereby deposits with the Trustee in trust Ten Thousand Dollars
($10,000), which shall become the principal of the Trust to be held,
administered and disposed of by the Trustee as provided in this Trust Agreement.
4
<PAGE>
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which NBD is the
grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust and any earnings thereon shall be held
separate and apart from other funds of NBD and shall be used exclusively for the
uses and purposes of Plan participants and general creditors as herein set
forth. Plan participants and their beneficiaries shall have no preferred claim
on, or any beneficial ownership interest in, any assets of the Trust. Any rights
created under the Plans and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries against NBD. Any
assets held by the Trust will be subject to the claims of NBD's general
creditors under federal and state law in the event of insolvency, as defined in
Section 4(a) herein.
(e) NBD, in its sole discretion, may at any time or from time to time make
additional deposits of cash or other property in trust with the Trustee to
augment the principal, to be held, administered and disposed of by the Trustee
as provided in this Trust Agreement. Neither the Trustee nor any Plan
participant or beneficiary shall have any right to compel such additional
deposits.
(f) The Trustee accepts the Trust, and undertakes to hold, invest,
distribute and administer the Trust in accordance with the provisions of this
Agreement. If NBD fails to supply the Trustee with the amounts that are required
to satisfy the obligations of NBD under the Plans, the Trustee shall have no
duty to bring suit against NBD or otherwise to enforce payment by NBD of
sufficient funds to satisfy any remaining obligations of NBD under the Plans.
The Trustee shall be obligated to make payments to the Plan participants and
their beneficiaries only as directed by NBD and to the extent of Trust assets
actually received and held by the Trustee and after payment of and provision for
the expenses of Trust administration, including the reasonable compensation of
the Trustee.
Section 2. Authorities.
-----------
NBD shall file with the Trustee a certified list of the names and specimen
signatures of appropriate officers of NBD and any delegee authorized to act for
it. NBD shall promptly notify the Trustee of the addition or deletion of any
person's name to or from such list. Until receipt by the Trustee of notice that
any person is no longer authorized to so act, the Trustee may continue to rely
on the authority of the person. All certifications, notice and directions by any
such person or persons to the Trustee shall be in writing signed by such person
or persons. The Trustee may rely on any such certification, notice or direction
purporting to have been signed by or on behalf of such person or persons that
the Trustee believes to have been signed thereby. The Trustee may rely on any
certification, notice or direction of NBD that the Trustee believes to have been
signed by a duly authorized officer or agent of NBD. The Trustee shall have no
5
<PAGE>
responsibility for acting or not acting in reliance upon any notification
believed by the Trustee to have been so signed by a duly authorized officer or
agent of NBD. NBD shall be responsible for keeping accurate books and records
with respect to the employees of NBD, their compensation and their rights and
interests in the Trust under the Plan.
Section 3. Payments to Plan Participants and Their Beneficiaries.
-----------------------------------------------------
(a) NBD shall deliver to the Trustee a schedule (the "Payment Schedule")
that indicates the amounts payable in respect to each Plan participant (and his
or her beneficiaries), that provides a formula or other instructions acceptable
to the Trustee for determining the amounts so payable, the form in which such
amount is to be paid (as provided for or available under the Plans), and the
time of commencement for payment of such amounts. Except as otherwise provided
herein, the Trustee shall make payments to the Plan participants and their
beneficiaries in accordance with such Payment Schedule. The Trustee shall make
provisions for the reporting and withholding of any federal, state or local
taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plans and shall pay amounts withheld to
the appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by NBD.
(b) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plans shall be determined by NBD or such party as it shall
designate under the Plans, and any claim for such benefits shall be considered
and reviewed under the procedures set out in the Plans.
(c) NBD may make payment of benefits directly to Plan participants or their
beneficiaries as they become due under the terms of the Plans. NBD shall notify
the Trustee of its decision to make payment of benefits directly prior to the
time amounts are payable to participants or their beneficiaries. In addition, if
the principal of the Trust, and any earnings thereon, are not sufficient to make
payments of benefits in accordance with the terms of the Plans, NBD shall make
the balance of each such payment as it falls due. The Trustee shall notify NBD
where principal and earnings are not sufficient.
Section 4. Trustee Responsibility Regarding Payments to Trust Beneficiary When
-------------------------------------------------------------------
NBD Is Insolvent.
- ----------------
(a) The Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if NBD is insolvent. NBD shall be considered "Insolvent" for
purposes of this Trust Agreement if (i) NBD is unable to pay its debts as they
become due, or (ii) NBD is subject to a pending proceeding as a debtor under the
United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of NBD
6
<PAGE>
under federal and state law as set forth below.
(1) The Board of Directors and the Chairman and President of NBD shall have
the duty to inform the Trustee in writing of NBD's Insolvency. If a person
claiming to be a creditor of NBD alleges in writing to the Trustee that NBD has
become Insolvent, the Trustee shall determine whether NBD is Insolvent and,
pending such determination, the Trustee shall discontinue payment of benefits to
Plan participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of NBD's Insolvency, or has
received notice from NBD or a person claiming to be a creditor alleging that NBD
is Insolvent, the Trustee shall have no duty to inquire whether NBD is
Insolvent. The Trustee may in all events rely on such evidence concerning NBD's
solvency as may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning NBD's solvency.
(3) If at any time the Trustee has determined that NBD is Insolvent, the
Trustee shall discontinue payments to Plan participants or their beneficiaries
and shall hold the assets of the Trust for the benefit of NBD's general
creditors. Nothing in this Trust Agreement shall in any way diminish any rights
of Plan participants or their beneficiaries to pursue their rights as general
creditors of NBD with respect to benefits due under the Plans or otherwise.
(4) The Trustee shall resume the payment of benefits to Plan participants
or their beneficiaries in accordance with Section 3 of this Trust Agreement only
after the Trustee has determined that NBD is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plans for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by NBD in lieu of the payments provided for
hereunder during any such period of discontinuance.
Section 5. Payments to NBD.
---------------
Except as provided in Section 3 hereof, NBD shall have no right or power to
direct the Trustee to return to NBD or to divert to others any of the Trust
assets before all payments of benefits have been made to Plan participants and
their beneficiaries pursuant to the terms of the Plans.
Section 6. Investment Authority.
--------------------
(a) Subject to the provisions of paragraph (b) the Trustee shall, in its
sole discretion, invest and reinvest the Trust assets in any property, real or
personal, or part interest therein, wherever situated, including but without
being limited to, common and preferred stocks,
7
<PAGE>
personal, corporate and governmental obligations, trust and participation
certificates, leaseholds, mortgages and other interests in realty, notes and
other evidences of indebtedness or ownership, secured or unsecured, and
including specifically real property, stocks, securities, obligations and
interests of NBD and its affiliates. Such investments shall be limited to
investments that are rated in one of the two highest rating categories by a
nationally recognized rating agency. Such investments shall not be restricted to
property and securities of the character authorized for investment by trustees
under any present or future laws. All rights, privileges, options and elections
contained in any policies or contracts issued by insurance companies and
acquired pursuant to the foregoing shall vest in the Trustee and shall be
exercised, assigned, or otherwise disposed of in its discretion. Without
liability for interest, the Trustee may keep a portion of the Trust assets
uninvested and may deposit any uninvested assets with itself or other banks. The
Trustee is further authorized and empowered in its sole discretion to invest and
reinvest all or any part of the Trust assets through the medium of any common,
collective or commingled trust fund, including those operated and maintained by
the Trustee, as the same may have heretofore been or may hereafter be
established or amended, subject to all of the terms of the declaration of trust
pursuant to which such trust fund was established.
(b) Subject to the provisions of paragraph (a) hereof, and in furtherance
and not in limitation of the Trustee's investment authority, the Trustee shall
have full power and authority to deal with all or any part of the Trust assets,
including, without limitation, the power to invest, reinvest, and change
investments; to acquire any property by purchase, subscription, lease, or other
means; to sell for cash or on credit, convey, lease for long and short terms, or
convert, redeem or exchange, all or any part of the Trust assets; to borrow, and
to pledge as security for such borrowings all or any part of the Trust assets;
to make loans with or without security; to improve, repair and develop real
property; to enforce, by suit or otherwise, or to waive its rights on behalf of
the Trust assets, and to defend claims asserted against it or Trust assets; to
compromise, adjust and settle any and all claims against or in favor of it or
the Trust assets other than claims for benefits by Plan participants or their
beneficiaries; to renew, extend or foreclose any mortgage or other security; to
bid on property in foreclosure; to take deeds in lieu of foreclosure, with or
without paying a consideration therefor; to vote, or give proxies to vote, any
stock or other security, and to waive notice of meetings; to oppose, participate
in and consent to the reorganization, merger, consolidation, or readjustment of
the finances of any enterprise, to pay assessments and expenses in connection
therewith, and to deposit securities under deposit agreements; to hold
securities unregistered, or to register them in its own name or in the names of
nominees; and to cause any investment to be registered and held in the name of
one or more nominees of any system for central handling of securities; to form
corporations and to create trusts to hold title to any securities or other
property, all upon such terms and conditions as may be deemed advisable; to
make, execute, acknowledge and deliver any and all instruments that it shall
deem necessary or appropriate to carry out the powers herein granted; and
generally to exercise any of the powers of an owner with respect to all or any
part of the Trust. No persons dealing with the Trustee shall be bound to see to
the application of any money or property paid or delivered to the Trustee or to
inquire into the validity or propriety of any transaction.
8
<PAGE>
(c) NBD may direct the Trustee to transfer assets to an insurance company
to provide an alternative or additional funding medium or investment vehicle for
the management and control of Plan assets. If the Trustee agrees to hold any
insurance contract as an asset of the Trust at the request of NBD, the Trustee
shall not have any responsibility for the selection of the issuer and/or for
terms of the contract, or for performing any functions under any insurance
contract that it may be directed to purchase and hold as contractholder other
than the execution of any documents and the transfer of payments of any funds
incidental thereto on the directions of NBD.
Section 7. Disposition of Income.
---------------------
(a) During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 8. Accounting by the Trustee.
-------------------------
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between NBD
and the Trustee. Within ninety (90) days following the close of each calendar
year and within ninety (90) days after the removal or resignation of the
Trustee, the Trustee shall deliver to NBD a written account of its
administration of the Trust during such year, or during the period from the
close of the last preceding year to the date of such removal or resignation,
setting forth all investments, receipts, disbursements and other transactions
effected by it, including a description of all securities and investments
purchased and sold, with the cost or net proceeds of such purchases or sales
(accrued interest paid or receivable being shown separately), and showing all
cash, securities and other property held in the Trust at the end of such year or
as of the date of such removal or resignation, as the case may be. In the
absence of the filing in writing with the Trustee by NBD of exceptions or
objections to any such accounting within ninety (90) days, NBD shall be deemed
to have approved such accounting, and in such case or upon the written approval
of NBD of any such accounting, the Trustee shall be released, relieved and
discharged with respect to all matters and things disclosed in such accounting
as though such accounting had been settled by the decree of a court of competent
jurisdiction. NBD or the Trustee may nevertheless require judicial settlement of
the accounts of the Trustee.
Section 9. Responsibility of the Trustee.
-----------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by NBD that is contemplated by, and in
conformity with, the terms of the Plans or this Trust and is given in writing by
NBD. In the event of a dispute between NBD and a party, the Trustee may apply to
a court of competent jurisdiction to resolve the dispute.
9
<PAGE>
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, NBD agrees to indemnify the Trustee against the
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If NBD does not pay such costs, expenses and liabilities in a
reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with counsel who may be counsel for NBD or for
the Trustee in its individual capacity, and the Trustee shall not be deemed
imprudent by reason of its taking or refraining from taking any action in
accordance with the opinion of counsel. The Trustee shall be liable only for its
own imprudence, negligence or willful misconduct in carrying out or in failing
to carry out its duties and responsibilities under the terms of this Agreement.
The Trustee shall be fully protected in relying upon the directions of NBD
issued in accordance with this Agreement and shall be under no duty to inquire
into the validity or propriety of any such direction. The Trustee shall not be
required to give any bond or any other security for the faithful performance of
its duties under this Agreement, except such as may be required by a law that
prohibits the waiver thereof.
(d) The Trustee shall be entitled, as it may deem appropriate from time to
time, to require of NBD, any of its affiliates, or any other person involved in
the administration of the Plans or investment of the Trust assets, or having any
interest under the Plans or in, to, or under this Agreement or to the Trust
assets held hereunder, such certificates and proofs of facts as shall permit the
Trustee to exercise the powers granted the Trustee under this Agreement.
(e) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(f) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(g) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 10. Trustee Compensation, Trustee Expenses and Taxes.
------------------------------------------------
(a) The Trustee shall be paid by NBD such reasonable compensation as shall
from time to time be agreed upon, in writing, by NBD and the Trustee. Such
compensation of the Trustee
10
<PAGE>
and reasonable and proper expenses of administration of the Trust, including
counsel fees, shall be withdrawn by the Trustee out of the Trust assets unless
paid by NBD, but such expenses shall be paid by NBD if the same cannot be
withdrawn from the Trust.
(b) NBD shall pay all federal, state and local income taxes or other taxes
of any and all kinds levied or assessed under existing or future laws against
the Trust, except to the extent applicable law requires that such taxes be paid
directly out of the Trust. NBD shall indemnify and reimburse the Trust for all
taxes paid by the Trust, including, to the extent permitted by law, any
applicable penalties and interest.
Section 11. Resignation and Removal of the Trustee.
--------------------------------------
(a) The Trustee may resign at any time by written notice to NBD, which
shall be effective sixty (60) days after receipt of such notice unless NBD and
the Trustee agree otherwise.
(b) The Trustee may be removed by NBD on sixty (60) days' written notice or
upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor trustee, all assets shall subsequently be transferred to the successor
trustee. The transfer shall be completed within ninety (90) days after receipt
of notice of resignation, removal or transfer, unless NBD extends the time
limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 12 hereof, by the effective date of resignation or
removal under paragraph (a) or (b) of this section. If no such appointment has
been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with such proceeding shall be allowed as administrative expenses of
the Trust.
Section 12. Appointment of Successor.
------------------------
(a) If the Trustee resigns or is removed in accordance with Section 11(a)
or (b) hereof, NBD may appoint any third party, such as a bank trust department
or other party that may be granted corporate trustee powers under state law (but
which shall not be NBD or any corporation affiliated with NBD), as a successor
to replace the Trustee upon resignation or removal. The appointment shall be
effective when accepted in writing by the new trustee, who shall have all of the
rights and powers of the former Trustee, including ownership rights in the Trust
assets. The former Trustee shall execute any instrument necessary or reasonably
requested by NBD or the successor trustee to evidence the transfer.
(b) The successor trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor
11
<PAGE>
trustee shall not be responsible for and NBD shall indemnify and defend the
successor trustee from any claim or liability resulting from any action or
inaction of any prior Trustee or from any other past event or any condition
existing at the time it becomes successor trustee.
Section 13. Amendment or Termination.
------------------------
(a) This Trust Agreement may be amended by a written instrument executed by
the Trustee and NBD. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Plans or shall make the Trust revocable.
(b) The Trust shall not terminate until the earlier of the date on which
Plan participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plans or the date the assets of the Trust have been
depleted. Upon termination of the Trust any assets remaining in the Trust shall
be returned to NBD.
(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plans, NBD may terminate this
Trust prior to the time all benefit payments under the Plans have been made. All
assets in the Trust at termination shall be returned to NBD.
Section 14. Miscellaneous.
-------------
(a) No person shall have any right title, or interest in or to any of the
assets of the Trust or in or to any contribution thereto, except as otherwise
provided herein.
(b) If a person entitled to benefits hereunder is deceased or is unable to
manage his or her affairs for any reason, the Trustee shall, upon the direction
of NBD, distribute any benefit payable to such person to his or her duly-
appointed legal representative, if there be one, and if not, to the spouse,
parents, children, or other relatives or dependents of such person as NBD in its
discretion may determine. Any payment so made shall be a complete discharge of
all liability with respect to such benefits.
(c) NBD shall enforce this Agreement on behalf of participants and
beneficiaries, to the extent of their rights hereunder and interests herein.
(d) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(e) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
12
<PAGE>
(f) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(g) Any corporation resulting from any merger or consolidation to which the
Trustee may be a party or succeeding to the trust business of the Trustee or to
which substantially all the trust assets of the Trustee may be transferred shall
be the successor to the Trustee hereunder without further act or formality with
like effect as if such successor trustee had originally been named trustee
herein; and in any such event it shall not be necessary for the Trustee or any
successor trustee to give notice thereof to any person, and any requirement,
statutory or otherwise, that notice shall be given is hereby waived.
(h) Except to the extent otherwise provided by law, necessary parties to
any accounting, litigation or other proceeding shall include only the Trustee
and NBD, and the settlement or judgment in any such case in which NBD is duly
served or cited shall be binding upon the participants and beneficiaries, and
upon any person claiming under them or claiming to represent them or any of
them.
(i) This Agreement shall be binding upon the parties and upon their
successors and assigns. This Agreement shall be binding upon and inure to the
benefit of any successor to NBD or its business as the result of merger,
consolidation, reorganization, transfer of assets or otherwise and any
subsequent successor thereto. In the event of any such merger, consolidation,
reorganization, transfer of assets or other similar transaction, the successor
to NBD or its business or any subsequent successor thereto shall promptly notify
the Trustee in writing of its successorship and furnish the Trustee with the
information specified in Section 3 of this Agreement. In no event shall any such
transaction described herein suspend or delay the rights of Plan participants or
the beneficiaries of deceased participants to receive benefits hereunder.
(j) This Agreement may be executed in any number of counterparts, each of
which shall be an original, and all of which together shall constitute one and
the same instrument.
Section 15. Effective Date.
--------------
The effective dale of this Trust Agreement shall be August 30, 1993.
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed on the 31st day of
August, 1993, by NBD BANCORP, INC., as Grantor, and on the 13th day of
September, 1993, by BANKERS TRUST COMPANY, as Trustee, and their respective
corporate seals affixed and attested by officers hereunto duly authorized.
ATTEST: NBD BANCORP, INC.
By: /s/ Allan O. Helland By: /s/ Fred J. Johns
------------------------------- --------------------------------
Allan O. Helland Fred J. Johns
Its FirstVice President Its Senior Vice President
(Corporate Seal)
ATTEST: BANKERS TRUST COMPANY, Trustee
By: /s/ Marie B. Colaninno By: /s/ Robert Karsch
------------------------------- --------------------------------
Marie B. Colaninno Robert Karsch
Its Vice President Its Vice President
(Corporate Seal)
STATE OF MICHIGAN)
) SS.
COUNTY OF WAYNE )
On this 31st day of August, 1993, before me, a notary public in and for said
County, personally appeared FRED J. JOHNS, who, being by me duly sworn, did
depose and say that he is a senior vice president of NBD BANCORP, INC., one of
the corporations described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
/s/ Sharon D. Szczepankowski
------------------------------------
Notary Public, Wayne County
State of Michigan
My Commission Expires 2/12/97
(Notarial Seal)
14
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY Of NEW YORK)
On this 13th day of September, 1993, before me, a notary public in and for
said County, personally appeared ROBERT KARSCH, who, being by me duly sworn, did
depose and say that he is a vice president of BANKERS TRUST COMPANY, one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
/s/ Allison O. Taylor
--------------------------------------
Notary Public, New York County
State of New York
My Commission Expires 2/22/95
(Notarial Seal)
15
<PAGE>
Appendix A
Plans Covered under NBD Bancorp, Inc.
Benefit Protection Trust Agreement
----------------------------------
1. NBD Bancorp, Inc. Pension Restoration/Supplemental Plan
2. Incentive compensation payments deferred at the option of participants under
the NBD Bancorp, Inc. Executive Incentive Plan.
16
<PAGE>
EXHIBIT 12
STATEMENTS RE COMPUTATION OF RATIOS
The ratios of income to fixed charges have been computed on the basis of
the total enterprise (as defined by the Commission) by dividing income before
fixed charges and income taxes by fixed charges. Fixed charges consist of
interest expense on all long-term and short-term borrowings, excluding or
including interest on deposits as indicated. The computations of other ratios
are evident from the information presented in this Form 10-K.
<PAGE>
EXHIBIT 21
FIRST CHICAGO NBD CORPORATION SUBSIDIARIES
As of March 1, 1997, the Corporation had the subsidiaries listed below, all
of which were wholly-owned except for directors' qualifying shares or as
otherwise indicated. The consolidated financial statements of the Corporation
include the accounts of all such subsidiaries.
Jurisdiction of
Names of Corporation and Subsidiaries Organization
- ------------------------------------- ---------------
First Chicago NBD Corporation Delaware
Subsidiaries:
American National Bank and Trust Company United States
of Chicago
ANB Mezzanine Corporation Delaware
FCC National Bank United States
First Card Services, Inc. Delaware
First Chicago Financial Corporation Delaware
Subsidiaries:
First Chicago Capital Corporation Delaware
First Chicago Capital Markets, Inc. Delaware
First Chicago Equity Corporation Illinois
First Chicago Hedging Services Corporation Delaware
First Chicago Investment Corporation Delaware
First Chicago Leasing Corporation Delaware
First Chicago NBD Mortgage Company Delaware
First Chicago Trust Company of New York New York
The First National Bank of Chicago United States
Subsidiaries:
First Chicago Building Corporation Illinois
First Chicago Delaware Inc. Delaware
First Chicago Futures, Inc. Delaware
First Chicago Insurance Services, Inc. Illinois
First Chicago International United States
First Chicago International Finance Corporation United States
First Chicago NBD Bank, Canada Canada
<PAGE>
First Chicago NBD Investment Management Company Delaware
Subsidiary:
ANB Investment Management and
Trust Company Illinois
First Chicago NBD Investment Services, Inc. Delaware
First Chicago National Processing Corporation Delaware
First Chicago Neighborhood Development Delaware
Corporation
National Bank of Detroit-Dearborn United States
NBD Bank (Detroit, Michigan) Michigan
Subsidiaries:
NBD Equipment Finance, Inc. Delaware
NBD Insurance Services, Inc. Michigan
NBD Bank (Venice, Florida) Florida
NBD Bank, National Association (Fox River Grove,
Illinois) United States
NBD Community Development Corporation Michigan
NBD Indiana, Inc. Delaware
Subsidiaries:
First Chicago NBD Real Estate Services, Inc. Indiana
NBD Bank (Elkhart, Indiana) Indiana
NBD Bank, National Association (Indianapolis,
Indiana) United States
NBD Neighborhood Revitalization Corporation Indiana
NBD Insurance Agency, Inc. Michigan
NBD Insurance Company Arizona
NBD Service Corp. Delaware
The names of certain other subsidiaries of the Corporation have been
omitted because such subsidiaries, considered in the aggregate, would not
constitute a significant subsidiary.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To First Chicago NBD Corporation:
As independent public accountants, we hereby consent to the incorporation
of our report dated January 15, 1997, included in this Form 10-K, into the
Corporation's previously filed Form S-8 Registration Statement No. 33-62713,
Form S-3 Registration Statement No. 33-64755, Form S-3 Registration Statement
No. 33-65431, Form S-8 Registration Statement No. 33-21036, Form S-8
Registration Statement No. 33-48773, Form S-8 Registration Statement No. 33-
46906, Form S-8 Registration Statement No. 33-50300, Form S-8 Registration
Statement No. 33-53928, Form S-3 Registration Statement No. 33-60788, Form S-8
Registration Statement No. 33-17494, Form S-8 Registration Statement No. 333-
03175, Form S-3 Registration Statement No. 333-08903, Form S-8 Registration
Statement No. 333-05349, Form S-8 Registration Statement No. 333-05347, Form S-8
Registration Statement No. 333-05375, Form S-3 Registration Statement No. 333-
15649, and Form S-8 Registration Statement No. 333-16369.
/s/ Arthur Andersen LLP
Chicago, Illinois,
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10K for
the period ended December 31, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,823
<INT-BEARING-DEPOSITS> 5,474
<FED-FUNDS-SOLD> 4,197
<TRADING-ASSETS> 4,812
<INVESTMENTS-HELD-FOR-SALE> 7,178
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 66,414
<ALLOWANCE> 1,407
<TOTAL-ASSETS> 104,619
<DEPOSITS> 63,669
<SHORT-TERM> 15,431
<LIABILITIES-OTHER> 7,481
<LONG-TERM> 8,454
<COMMON> 320
0
444
<OTHER-SE> 8,243<F1>
<TOTAL-LIABILITIES-AND-EQUITY> 104,619
<INTEREST-LOAN> 5,745
<INTEREST-INVEST> 457
<INTEREST-OTHER> 1,367
<INTEREST-TOTAL> 7,569
<INTEREST-DEPOSIT> 2,175
<INTEREST-EXPENSE> 3,949
<INTEREST-INCOME-NET> 3,620
<LOAN-LOSSES> 735
<SECURITIES-GAINS> 27<F2>
<EXPENSE-OTHER> 3,271<F3>
<INCOME-PRETAX> 2,162
<INCOME-PRE-EXTRAORDINARY> 1,436
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,436
<EPS-PRIMARY> 4.39
<EPS-DILUTED> 4.32
<YIELD-ACTUAL> 3.83
<LOANS-NON> 262
<LOANS-PAST> 268
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,338
<CHARGE-OFFS> 815
<RECOVERIES> 145
<ALLOWANCE-CLOSE> 1,407
<ALLOWANCE-DOMESTIC> 1,341
<ALLOWANCE-FOREIGN> 66
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Treasury stock of $326 million is included as a reduction of other
Stockholder's equity.
<F2> Investment securities gains/losses do not include the Corporation's equity
securities gains which totaled $255 million.
<F3> Other expense includes: Salaries and employee benefits of $1,707 million,
Occupancy of $259 million, Equipment rentals, depreciation and maintenance
of $227 million, amortization of intangible assets of $79 million, and
other expenses which totaled $999 million.
</FN>
</TABLE>
